A restaurant in Atlanta took some heat on social media for adding a 4% health insurance surcharge to customers’ bills, but it wasn’t the first and likely won’t be the last.
Restaurant owner Emily Chan told CNN that the fee covered almost all health insurance costs for employees. “We feel like there’s a pretty huge crisis going on with health insurance,” she told the news outlet. “No one can afford it.”
Indeed, one employee said he simply went without health insurance the year before he started working at the restaurant.
But restaurant owners adding extra fees for employee health insurance is not new. Early last year, a patron of a Los Angeles restaurant went viral for pointing out a 5% surcharge on her bill for “employee health.” Commenters were outraged that a restaurant would expect customers to cover employee health insurance, according to a Today.com report.
Such fees became more popular during the pandemic, along with so-called COVID-19 fees, which were reportedly intended to cover the cost of personal protective equipment and other pandemic precautions, according to another Today.com report.
But restaurants started tacking on extra fees to cover health insurance costs as early as 2008, according to the New York Times. Those fees were reportedly a response to a new San Francisco ordinance requiring businesses with more than 20 employees to cover some healthcare coverage costs. Notably, the Affordable Care Act — passed in 2010 — set the national requirement for providing health insurance benefits at 50 employees.
Similar stories have appeared over the years, as the practice appears to be spreading even in the face of complaints from customers.
Still, only 32% of people working in food services had health insurance benefits through work, according to 2023 data from the the U.S. Bureau of Labor Statistics (BLS). This represented a decline from 35% of food services workers in both 2019 and 2020.
Matthew Notowidigdo, MEng, PhD, of the University of Chicago Booth School of Business, told MedPage Today these fees are likely the result of a tighter labor market in the restaurant industry that has emerged during the aftermath of the COVID-19 pandemic.
“There’s an ongoing labor shortage, particularly in that sector, and as a result you’ve got to pay your workers more,” he said. “Many restaurants have chosen this, rather than choosing to raise their prices on the menu.”
“I think what you’re seeing is this restaurant has figured out that there’s a way to raise prices without a lot of consumers noticing,” Notowidigdo added. “The risky part about that strategy is that every once in a while some consumer does notice, and they get really upset.”
Notowidigdo noted that customers tend to get upset with these fees because they are not salient with the expected cost for those services.
He noted the claims that the fees are intended for employee health insurance benefits is most likely an effort to make the charges appear less objectionable, adding “we’re recovering from a pandemic. … Why would you not want to pay them a little bit more so they can afford health insurance?”
He said these kinds of fees will likely continue to appear on restaurant bills as owners attempt to adjust to a unique hiring environment in the restaurant industry.
“In the last couple of years, low-wage workers across the low-wage labor market have been doing well,” Notowidigdo said. “They’ve been getting pay increases, and that’s made it challenging for employers of low-wage workers to compete.”