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Under Outback Steakhouse's plan, its highest-paid executives pay the highest premiums and lower-paid workers pay less.
By KRIS HUNDLEY, Times Staff Writer
© St. Petersburg Times, published February 27, 2002
TAMPA -- Bob Merritt, chief financial officer of Outback Steakhouse Inc., flinches when the term "socialism" is applied to his company's health plan. This is, after all, the restaurant chain that's given more than $1-million over the past few years to largely Republican political candidates and causes.
But how else would you describe a benefit package in which the highest-paid executives pay the highest premiums and lower-paid workers pay less?
"Some people would say it's socialistic," said Merritt, whose Tampa company operates seven restaurant chains with 675 company-owned locations worldwide. "But it's really the only way we could find to cover our people."
Outback's people include a handful of wealthy executives, a layer of highly paid managers and thousands of minimum-wage waiters, waitresses and kitchen help who usually have little access to affordable health insurance. According to the National Restaurant Association, only 45 percent of restaurants offer group insurance to their hourly workers.
To make health insurance affordable for their front-line employees, Outback's top officials decided five years ago to move to a sliding scale for premium payments.
About 10 of the highest ranking executives -- including chief executive Chris Sullivan and chief operating officer Bob Basham, who each had pay of $430,500 in 2000 -- contribute more than the actual premium cost. Another 2,000 managers pay the full premium amount. Front-line restaurant workers who opt for a $1,000 deductible pay just 29 percent of the premium cost. If they want a $500 deductible, they pay 41 percent of the premium.
Although such rates require a substantial company subsidy, the higher rates at the top make a contribution as well.
Merritt declined to disclose the monthly premium for Outback's plan, which is a PPO model with a broad network of doctors and a prescription plan. But Dick Klima, senior vice president of benefits specialist Aon Consulting in Tampa, said premiums for similar plans range from $225 to $300 a month.
Klima, whose company advises about 350 companies of all sizes on benefit plans, said Outback's approach is unique.
"None of our current clients have such a plan," he said. "At least not yet."
Klima said some companies have tried linking deductibles to salary levels, with higher income executives paying more out of pocket for health care. But those experiments have been short-lived, he said, because they become administrative nightmares.
"It's very difficult for the plan administrator to track the multiple deductibles," he said. "It almost becomes an individual plan for each person."
Though Klima said Outback's model of scaled premium payments might be easier to administer, there could be other obstacles.
"There would be issues of how you communicate it and whether people feel it's fair," he said. "Then there are questions of whether it accomplishes the objectives the employer is looking for."
Outback's Merritt said that is exactly why the chain developed the plan, which covers about 13,700 of the company's 50,000 employees. Outback's plan is self-insured and administered through Cigna Healthcare. A reinsurance policy protects the company from catastrophic loss.
"We think the whole health insurance thing is upside down," Merritt said. "People ought to be responsible for their own daily health care and employers should be responsible for the safety net. If you're a smoker, drinker and don't exercise, why should I pay for your bad habits?"
Merritt said Outback's top executives also were uncomfortable with the situation in many corporations, where the highest paid staffers get the best insurance benefits.
"It just didn't make sense that the more money you made, the better insurance you should get," Merritt said. "We think if you're paid more, you should take more risk."
There was one other factor that pushed Outback to get creative with its health benefits: its executives' horror at the Clinton administration's proposal for national health care.
"If we'd had a full-bore rollout of Clinton health care, it would have cost us more per person than we make," Merritt said. "It would have bankrupted a lot of service companies."
Even though Outback has been able to soften the premium blow for its lowest-paid workers, it hasn't been able to avoid the double-digit rate increases experienced by more traditional benefit packages. Merritt said that after a few years of stable pricing, Outback's premiums increased 17 percent in 2002. And he's sure he knows who's at fault.
"The principle reason for the explosion in health insurance costs is government-mandated benefits," Merritt said. "The No. 1 thing we paid out is pregnancy, and when the government comes in and adds an extra day on maternity stays, health care costs go up."
-- Kris Hundley can be reached at hundley@sptimes.com or (727) 892-2996.