WHEN SCHLOTZSKY'S ADVERTISES for crew-level openings these days, it offers the usual enticements: flexible hours, meal discounts, the chance for a promotion to manager. But now the sandwich chain dangles something else to prospective employees: health insurance.

Earlier this year, Schlotzsky's began offering medical coverage to the 300 employees working at the chain's 22 company-owned restaurants. Schlotzsky's, which is picking up the entire cost of the monthly premiums, estimates the annual bill to the company at $170,000. It is Schlotzsky's first experiment in offering medical care to its hourly workers as it seeks to boost employee retention by 25%.

"It is part of our spiel about the company and its benefits program," says Alice Klepac, human resources director at the chain. "We want to set ourselves apart from everyone else."

These days, that might not be as easy as it sounds. Health-care coverage-a traditionally rare perk in the industry-is increasingly being handed out by chains nationwide. Schlotzsky's, like many chains, is moving health insurante down from the ranks of corporate executives to those who wear name tags and make, $6 an hour. Quite simply, they and others have no choice.

Buffeted by a booming economy and a shrinking labor pool that is starting to demand better working conditions, restaurants are making a range of healthcare plans available to their hourly workers. And those that have long offered health coverage are tinkering with their policies in an effort to attract more employees and retain the ones they have.

Although reliable research on this topic is spotty, one study last year showed that a surprisingly high number of restaurant companies are offering health insurance. The People Report, a Dallas-based human resources benchmarking firm, surveyed 48 foodservice companies and found that 9196 currently offer health insurance to their hourly workers. The sampling, however, was heavily skewed toward casual-dining chains. In an earlier study across all segments, the National Restaurant Association found that 45% of operators offer the benefit.

Moreover, on average, employees pick up most of the tab for their coverage. As senior analyst Barry Gabrielson puts it: "The devil's in the details."

Are more and more restaurant companies moving toward offering benefits-or better benefits,-to their workers? "We believe that's the case," Gabrielson says. The People Report didn't have earlier results as a basis of comparison, but the number of chains that have moved to insure their workers was "higher than we expected," Gabrielson says.

THE RATIONALE for operators is easy enough to see. "If everyone's paying the same wage, the only way you can compete is on the basis of benefits," says Linda Lipsky, principal of Broomall, PA-based Linda Lipsky Restaurant Consultants. "It helps to reduce turnover." Bill Lacey, principal of Benefit Partners, a Dallas-based benefits consulting firm, estimates that heightened interest in health insurance by restaurants and retailers has prompted the creation of 10 new medical plans in the last year by national insurance providers. "There used to be just one or two," he says. "Everyone's coming out with these plans."

Sonic Corp. introduced health insurance to its 4,000 employees last summer after carefully testing the initiative in three Southeastern markets, in much the same way that it would testmarket a new burger. Perkins refined its health-insurance plan last summer, introducing three-tiered coverage in an effort to keep part-time workers and reward those who stay with the company for two years.

The movement toward offering health insurance is nowhere near universal in the restaurant industry, however. With health costs constantly rising, many chains say they still can't afford insurance, and independents find they can't take advantage of large employee pools that generate substantial discounts. Restaurant execs also shudder at such regulatory requirements as COBRA in an industry where turnover routinely exceeds 100% annually. As a result, they often don't offer coverage or are cutting back on existing plans.

But the fact that more and more restaurants are looking at providing medical coverage is surprising, to say the least. And more than a bit ironic. Six years ago, when President Clinton wanted to force employers to offer health insurance to their workers, it was the restaurant industry that held all-night strategy sessions on ways to kill the plan. Ultimately, the National Restaurant Association mobilized its big guns, walked into the Oval Office and spilled a tray full of chili right on the President's figurative lap. Restaurant executives weren't just against mandatory insurance; they painted the issue in life-and-death terms.

"It is ironic," says Michael Mindel, VP of marketing for Il Fornaio, the San Franciscobased dinnerhouse and bakery chain. "But I'm sympathetic to an operator who has a lot of turnover. They're providing entry-level jobs, they're getting hammered on so many levels, with workers compensation, etc. I'm sympathetic to cries of `enough government regulation."'

BUT IF restaurant companies complained before that compulsory healthcare would completely crush them, how is it they're affording it now? For one thing, many are only picking up part of the tab. According to the People Report survey, the average hourly worker receiving benefits pays 59%0 of the cost of his coverage.

It also bears mentioning that while more restaurant companies are offering coverage, it's coverage on their own terms. One company's insurance does not equal another's, not by a long shot. Some companies, including Starbucks and II Fornaio, provide a generous plan that closely mirrors what one might expect working in the corporate world. And then there are, well, the other plans.

Sonic, for instance, offers a product called the Starbridge plan, which is one brand name among several circulating through the industry. Although the names are different, the coverage parameters are quite similar. Starbridge offers employees $10 visits to the doctor's office, a $25,000 accidental-death benefit, $10,000 in coverage for in-patient hospital stays, and a yearly cap of $ 1,000 on doctor visits. In other words, a year's medical coverage could be exhausted by one good bout with pneumonia.

It may be the Yugo of health-insurance plans, but the cost can't be beat: around $28 a month for one person, $62 for two. "An individual could not go out and get these rates on his own," says Jill Hudson, VP of human resources and corporate administration at Sonic. "They'd be looking at around $300 a month for coverage."

Burger King, McDonald's and Hardee's have offered similar bare-bones coverage to their hourly employees for some time. Perhaps not surprisingly, it was Hudson, a former McDonald's exec, who helped get the program instituted at Sonic.

"It was my idea in conjunction with our finding ways of reducing turnover in areas where it was extremely high," she says. Those areas constituted much of the Southeast, where Sonic's turnover averaged more than 200% annually. The test was rolled out last year in Oklahoma City, Lexington/Louisville, KY, and in Louisiana, Alabama and Florida. It lasted for tour months before the program was introduced nationally.

Although conventional wisdom holds that younger employees don't care as much about health insurance as older workers, Sonic's research found otherwise. Its average employee is 21 years old and female. A surprisingly large number are single moms. These are employees who have likely fallen off their parents' policies and aren't in college. "They were falling between the cracks," Hudson says, and had children to think of.

Schlotzsky's plan is almost identical to Sonic's, with one big exception: Schlotzsky's picks up the $170,000 cost, whereas Sonic passes it on to employees. While it eats the cost, Schlotzsky's says that there are advantages.

"It's made a significant difference in the morale of our employees," says Klepac of Schlotzsky's. "They're now sending their friends over to work for us. We have part-time employees who are asking for more hours."

Perkins, meanwhile, reconfigured its health plan last July, essentially creating three tiers of coverage: a bare-bones plan, a middle-level policy that offers $5,000 a year in doctor visits, and a top-tier product offered to those who work 35 hours or more per week and have two years' service with the company. In that plan, Perkins picks up 80% of the premium and participants are eligible for up to $1 million in coverage.

Before going with the three-tiered approach, Perkins simply offered the high-end policy to everyone who completed a 60-day trial period. But participation was low and costs kept rising, says Mark Hopkins, director of benefits and systems. "We had to look at things a little differently; we had to find programs that were affordable for people who didn't use it as much," he says. "But we also wanted to reward people. We're staggering benefits for people in various stages of their careers."

At the same time, one of Perkins' franchisees, Colorado-based Vista Restaurants, has found that it cannot yet join the health-insurance bandwagon. The 12-unit chain experimented briefly with health coverage back in 1989, and scuttled it after just one year. The issue was cost, which was the result of low employee participation, says Robert Schmidt, VP at Vista. Only 30 employees out of 500 signed up for the plan, which didn't allow for much of a volume discount.

Since then, "nothing has changed," Schmidt says. "The cost of insurance has gone up. You're looking at $225 a month to cover an individual." Schmidt says he has looked at the Starbridge plan, but concluded that it's not such a great deal. "You're paying $600 a year for $1,000 worth of coverage. It's basically no coverage. Companies would be better off saying `We'll pay the first $1,000 of your medical bills.'"

ESCALATING COSTS are also putting pressure on independents. At Ponzio's diner in Cherry Hill, NJ, full-time employees used to receive a premium health-insurance plan fully paid for by the company. But last year, that all changed. Now Ponzio's picks up 25% of the premium and passes the rest to employees. Ponzio's is saving $4,000.5,000 a month as a result, says Carol Cardone, company comptroller.

"Some [employees] can't afford it," says Cardone. "Some had to drop [coverage]. We try to work with them. Some people left because they needed their health insurance paid for. They went to union places or chains." The changes in health coverage have made it tougher for the company to attract new employees. "We can't compete with chains," Cardone says. "We're one of a very few diner-type restaurants in our area that offer health insurance. It helped us get and keep good help."

That essential conflict, between attracting good workers and cost, is not likely to go away any> time soon. Then there's the looming shadow of government. In a presidential election year, restaurant operators could well see employer mandates resurface as an issue. And, if so, it remains to be seen whether the restaurant industry will showcase its more generous stance toward healthcare as proof that top-down reform isn't needed.

Lacey, of Benefit Partners, isn't so sure. "I think [restaurants' voluntary coverage] will hold the government off for a while," he says, "but after awhile you'll simply have to provide better benefits."

Reproduced with permission of the copyright owner