You may be hearing stories in the news about businesses who are trying to find ways to avoid having to cover healthcare costs for their workers. This includes cutting hours below fewer than 30 hours a week, cutting staff or simply not hiring any more employees, but those decisions by employers have costs as well and they know it. So far I’ve heard about Applebees, Papa Johns, Jimmy Johns, Darden Restaurants – owners of Red Lobster and Olive Garden among a few. But all of those are LARGE corporations and their franchisees must have deep pockets to even own a franchise if it’s not a corporate owned property; Obamacare will actually give smaller businesses a leg up to be competitive with the larger and better known corporations.
What we are going to see is loud, virulent pouting by millionaires; I like to think of Obamacare as “The Great Equalizer”. Remember – there are tens of millions of people who are working for slave wages living paycheck to paycheck and unable to afford basic healthcare service available to the rest of the industrialized world. If a business has 50 employees – it can afford to pay for the basic coverage for its employees. If it chooses not to – it will pay a penalty that frankly will cost more than the business’ costs to cover their employees. This basic coverage isn’t going to rock your socks; it’s just basic coverage.
Now under Obamacare – if a business has less than 50 employees – it is completely exempt; that’s the vast majority of “small businesses”. So – most “small businesses” will have no negative impact on them. NONE. ZERO. ZILCH. That’s 96% of American employers. But – instead of penalties – small businesses will receive tax credits (to make insurance cheaper for them if they carry it) and most importantly – these small businesses will now be able to participate in the healthcare exchanges.
These healthcare exchanges are important because unlike the market before Obamacare individuals and small businesses will be able to shop online to get the best deal that’s out there; this is something large corporations are able to negotiate costs on due to their size. Presently – buying insurance for a small business is like buying a car. Maybe you got a good deal; maybe you didn’t. You really don’t know because there’s zero transparency but lots of smoke and mirrors. But in addition to the lack of transparency – now small businesses will be able to buy together instead of buying individually. Ask a small business owner if they can afford health insurance on the open market for 5 employees … they’ll laugh at you. Buying health insurance will be like buying a plane ticket on Priceline.com and this will force health insurers to compete on price; that’s how free markets are SUPPOSED to work. It’s good for business but bad for the insurance industry.
Now – for those companies with more than 50 employees … some say that this will lead companies to just cut their employees’ hours to less than 30 hours a week since any employee getting more than 30 hours a week will be required to be covered under the law. And some companies are testing this right now to see if it pans out. But I’m very optimistic in this regard. My own personal experience of hiring and managing entry level employees tells me without question that the companies that start to cut their worker’s hours will start to lose their best people. It will be a downward spiral.
The CEO at Papa Johns – John Schnatter – the smiling face you see on commercials has said he’s looking to move towards a part time workforce now that Obamacare will increase the cost of a Papa Johns pizza by .11 to .14 cents per pizza (source). WHOA. Think about that. Most people don’t realize the actual cost of a pizza is around $1.25 for a large pepperoni pizza. That’s how much it costs a company like Pizza Hut or Papa Johns (I happen to know this because someone close to me has actually worked for multiple large pizza companies buying ingredients from suppliers). And – now the CEO of Papa Johns says that an additional fourteen cents per pizza on the high end will result in cutting the hours of workers. Seems legit.
Then you’ve got this Applebees franchisee Zane Tankel; he owns 40 restaurants. He seems like a decent guy, but he says something that really explains his mindset. He says HERE:
“There are three ways that it has to come back: more efficiencies, lose overhead or raise prices.”
But what he doesn’t say is we may take a hit on profits. First of all – it’s Applebees and I wouldn’t characterize what they serve as food in the first place. They are destined to go the way of Bennigans anyway. He chose to invest in a restaurant brand that has horrible quality, and I can appreciate his point of view in that it probably is difficult to compete in the space that Applebees is trying to compete in. If they cut servers – he’ll lose sales. If he cuts quality – he’ll lose sales. If he cuts hours – he’ll lose servers. His problem is that he’s a franchisee for Applebees; my best advice to him is to sell it and buy some restaurants that serve actual food.
When someone is making less than $10 an hour and they’re only getting 30 hours a week … that’s less than $1,200 a month and people just aren’t going to stick around for that. So – that will lead to higher turnover costs which include training and other “soft costs”; employees who work full time take more ownership at their job, part time employees treat their jobs like part time employees would. The mindset usually is – “whatever”, and “whatever” is exactly what these corporations are going to get if they cut their worker’s hours.
And many employers are going to choose to give their workers healthcare coverage instead of opting to cut hours for their workers; these employers will be able to hire the best and brightest around as they will be able to offer a more competitive package for potential employees. Better workers equals a better business and more profitability. And the costs for businesses really aren’t as much as these crybabies would pretend that it is.
Case in point – McDonalds. McDonalds is one of the biggest low wage corporations in the world with franchisees, corporate stores and provides perhaps one of the best examples for the impact of Obamacare. In their quarterly earnings call – this is what the Chief Financial Officer (the numbers guy) said about the impact of Obamacare on McDonalds HERE:
“Our current estimate is healthcare is going to impact, in each individual restaurant, in the range of $10,000 to $30,000.
I will tell you that we are significantly increasing now that the Supreme Court has ruled increasing our conversation and disclosures with franchisees around what does this mean for brand McDonald’s. So that they can be as educated as possible around what’s happening, so that they can start to anticipate and make any changes if they have to try to minimize the impact of this.
On just a dollar basis that $10,000 to $30,000, we have the years like last year where commodity cost increases were even greater than that. So while it is a significant item and it’s gaining a lot of attention as the [profit and loss] item we have managed through items of this magnitude in the past. and I’m hopeful we can do that in future.”
So – on the low end … less than $1,000 a month extra and on the high end – as much as $2,500 per month. Other costs fluctuate much more than that as the CFO noted; bottom line – it’s a cost and it’s manageable i.e. we got this. If McDonalds can handle it – so can Papa Johns and Applebees and any other company that currently says it’s evaluating cutting hours for its employees. I’d like to see any company attempt to be profitable with all of its employees making less than 30 hours a week. Bon chance!
What you will find is consumers will pay $.25 more for a sandwich and a company might take a 5% hit on their profits; it’s not that big of a deal. In the big scheme of things – we’ll have a much less costly system where almost everyone pays for their healthcare and almost everyone has access.
And oh by the way – Wal-Mart came out in support of Obamacare before it passed. Shocking – I know. I give them praise for that, and believe me – I don’t praise them often. Listen to how upset this guest on Fox News is …. he’s LIVID. Thank you Wal-Mart. If Wal-Mart and McDonalds say it’s no big deal – then maybe all of these other crybabies should shut up.
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