Alexander: Chain Restaurant Owners Report Health Care Law’s Costs Will “Wipe Out” Profits, Reduce Workforces, “Cut Future Expansion and Job Creation”

Large national chain says compliance costs will surpass annual earnings

Posted on April 7, 2011

“One of the chief executive officers I met with said his company had been operating with 90 employees [per restaurant] on average, and as a result of the health care law, their goal was to operate with 70 employees. That is fewer jobs.” –Lamar Alexander 

WASHINGTON – U.S. Senator Lamar Alexander (R-Tenn.) today spoke on the Senate floor to offer real-life examples of how “the health care law actually is making it harder and more expensive to create private sector jobs,” citing reports from several national chain restaurant owners that the law will dampen job creation or force workforce reductions.

The text of his floor speech is below:

“Last month marked the one-year anniversary of President Obama signing the health care bill into law. I believe it was an historic mistake. We have talked about the health care law in a variety of ways. One thing we have said is that at a time when our country needs to make it easier and cheaper to create private-sector jobs, the health care law makes it harder and more expensive to do so. Someone might ask: How could that happen? This morning I wish to mention a few examples of how it actually is happening, how the health care law actually is making it harder and more expensive to create private-sector jobs.

“Last September I met with about 35 chief executive officers of chain restaurant companies. According to the Bureau of Labor Statistics, the retail and hospitality industries are the largest employers in the United States, second only to the U.S. government. Food services and drinking places provide roughly 10 million jobs. Most of these are first-time job seekers and low-income employees (the young and the poor). We are talking about companies that provide a huge number of jobs to low-income Americans.

“One of the chief executive officers I met with said his company had been operating with 90 employees [per restaurant] on average, and as a result of the health care law, their goal was to operate with 70 employees. That is fewer jobs. There were many other examples of that around the room. Many of the attendees are on the National Council of Chain Restaurants. They have significant concerns about the law, and they provided me with specific examples.

“One restaurant chain based in Tennessee with worries about the law is a company called Ruby Tuesday. Ruby Tuesday has 24,000 full-time employees and 16,000 part-time employees.

“According to Ruby Tuesday, the employer mandate will cost the restaurant chain roughly $47.5 million (a $2,000 penalty per employee, minus the first 30 employees), yet its annual net income last year was just over $45 million. In other words, the cost of the health care law to the chain equals the entire profits of this multimillion-dollar company. Ruby Tuesday says as a result, it will have to reduce its workforce by 18 percent in order to hold its profits even. The company will increase the hours for its full-time employees and reduce its overall workforce in order to reduce the number of people for which coverage would be required.

“The problem we are talking about is that the new law requires employers who don't provide acceptable coverage to pay a ‘fair share’ penalty of $2,000 per full-time employee. A full-time employee is defined as someone who works 30 hours a week instead of 40. We can see that a company such as Ruby Tuesday, with that many employees, would have a big cost: $47.5 million, which equaled its entire profits for the year.

“Another restaurant chain, White Castle, is also concerned. It said that according to its internal estimates, the health care law's provision imposing penalties for employer-sponsored health plans, whose costs to the employee exceeds 9.5 percent of that employee's household income, would be particularly punishing. In its present form this provision alone would lead to an approximate increased cost of over 55 percent of what White Castle currently earns in net income. This devastating impact would cut future expansion and job creation by at least half. The impact would be predominantly felt in low-income areas where jobs are most needed.

“A representative of the National Retail Federation testified in February about another large chain quick service restaurant and its potential job loss. This company preferred to remain anonymous, but the chain estimates that the incremental cost to comply with the new law is $10 to $15,000 annually per affected restaurant which across the entire system could be $50 to $75 million in incremental costs a year. This would wipe out one-third of that system's profits per year, potentially eliminating 10 percent of its stores, which means hundreds of restaurants and the potential elimination of 12,500 jobs.

“There was another example, a large franchise system with multiple casual dining restaurant concepts and projects.

“They estimated the average cost per restaurant in their system of the new health care law would be $237,000, which equates to a system-wide cost of providing health insurance benefits to full-time employees of almost $806 million per year. If all of this chain's small business franchisee owners elected to pay the employer penalty instead of providing insurance, the cost would be reduced but to just over still $84,000 per restaurant or a savings of $286 million system-wide. To cope with the increased costs of the health care law, the employers who are restaurant owners – and these are the largest employers in America, they employ the most people in America except for the U.S. Government – are seeing their costs go up and, as a result, there are fewer jobs for Americans.

“Republicans believe it would be better to reduce health care costs step by step so more people can afford to buy insurance instead of expanding a system that costs too much, and we will continue to advocate that position.

“The important thing to remember about the law – we have heard it said it hurts Medicare, it adds regulations, raises taxes, and individual premiums are going up – is that it makes it harder and more difficult and more expensive to create private-sector jobs at a time when our country should be dedicated to making it easier and cheaper to create them.”

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