Posted on April 22, 2011
Last September I met with about 35 chief executive officers of chain restaurant companies, many on the National Council of Chain Restaurants. 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 filled by first-time job seekers and low-income employees—the young and the poor.
One of the chief executives 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. There were many examples like that around the room, shared by executives with significant concerns about the law.
One Tennessee-based restaurant chain that has concerns about the law is Ruby Tuesday, a company with 24,000 full-time employees and 16,000 part-time employees.
The new law requires employers who don't provide acceptable coverage to pay an annual "fair share" penalty of $2,000 per full-time employee, minus the first 30 employees. A full-time employee is defined as someone who works only 30 hours a week instead of 40.
According to Ruby Tuesday, that mandate will cost them roughly $47.5 million. Yet their annual net income last year was just over $45 million.
In other words, the cost of the health care law exceeds their entire profits. Ruby Tuesday says that, as a result, it will have to reduce its workforce by 18 percent in order to hold their profits even. The company will increase the hours for their full-time employees and reduce their overall workforce in order to reduce the number of people for whom coverage would be required.
Another restaurant chain, White Castle, is concerned about a provision in the law that requires companies to pay penalties when their employer-sponsored health plans cost an employee more than 9.5 percent of the employee’s household income.
The provision would cost White Castle roughly 55 percent of its earnings. 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.
In another example, a large restaurant franchise system estimated their average cost per restaurant to comply with the health care law would be $237,000, which equates to a system-wide cost for 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 $84,000 per restaurant, saving $286 million system-wide.
So to cope with the increased costs of the health care law, the employers who are restaurant owners 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.