Because restaurants typically operate on razor-thin margins, President Obama’s signature health-care reform law has largely been criticized by the industry for imposing onerous new costs that will potentially wipe out whatever profits they make.
Under the Affordable Care Act, companies with 50 or more employees have to provide them health insurance if they work 30 hours or more, or else face a $2,000-per-employee penalty. That led many restaurant operators, such as the CEO of Olive Garden and Red Lobster parent Darden Restaurants, Inc. (NYSE:DRI) Restaurant‘s , to say worker hours would have be cut to avoid paying for expensive health-insurance premiums.
He was joined in his criticism of the law by other restaurant operators, including pizza-shop chain Papa John’s Int’l, Inc. (NASDAQ:PZZA) and burger joints The Wendy’s Co (NASDAQ:WEN) , McDonald’s Corporation (NYSE:MCD) , and Burger King, all of which are chafing at the law’s costs.
While Darden Restaurants, Inc. (NYSE:DRI) eventually walked back its statement and Papa John’s CEO says his comments were misconstrued, others continue to assert there will be real damage coming.
McDonald’s Corporation (NYSE:MCD), for example, maintains that complying with the law will cost it $10,000 to $30,000 per restaurant, and as of the end of last year the fast-food chain operated more than 14,000 restaurants in the United States. The CEO of DineEquity Inc (NYSE:DIN)‘s Applebee’s chain hasn’t altered his charge that the chain’s New York City store alone would be subject to fines of $600,000 a year if it didn’t provide insurance, yet the company faces the prospect of tens of millions of dollars in higher costs across the chain if it does.
Some restaurants have seen individual stores begin to make good on the threat. A The Wendy’s Co (NASDAQ:WEN) franchise in Nebraska cut all non-management workers to 28 hours a week, as did a Yum! Brands, Inc. (NYSE:YUM) Taco Bell franchise in Oklahoma. Others, such as burger joint Five Guys, are starting to raise prices, while RREMC Restaurants, a privately held franchisor of several dozen restaurants including Denny’s and Dairy Queen, will begin imposing a 5% surcharge on their menu to cover Obamacare costs.
Someone else’s problem
Darden may have retreated from its critiques because of the negative publicity it created, while others believe the burden won’t be so high because many employees will simply opt to instead pay the $95-a-year penalty for being uninsured. It will be cheaper than paying the monthly premiums associated with the insurance plans companies offer, while others will choose to be covered by the government’s Medicaid plan or will sign on to a spouse’s policy.