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Restaurant Industry Already Preparing for Obamacare Consequences

Will the restaurant business survive a second Obama term? Can it? Since the president’s reelection earlier this month, four large restaurant chains, Papa Johns, Applebee’s, Denny’s and Darden Restaurants (the company that owns the Olive Garden, Red Lobster, and LongHorn Steakhouse chains) have all recently released statements about their companies’ plans to respond to the increased costs of complying with Obamacare regulations. According to the healthcare law, every full-time employee must be provided with comprehensive medical coverage if the company employs more than 50 full-time workers. If a company refuses to comply, they will be faced with fines of $2,000 per year, per employee, as of January 1, 2014. 

The announcements from companies grappling with the increased costs of Obamacare have, expectedly, been met with disbelief and consternation by the left, still seemingly unaware of basic economics. Appearing on Fox News Business early last week, Applebee’s CEO Zane Tankel explained the steps his business would have to take in order to stay in operation:

The costs of fines or healthcare for dozens of employees per restaurant have the potential to bankrupt individually owned chains across the country. The Applebee’s in New York City would face fines of $600,000 per year if insurance isn’t provided for full-time staff, and estimates for offering federally approved insurance would cost “some millions” across the Applebee’s system. Both scenarios, according to Tankel, “[would] roll back expansion, roll back hiring more people. In the best case scenario [it] would only shrink the labor force minimally.” The restaurant industry, already operating with razor thin margins, doesn’t have the ability to absorb tens of thousands more in healthcare expenditures without a considerable increase in sales. It’s a basic realty of economics: more has to be coming in than going out.

The only solution for restaurants that want to stay open and maintain competitive pricing would be to cut employee hours to part-time status. This is the conclusion already reached by several large chains–companies that provide jobs to tens of thousands of working class Americans. Two of the four companies went public after the election, and thus cries from the left about companies and their CEOs “playing politics” ring empty. Despite the fact that these provisions don’t go into place until January 1, 2014, with the reelection of President Obama and the control of the Senate in Democratic hands, the future of Obamacare is now all but certain as businesses across the country are planning for their companies’ futures. 

If workers are moved to part-time status, the onus for paying for insurance would then be placed on employees who have suddenly seen their incomes reduced drastically. Another provision of Obamacare is the requirement for Americans to purchase insurance or face a financial penalty, a tax as defined by the Supreme Court. Some of these employees may qualify for Medicaid and would be exempt from the tax specifically designed to compel Americans to purchase insurance, regardless of their desire to do so. Cash-strapped states would then be on the hook for expanding Medicaid in order to fulfill the needs of the estimated 11-17 million Americans newly enrolled on Medicaid thanks to Obamacare. These workers, directly pushed further into poverty by Obamacare via reduced hours would then be enrolled in a system with the worst healthcare outcomes in the country, including the ranks of the uninsured. The costs of providing millions more with insurance would then be passed on by states unable to afford the Medicaid loads they already have. As a result, residents should expect fewer services from their states or higher taxes, if not both. 

In anticipation for January 1, 2014 restaurants are already cutting staff hours in order to classify themselves as companies with fewer than 50 full-time employees. As we saw with regard to Hostess Brands, left-wing groups’ perception of how much companies can afford to give to employees while still maintaining a healthy business doesn’t always align with companies’ bottom lines. Just because liberals think that companies should be able to provide more in compensation and benefits doesn’t mean they can. Hostess was the first company to throw in the towel in the face of unreasonable demands for worker compensation and benefits, and unfortunately, given the burden Obamacare is placing on businesses, it may not be the last.



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