Like many franchisees, Robert Mayfield, who owns five Dairy Queens in and around Austin, Texas, is always eager to expand and — no surprise — has had his eyes on opening a sixth DQ. But he said concerns about the new federal health care law have persuaded him to hold off.
“I’m scared to death of it,” he said. “I’m one of the ones sitting on the sidelines to see what’s really going to happen.”
Mayfield, who has 99 employees, said he was worried he would face penalties of $40,000 or more because he did not offer health insurance to many of his full-time workers — generally defined as those working an average of 30 hours a week or more.
Ever since the law was enacted in 2010, opponents have argued that employers who were forced to offer health insurance would lay off workers or shift more people to part-time status to compensate for the additional cost. Those claims have drawn considerable attention — and considerable anger in response — in recent weeks.
John Schnatter, chief executive of Papa John’s, the pizza chain, said some franchisees were likely to reduce their employees’ hours to avoid having to provide coverage. And an unhappy Denny’s franchise owner in Florida warned that he would raise prices 5 percent as a “surcharge,” adding that disgruntled customers could offset that by reducing their tips.
Some health-care experts said comments like those came from outliers and sometimes resulted from confusion about a highly complicated new law, the Patient Protection and Affordable Care Act. Many of the provisions do not go into effect until 2014. Federal officials are still tweaking the fine print, like defining exactly what constitutes a 30-hour workweek. Even so, restaurants and hotels are among the industries likely to be squeezed the hardest by the law because they are low-wage industries that do not offer coverage to most of their workers.
Most employers, even small businesses, already offer health insurance, and the federal law is not expected to have a significant impact on what they do over the next year or so. But businesses that rely heavily on low-income workers, many of whom do not make enough to afford their share of the cost of the insurance premiums, are being forced to rethink their business models. Almost half of retail and hospitality employers do not offer coverage to all of their full-time employees, according to a recent survey by Mercer, a benefits consultant.
“They’re all developing their strategies,” said Debra Gold, a senior partner with Mercer who advises several major retailers.
Many who oppose the requirement say the cost of providing health insurance could mean hiring fewer workers.
“Any dollar that gets diverted, whether it’s through Obamacare or increased tax rates, puts franchisees one dollar further away from being able to expand their businesses,” said Don Fox, chief executive of Firehouse Subs, a fast-growing chain of 559 restaurants based in Jacksonville, Fla.
At the 30 stores the corporation owns, only full-time managers are offered coverage. Fox is wrestling with whether to absorb the considerable cost of covering 100 more employees or pay the penalties — which would probably cost him less — but risk losing valued employees to competitors who choose to offer coverage.
Employee health coverage now averages nearly $6,000 for an individual plan. That is considerable for businesses like restaurants in which the majority of workers make $24,000 a year or less, according to research by the Kaiser Family Foundation. The foundation found that only 28 percent of companies that employ large numbers of low-income workers offer health benefits.
“This is where the biggest set of hurdles is,” said Glary Claxton, a Kaiser executive.
By 2014, businesses with 50 or more full-time employees will be expected to offer as yet undefined affordable coverage, based on an employee’s income. For employers that fail to offer such coverage, the law typically calls for a penalty of $2,000 a worker, excluding the first 30 employees.
As evidence of how sensitive the issue is, Schnatter of Papa John’s took some heat for his initial statements about the possibility that franchisees would cut employees’ hours to avoid penalties or having to provide coverage. His comments, made during a public appearance, were reported by a local newspaper in Florida, The Naples News. After facing a storm of criticism, he wrote an opinion piece for The Huffington Post, in which he said he had only been speculating about the law’s potential impact on franchisees.
“Papa John’s, like most businesses, is still researching what the Affordable Care Act means to our operations,” he wrote. “Regardless of the conclusion of our analysis, we will honor this law, as we do all laws, and continue to offer 100 percent of Papa John’s corporate employees and workers in company-owned stores health insurance as we have since the company was founded in 1984.”
Through a spokesman, Schnatter declined to comment further.
Some business owners and consultants warn that opting to have more part-time workers, perhaps by converting some full-timers to part-time status, may not be the answer because many workers might decide to find jobs elsewhere.
“When you explain this to your employee who really needs the income, maybe they’ll try to get a second job,” said Fox, Firehouse’s chief executive. “Maybe they’ll try to get another full-time job and maybe a job that provides health care. There will be an incentive for the best people to search for those jobs.”