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Intended and Unintended Consequences: The ‘Darden Approach’ to Obamacare
Intended and Unintended Consequences: The ‘Darden Approach’ to Obamacare
Courtesy of Dr. Paul Price
One of the few bright spots for job creation over the preceding year or two was the hospitality segment. This includes restaurants, hotels, bars, etc. Most of the work comes with low base pay. Tip income makes up a majority of the employees’ total compensation.
Managements were happy to add workers as business conditions permitted. Obama’s reelection cemented the fate of his new healthcare monstrosity. It now will be implemented and that’s very, very bad news for the restaurant industry.
Why is that? Many fast food and casual dining chains generate decent revenues but low net profit margins. Some, like McDonald’s (MCD), have been offering employees low-priced but relatively bare-bones health care policies on a voluntary sign-up basis. That was affordable both for low-wage employees and MCD.
Obamacare takes away that option. Minimum coverage requirements under the ACA [Affordable Care Act] mean that (post-January 1, 2014) those limited coverage plans can no longer be offered.
So much for that infamous claim, “If you like your present health plan and want to keep it… you can.”
The ACA requires that full-time employees must be enrolled in an approved healthcare plan or the employer will be subject to a $2,000 per head penalty (now called a tax by the Supreme Court). Worse still, the definition of full-time has been dialed back to just 30 hours a week.
At November’s Restaurant Finance & Business Development Conference Darden Restaurants’ (DRI) test plan was much discussed. They are reducing hours of employees to below 30 to limit the number of employees who would be eligible for coverage.
Darden is the parent of Olive Garden, Red Lobster, Longhorn Steakhouse, Bahama Breeze and other chains. They employee about 185,000 people.
Can employers simply wait until 2014 to make adjustments to their employee hours? No. The ACA has a look-back period to keep businesses from doing exactly that. Determining if a worker meets that 30-hour threshold will be done using their 2013 hours worked.
The cost of providing an approved policy will likely be well above the $2,000 tax imposed. Employers have a huge incentive to purge their businesses of scheduled workers with 30+ hour schedules. That means many people will be getting hours cut back now, in 2012, in order to avoid being classified as full-time in 2014.
Instead of helping waiters, greeters, kitchen staff and busboys become more prosperous ObamaCare may well curtail their ability to work as many hours as they would prefer.
It might also deprive business owners of the chance at rewarding their best workers with maximum earnings power. The cost differential between part-time and full-time might be the swing factor separating profitability and bankruptcy.
Brad Richmond, Darden’s CFO, was asked whether reducing hours will allow the restaurant to maintain customer engagement and employee satisfaction. “I think it’s going to be very hard,” he said. “They work 30 – 35 hours for a reason.”
Another potential strategy discussed at the conference? Don’t provide health insurance at all. From a strictly economic viewpoint paying the $2,000-per-year, per-employee tax penalty for not providing coverage might well be the best choice.
Alexis Becker, of accounting firm SS&G, noted that most scenarios find paying the penalty will be cheaper for employers than providing coverage.
The ACA only covers employers with 50 or more workers. Franchise owners will be loath to exceed, or even approach this potentially business- lethal number.
That could mean cutting back on overall operating hours or running with much leaner staffing levels. It also makes opening new units much less attractive. All three of those trends are bad news for workers and jobs.
Most franchiser owners keep each unit as a separate legal entity in order to avoid triggering the 50-employee rule. Rumors have been floating around about new government regulations that would lump multiple units back together for ACA purposes.
That would be an absolute dagger to the heart of owners of these multiple units with segregated legal ownership.
Hasn’t our president been saying since 2008…“Job creation is my #1 priority”? Obamacare is a job killer.
Actions speak louder than words.
No matter how this ultimately plays out, it will be a huge headwind for the profitability of this industry. Avoid stocks in this group until they start pricing in the future bottom line hits.
Dr. Paul Price, at Beating Buffett Blog, and Market Shadows, Nov. 15, 2012
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Gee, it's almost as if the anti-federalist had a few good points after all...........................
http://www.utulsa.edu/law/classes/rice/constitutional/antifederalist/ant...
Welcome to the Obamacare depression. It will only get worse from here. Further declines in personal income, employment, business profitability, reduced entreprenuership, increased business closings. And of course, the imminent expiration of the Bush tax-cuts will smack the middle class hard, since of course, "they only benefitted rich ppl". Every one of the left's lies are exposed and yet Oblamer gets re-elected.
Our country's future grows increasingly bleak.
It's not about health care. It's about contolling and regulating the masses. It's an attack on your freedom to choose and to live your life as you wish. It's about someone taking away your liberty at will. Has absolutely nothing to do with anyone's health.
OBummer care is nothing more than a insurance co. bailout.
who wrote it i wager it was ins co lobbyists, as the legislators who are charged to do the law writing are to busy selling their votes to the contributors to there election campaigns. the us gov is corrupt from the top to the bottom all 3 branches
Ding, Ding, Ding. You are correct, gina. Who benefits from ObamaCare? The "people"? Nope. Either they will lose healthcare entirely by being moved to part-time status or will see their health insurance premiums go up in excess of 10% a year every single year. Businesses? Nope. They are saddled with either paying the penalty for not offering insurance or paying at least part of the yearly increases in premiums. Doctors? Nope. They are looking at reduced payments from the government and more paperwork (via electronic records). No, the only group that really benefits from ObamaCare are the health insurance companies. People are forced to buy their products and there are no effective controls on what they charge.
Most of the companies in the field in which I work no longer even hire employees per se, but have shifted to an independent contractor type of model, so they need not offer any type of benefit.
Or, like I have seen so much of over the past few years, they hire temps. This is great for the employer in that they do not have to pay unemployment when they arbitrarily decide to rid themselves of an employee.
In each case, the government can just modify Right to Work to include those types of workers and get rid of 2 screwball maneuvers at once.
Just stop with the communism already, Phillip Dru.
The temp agency pays the unemployment. They also offer some sort of meager health insurance and a 401K. In exchange they leach off the workers they hire, taking the lion's share of the fee they charge businesses for the use of their stock in trade. I wonder what Obamacare is going to do to their business model? Maybe they are exempt as they provide a service large companies want.
I wonder what Obamacare is going to do to their business model?
Depends how big a check they write to the DNC...
The temp agency has to pay the otherside of the employees Social Security, Medicare, FUTA etc. They have to maintain a staff to ensure state and federal compliance, as well as marketing and recruitment staff. After paying for all that you have a slim profit. What seems to the Temp to be an outrageous rate is really just the hidden costs any employer faces. Should you ever become a 1099'er suddenly all those employer paid taxes are coming out of your pocket and what looked like a good rate becomes not so good.
Temp agencies are parasites that charge companies a larger hourly fee for a temp than a company would have paid if they had hired that person as an employee. They pay the temp employee much less than he or she would have made if working directly for the company. They used to perform a necessary function, but now, for people looking for work, they have become the only game in town and stand between prospective employees and employers. The function that they serve now acrues benefit only to the companies that use them and to their owners as they squeeze a living off the people they employ. They will be among the first up against the wall when the revolution comes.
This article discusses exactly what I see occurring today. We are shifting to a part-time employment model, especially for low skill workers. Obamacare will also increase the underground economy as employers cannot afford to have low skill workers on the books and tax increases (coming soon to all income levels) make off the books work more attractive.
Do the math (for an employee with family of four):
Case 1: Minimum wage employee below 30 hours. Cost per hour is $7.25 + about $0.50 for SS/Medicare employers portion + cost of whatever minimal benefits are given = about $8.00/hour
Case 2: Minimum wage employee above 30 hours, no healthcare. Cost per hour is $7.25 + about $0.50 for SS/Medicare employers portion + cost of some benefits + $1.00 for Obamacare fine = $9.50 +/hour depending on benefits (full time workers normally get vacation, sick time, etc. which adds, on average about $0.70 per hour)
Case 3: Minimum wage employee above 30 hours, healthcare provided. Cost per hour is $7.25 + about $0.50 for SS/Medicare employers portion + cost of some benefits + $6.00 for healthcare = $15.50 +/hour depending on the other benefits.
This is an estimate but I don't see how employers (especially in hospitality, where labor is about 1/3 of costs) can double their per hour cost and survive. Especially, when their big competitors, like McDonalds with deep pockets to pay bribes to politicians and have BEEN EXEMPTED from paying the costs of Obamacare.
Leftists hate math. Obama admitted he couldn't do math. Math drives the economy. You cannot legislate reality away.
Then legislate higher penalties and greater rewards for uncovering off-the-books activity - with a lower threshold of proof.
The higher the penalties and more intrusive the regulators get the less hiring and the more the economy slows.
In Europe, the private sector has not hired hardly anyone for years because of government regulation. Young people can work temp jobs or nothing. Also, their underground economy is huge (25% in Greece). Not because there are too few laws but because there are too many.
No government can repeal economic realities. If they could, the USSR would have been the most successful, prosperous country ever. Europe is failing, and will soon fall apart, because they tried to legislate reality away. Now people are rioting because they were told, over and over again, that they could have whatever they wanted (healthcare, social programs, housing, etc. etc.) and someone else would pay for it.
Only that someone else lost their job because regulations made the company unprofitable and the tax money disappeared. Or, that someone else decided maybe they would just get quit working and take the free stuff so the tax money disappeared. Or, that someone else decided to move to another country where they could work and accumulate wealth for themselves, not everyone else, so the tax money disappeared.
The Soviets tried for 70 years to create the "New Socialist Man" that would work extra hard and take little in return just to help his neighbor. All they created was a society where no one worked hard, except to torture and steal under the guise of the state.
There is nothing the government can do to the economy except ruin it. Read Hayak's 'The Road to Serfdom' if you want to understand the effect of central planning on the economy and what it leads to. Just Google the title and you can read a free PDF version.
We are heading towards serfdom and getting closer every day. Just as Hayek noted, when Obamacare fails, and I believe it was meant to fail, the government will not say, "Wow, we messed up, maybe we should back off and let the market try to fix this." They will say "We need more power to coerce people to do what we tell them, then it will work fine."
They spent $800+Billion on stimulus. They said the unemployment would go down. It went up. What was the reply from the government? We didn't spend enough. We need $1Trillion, $2Trillion, more, more, more. And it will never work. See Japan. They have a government debt of 1 quadrillion yen (1000 Trillion) and their economy is worse than it was 20 years ago.
Sorry for the rant but it is obvious that a majority of Americans don't get it.
Always appreciate your comments Invisible, but the way I see it the gov is just throwin us poo people a bone that is needed in America. Yes it will cost some jobs, but for many it will be the difference between life and death. This is a small fraction of what they have been giving to the central banks worldwide.
"We are shifting to a part-time employment model, especially for low skill workers."
Do watch out for that. The definition of 'low-skill' has changed with time, now to mean anyone not part of the middle-management circle-jerk or the executive level club. Them today, you tomorrow.
"Leftists hate math"
The leftists pointed out that US commercial model medicine cost more and had worse outcomes than single payer model medicine. A numbers game. Indeed, it's Congressional Republicans who are quashing numerical analysis when reality doesn't gibe with their ideology.
http://www.slate.com/blogs/spitzer/2012/11/12/congressional_research_ser...
Click through to the pdf to get the numbers.
And if you bought the Big Lie that Obama is leftist, that Obamacare is socialism, and that right-wing corporate blowhards are practical managers, don't double down. Admit the wrong turn and seek the sunshine.
Employers will decide if they can stay in business and it will have nothing to do with politics.
I have to say your intent is admirable, however your math is on the low end.......
** Each case does not take into affect workman's comp insurance. A Minimum wage employee cost me $10.00 per hour once you calculate pay + SS/Medicare portion + workman's comp insurance. Normally they are high schoolers or college age. I just let all part-timers go after the election. As a business owner, I MUST prepare for what's coming.
Tax hikes or sequestration are going to KILL the current economy that has been on FED pumping life support for 4 years!!!!
Sandy
More than that if you add the correct overhead reclaimation to
the cost per man hour.
Doing that,even Darden employing part timers still raises their cost per man hour as
the overhead remains fixed,but less that the doller per hour cost of the
Obummercare premium per full timer. Inflationary either way.
"I just let all part-timers go after the election."
Ah. So that explains the huge spike in unemployment claims last week. MSM was blaming some guy/gal named "Sandy"...it all makes sense now!
Thanks.
My wife and I go to Red Lobster and Olive Garden regularly. If Darden cuts their employee's work hours or takes other actions against them we'll stop going to their restaurants.
Employers had their chance to get behind a single-payer health care plan for all Americans that wouldn't have cost them a penny but, instead, they decided to listen to the Republican bubble claiming it was "socialism"...without bothering to look up the definition of socialism.
I'll miss Red Lobster...but elections have consequences.
Any government plan has a cost and that cost is paid by those paying taxes, regardless if it is an individual or corporation. I do not hold any ill-will against Darden for making such decisions, I understand that unless a company makes a profit they will not stay in business. I also understand that as a country we cannot continue to support government programs that encourage looting from those producing.
If you are really that upset over the injustice of Darden's actions against their employees, and want to show them a thing or two: Visit their restaurants more order next to nothing and leave a huge tip! There you go, now you are showing them how the world works, and you would be putting money back into the pocket of the little guy. Yes you can!
...and that cost is paid by those paying taxes...
Completely and totally WRONG. MMT (magic money tree) pays for EVERYTHING nowadays. Get with the program!
Good to see someone taking a stand against the post-election weaponization of HR.
"Employers had their chance to get behind a single-payer health care plan for all Americans that wouldn't have cost them a penny..."
Yeah, and electric cars do not pollute. Heck, the electricity comes out of the wall for Pete's sake.
Couldn't agree more - same for that Papa John knucklehead twit with the 2MM pizzas - find a new customer base.
Such endless whining.
The new math: The whining of one corporate CEO is 1,000,000 times louder than the whining of 1,000,000 American workers.
Yes, but don't they DESERVE their private island offshore accounts? Jeeez....
Wow. Two comments back to back that are asinine. Rare on here.
So...because a business is forced to a negative action because of a horrible law, you'll stop going to the business?
What an open mind you have!
I was hoping one of you fucking idiots would use that seriously flawed logic on ZH so we could all address it...
Let's get this straight. You're going to punish Red Lobster by not eating there huh? You're fucking kidding us right? Think about that for one God-damned second without an Obamnoid bais and you might spot the flaw in your own logic if you have more than two brain cells to rub together. What's going to happen to all those employees which you supposedly care sooo dearly about when Red Lobster goes out of business??? Are you going to give them a job? Please do tell what business you own and/or operate and how you plan to hire those people with better wages and full health-care coverage. We're all listening...
Once Big Red is outta the way...local restaurants will sprout up and hire all those workers.
It's what needs to happen...a purging of the fat cats.
Eat it...Big Red!
Yeah... Until they close the "loopholes" in Obamacare a few years down the road to "address" its massive underfunding which anyone with a brain can tell is coming.
Yep...the locals will take over, and the employees (all 49 of them) will be COMPLETELY without healthcare coverage, the employers will be far less stable and able to provide reliable wages. A win for all sides (SARC).
c,
If I'm not mistaken, those not in an employer system will have the "opportunity" to join a state-level "exchange" to buy coverage a la carte in lieu of paying the $2000 Supreme Court tax. The IRS will ask for an individual's insurance status on a 1040 form of some type each year to ensure they won't have to pay that tax. If a person makes too little, then they are supposed to be covered by Medicaid, the true single-payer system now available to the poor.
Most doctors will then soon move to a cash-only practice or offer their own annual family plans to their regular clients, because Medicaid will reimburse only 60% of break-even costs. I would not be surprised if the for-profit, publicly held medical insurance industry collapses by 2015. Well, maybe 2017. After all, if over 50% of the working public and non-working poor have budget plans from the state exchanges, how many insurance companies can there be? About half of the current medical insurance employees will have to find work elsewhere......
Ever wonder why professionals such as doctors and other medical providers are required by state statute to carry a rather large minimum professional liability insurance? I haven't noticed anything on one issue. Will Health Savings Accounts go away with the ACA? That would indeed be sad. I'm not eligible to have one as a military retiree, but for those who can pop some pre-tax dollars into it to cover insurance costs, etc, that's a nice program the Republicans came up with.
So we are back to the lessor of two evils argument, which is false and vacuous. The writer you are rebutting should follow his concience without regard to your opinion. His actions are irelevent and too small to make a difference. This is the lesson of zen, we are too small, we don't matter, so we can follow our conscience without guilt.
LOL... So that's the best any of you Obama-noids can do? Bring up Zen to address a serious flaw in Logic? Nice one. Fucking moron...
Navigator,
I assume you failed economics, or never studied it. You are punishing yourself (indicated by your statement that you will "miss" Red Lobster). Additionally, you are punishing those 29-hour-a-week workers, preferring to give them ZERO dollars rather than a decent tip.
By choosing to not participate, YOU are bringing about what those "evil republicans" said would happen.
Dude, the invisible hand always abides! You just screwed the people you support by behaving in a predictable manner.
I think the invisible hand is giving you a reach-around.
Republicans? Seriously? From 2009-2011, the Democrats had large marjorities in both houses in Congress. When Obama came into office, he was enormously popular. He could have done literally anything he wanted including passing a Single-Payer health plan. Instead of that, he, Nancy Pelosi, and Harry Reid gave us Obamacare. Are you really that fucking brainwashed to think the Republicans are why we don't have single-payer?
Obamacare is a bailout for the insurance industry. The bill was written by insurance company lobbyists. Any changes other than the intended insurance bailout was stalled, dropped mysteriously, filibustered against (or threatened), killed in committee. Yes, the GOP was a co-conspirator: think Mitch McConnell, the most corrupt politician in Washington, DC.
The best plan would be a simple cash system where the costs of care are determined by what people can pay ... rather than what the government can pay then extract from the citizens by police power.
Excuse my age but I recall when a trip to the doc cost $20 and the MD knew something about doctoring. Now, a trip to the doc costs $10k and you are worse off at the end than you were in the beginning. Heaven help you if you have to go to the hospital. W/ insurance you become a guinea pig for every sort of 'procedure' that lines the system's pockets. Without, you get the bums' rush.
Don't anyone kid yourself, the entire healthcare insurance 'industry' is a form of organized crime ... just like the rest of business and government in this country.
How about those huge amounts of filibusters during that time that kept on killing bills?
Man we missed the boat "Free" healthcare Navigator how could everyone been so dumb to not want "Free" healthcare
That which is not sustainable, won't be sustained. Don't sweat it, the consequences for the fat fucks that drink, smoke, and visit chain restaurants in America will be the same with or without any form of health care. It is what it is, let them die and evolve already.
Subsidizing the wealthy is not going to be sustainable either. Just wait and see.
Thank you at least for being honest that you believe most human life has no independent value or significance, especially those with whom you disagree. If more of your ilk would simply admit that "fuck everyone else I hope they die" and "I got mine" is the root of your ideology, we could save a lot of time pretending to debate about what is best for society.
You're not suppose to use the word fuck. fuck is a bad word. you are going to hell if you dont repent and thats just the way it is....
The share I pay for health insurance through my work has gone up 100% under Obama's "plan".
“Let me be exactly clear about what health care reform means to you,” the president told residents of the Garden State. “First of all, if you’ve got health insurance, you like your doctors, you like your plan, you can keep your doctor, you can keep your plan. Nobody is talking about taking that away from you.” - O'Barry
What he didn't say is you won't be able to afford your current plan...snake.