Obamacare putting fast food out of business

We should rail against fast food restaurants all we want. They used “pink slime” filler in their “hamburgers” for years (although it turned out to be perfectly safe). And the fries are bathed in vats of smoky, rancid oil. But in America, we are supposed to have something called freedom of choice. And if you want to choose to eat that pink slime burger with a side of rancid fries, as millions do each day, it’s yours for the asking.

But the Affordable Care Act may very well wipe out this particular freedom of choice (among others). In fact, if all goes as planned, the new law may wipe out fast food restaurants altogether. As well as a lot of “entry level” jobs. Or, at the very least, wipe out the restaurants’ profits.

The only industry that really benefits from the Affordable Care Act is the insurance industry. In fact, the Affordable Care Act guarantees 20 percent profit margins for health insurance companies. And a 20 percent profit on 20 percent of the entire U.S. economy is no small sum.

By comparison, restaurants typically operate on razor-thin margins. Especially fast food restaurants. According to the National Restaurant Association, the average restaurant makes between $0.02 and $0.06 in pre-tax profits on each dollar of sales. Stiff federal, local, and sales taxes take a bigger chunk than the retailers get to keep and further “eat away” at these profits.

And the Affordable Care Act could make these profits disappear completely.

For example, under the Affordable Care Act, companies with 50 or more employees will have to provide health insurance to everyone who works 30 hours or more per week. Or else face a $2,000-per-employee penalty.

Having enough to do running their own businesses, employers were not in the healthcare business at all until relatively recently. It all began following WWII. Skilled employees became scarce during the post-war boom. And there were practical limits on wages. To attract workers, employers began offering generous benefits, such as health insurance and retirement pensions.

Companies with large numbers of employees could bargain for better prices from the health insurance industry. And in those days, and until the 1990s, health insurance companies were still mostly non-profit, in any case.

But then health insurance became another entitlement. Especially in the auto industry.

Large corporations like GM ended up with massive employee insurance costs. And these costs became the single largest factor that determined new car prices. Ultimately, this hurt global competitiveness. And it gave Japan a huge foothold in U.S. auto sales. Eventually, it led to bankruptcy for two of the “Big Three”: Chrysler (twice) and General Motors. The government stepped in to bail out the autoworkers union. And this left the bondholders and stockholders holding their empty wallets.

Now this entitlement mindset has spread beyond the auto industry…

Today, everyone has the “right” to “affordable” healthcare–whether you want it or not. The full brunt of Obamacare will hit in January 2014. And restaurant owners have already begun scrambling to find ways to avoid the new law’s steep costs.

One way is to keep most employees under that 30-hour-a-week mark. The CEO of Olive Garden and Red Lobster (Darden Inc.) says his restaurants will have to cut worker hours to avoid paying for the expensive, unaffordable health insurance premiums.

Other individual franchises are following suit. A Wendy’s franchise in the heartland already cut all non-management workers to 28 hours a week. As did a Taco Bell (Yum Brands) franchise.

McDonald’s says if they offer coverage to all full-time employees, the new law will cost them $10,000 to $30,000 per restaurant. And as of last year, the chain operated more than 14,000 restaurants in the United States. That’s upwards of $420 million in new revenue for the insurance industry…just from McDonald’s alone.

Some restaurants are still weighing their options.

DineEquity’s CEO said its New York City Applebee’s restaurant will incur fines of $600,000 per year if it doesn’t provide insurance. And if the company does offer full-time employees health insurance, it will face tens of millions of dollars in higher costs.

And still others are protecting their profits the old-fashioned way. By raising prices.

The “upscale” Five Guys franchise plans to raise prices on its burgers and fries. They’ve also put on hold plans to open new franchises. And they are closing underperforming franchises. I’ve already seen my local restaurant close and it just opened two years ago.

Restaurants like Denny’s and Dairy Queen will also raise prices. They plan to impose a 5 percent surcharge on their menu to cover Obamacare costs. So in most cases, the consumer will bear these costs.

Now, let’s be honest.

Last year, McDonald’s reported almost $5.5 billion in profits. There is still some gold left under those arches. So it can more readily afford to pull a seat up to the table and offer health insurance to its employees. However, it will be interesting to see just how many restaurants at around the 50-employee threshold will simply fire a few people to ensure they don’t make the cut-off.

Without a doubt, the burden will fall heaviest on the independent, mom-and-pop restaurants. These small-business entrepreneurs are truly an endangered species in modern America–no matter what business they are in.

Some of these restaurants barely manage to make a profit already. Now, add the costs of Obamacare and they will have to do one of three things: accept lower profits, raise their prices, or decrease their wages. Maybe the small-business owners will resort to a combination of all three. Because there’s simply so little room for them to maneuver in the new era of mandated health insurance.

So, what about the hard-working employee…who will now get stuck working only 30 hours a week? That’s a European “work week” but without the pay or benefits.

These employees will probably forever stay under 30 hours a week. Without any hope of getting full-time status.

Plus, they won’t get insurance from their employer. And they won’t be able to afford it themselves. They will simply have to pay their $95 penalty per year for being uninsured. This penalty is much less expensive than paying the monthly premiums the insurance companies offer.

Others may be able to choose the government’s “default” Medicaid plan. Or, if they’re lucky, they will sign on to a spouse’s policy.

In the end, the lasting impact of the Affordable Care Act may not be universal health care coverage, as originally promised. But rather a nation of more part-time, uninsured workers with even less take-home pay.

Plus, without a doubt, we’ll pay more for our meals when we go out to eat. If we can afford to go out, that is.

Maybe this is part of the government’s hidden strategy of “affordable” care. One way or another–between the taxes, the soda bans, and the insurance premiums–the government is bent on keeping you from eating those “extra value” meals.


1. http://www.fool.com/investing/general/2013/03/30/will-obamacare-carve-up-the-restaurant-industry.aspx#lastVisibleParagraph