• Obamacare’s big threat to business

    Last week, in the second hour of  Stand Up! with Pete Dominick, Aaron and I discussed an email that had been forwarded to Pete by his dad:

    We have a client who has six separate businesses under common ownership. [At least some of the businesses are restaurants.]  On a good year the businesses operate at a net profit of $200,000 to $300,000 per year combined. [] Annual payroll is between $6,000,000 and $7,000,000.

    If one employee receives a premium tax credit or cost subsidy in an exchange the employer is subject to a $2,000 penalty annually times the number of full-time employees minus 30. There are 140 full-time employees less the excluded 30 (which are coincidentally already receiving insurance) for 110.

    110 times $2,000 equals $220,000. […]

    This scenario puts are clients business in jeopardy as well as the jobs of nearly 240 people.

    The tone of the email certainly makes the situation sound dire. After all, the cost of the penalty, $220,000, is in the range of annual net profit. It might wipe out the business!

    I sincerely doubt it. Here’s why:

    First of all, let’s assume everything in the email is accurate. Let’s also assume that paying the penalty as described is the lowest cost approach. That is, other options like offering health insurance to all employees, moving workers to part-time status, or anything else creative business people and accountants can come up with would cost more.

    Next, let’s recognize that this business has at least $6.2 million in annual revenue, taking the low end of both the annual payroll and profit. In fact, revenue must be considerably larger to cover non-personnel costs, as restaurants and other businesses certainly have (e.g., rent, equipment, insurance, taxes, etc.).

    Nevertheless, let’s take $6.2 million as annual revenue. The cost of the penalty, $220,000, is about 3.5% of that annual revenue figure. In fact, we know it is lower since we know that annual revenue is greater than $6.2 million.

    Three-and-a-half percent.

    If we are to believe that this business is doomed because of a one-time increase in cost equivalent to 3.5% of revenue, I don’t know how it handles typical rates of inflation or other cost shocks (e.g., rent increases, sudden equipment failure, hike in minimum wage, and the like). Actually, I do know how it probably handles those. If it is already minimizing costs and doesn’t want to eat into profit, it passes them along to customers in the form of higher prices.

    Would you stop going to a restaurant because its prices went up 3.5%? I doubt it.* In any case, if this business feels like its customers cannot absorb a 3% price increase, it could split the difference, taking part of the penalty out of profit. Can its customers handle a 1.75% price increase? (And, remember, this is conservative. The actual price increase necessary to preserve profit is lower.)

    Now, if every firm in the US had to raise its prices a few percent that might be cause for concern. But the situation for the business described above is not typical. Only 25% of US firms are potentially subject to the employer mandate because it only applies to those with 50 or more employees. The vast majority of those (about 96%) offer health insurance. Granted, not all workers in every such firm are eligible for coverage, but something like ~90% are (a rough interpolation from the figures in a recent paper by Thomas Buchmueller, Colleen Carey, and Helen Levy). That’s a much higher proportion than for the business described above, suggesting the cost of complying with the employer mandate, on average, should be a smaller proportion of revenue, in general.

    My point is that though we might expect a one-time increase in price levels due to Obamacare, it’ll probably be a fraction of 1%. (This is rough, but probably not that far off.) Don’t let the seemingly frightening anecdotes scare you. Obamacare is not a huge threat to American business.

    Yes, Obamacare will cost somebody something. Expanding coverage can’t be free. We could decide not to pay for some of it through an employer penalty. In fact, that penalty has been delayed a year, so we should all stop hyperventilating about how it’ll destroy jobs. Over the course of the year, we could, and probably should, modify or repeal the employer mandate (assuming Congress can do anything.) Doing so responsibly would require finding other revenue to offset it. What are you willing to pay or cut?

    However, if the employer mandate does go into effect, I hope Pete checks back in with his dad about this business in a few years. I bet it’ll be doing just fine.

    * Papa John’s will have to raise its pizza prices 11-14 cents to meet its obligations under Obamacare. On a pizza of about $15, that’s less than 1%. If you liked Papa John’s pizza, would you stop buying it because it cost you another dime or two? Really?

    UPDATE: Wording fixes and changed the cost increase from 3% to 3.5% of revenue since that’s closer to the truth, if you do the math. (Still, I emphasize, this is very conservative. The real truth is much lower.)

    @afrakt

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    • Considering the recent CPI numbers and slack demand it probably will be difficult for most small businesses to raise prices. I work for a small business and we have not raised prices in years. Every time we try to raise prices the customer goes somewhere else.To a businessman or woman that means you will have to cut costs if you want to pay the rent and keep the lights on. The most likely controllable cost cut is to cut the hours for part time workers and reduce your investment in inventory. For those companies who feel that they have done everything they could during the last five years, to keep running they are going to have tighten the belt again.

      • Does your business have more than 50 employees? If not, this doesn’t apply.

        How big does a business have to be before we no longer call it a small business? If so many businesses are dancing on the edge such that a 1-3% increase in prices will cause them to go under as customers go elsewhere (where? don’t those businesses have to raise their prices too? Or can they make cuts elsewhere? If they can, why can’t you?) doesn’t that speak to a larger problem? i.e the slack demand you mentioned. Perhaps what is needed are some actual jobs bills so more people can get working and have money to spend giving demand a boost.

    • @Bill Huber – So you mean to say that with all of the variables that go into managing costs, raising prices is never an option for you? I’d imagine the costs of goods or the price of doing business fluctuates from time to time as the market is wont to do, but that if the cost of goods or doing business went up, your options would be to reduce hours, cut back elsewhere and tighten the belt even more instead of offsetting some of the costs by marginally increasing prices 1-2%? It sounds like cents on the dollar not dollars on the cents. If you don’t mind me asking, what type of business are you in? What type of industry/goods? How tight is the competition that a 1-2% increase in prices results in your customers going to competitors to save so little?

    • Obviously stated by an academician and not a businessman. If you are wrong nothing happens to you. In fact you could get a promotion. If the businessman is wrong he loses his business.

      That is why academics frequently advance their careers even after making abysmal mistakes. Businessmen simply fail.

      Take a look at the failure rate in restaurants.

    • You’re absolutely right.

      Taking it one step further,, I believe that a business that cannot afford to pay its employees a living wage (which, in our society includes healthcare), is operating under a flawed business model and should go out of business.

    • When you say Obamacare will cost somebody something, the part that gets left out for me is, who is already paying for these people’s health care that are now being covered?

      Yes, a twenty something that didn’t get healthcare before got it free or at reduced cost when they needed it, now they have to pay something. But they all do end up at the doctor at one time or another and somebody is paying for that too.

      A couple years ago my Dr. told me that most of the patients he sees under 40 did not have health insurance and when they came in they all wanted a discount. He was fed up with it. So at that time he was paying for it and probably passing all those costs onto the rest of his patients in one way or another, or taking less profit.

      Someone is paying for all of it.

      I would like to see that get factored in to all of this, because when you look at it that way maybe when all externalities are considered it is costing us as a society less and we are getting better health care for everyone.

      • @napablogger
        It seems that you’re arguing the 20-somethings in our society are not paying their fair share. The PPACA does not adhere to actuarial data with respect to care costs for given ages, comorbidities (either lifestyle related or innate), versus premiums, deductions, etc. If one measures the PPACA with respect to forcing everyone to pay ‘their fair share’, it will miserably fail. In my simple projections, it will cause hard-working, responsible individuals (healthy or not) to pay much more in healthcare costs than they will get in return. I disagree with the legislation as I feel it violates those peoples autonomy, distributive justice, nonmaleficence and does very little for their beneficence. The small fraction (I’ve heard 2%) of Americans who spend a majority of the healthcare dollar (I’ve heard 80%, but don’t have sources, just something I heard in med school), will never pay in nearly as much as they cost. That’s fine, we should still give them great healthcare regardless. I feel the focus should be on making their great healthcare as efficient and cost effective as possible, thus limiting the burden on those less expensive mild users of healthcare. Further, this cost savings can be achieved without raising costs, decreasing access or decreasing quality of care to others.

        At IUSOM, I believe it was Dr. Carroll who spoke of an ‘Iron Triangle’ of the aforementioned three variables that are interdependant on one another, namely cost, access or quality. If one changes, a separate one must change accordingly, e.g. – if we increase cost, we must decrease access or quality. I argue that with some simple, almost free legislation, we could have improved all three to a large extent as the rigidity of the triangle assumes relative efficiency. We can decrease cost with appropriate care, limiting secondary gain (for physicians, legislators, patients, shareholders, lawyers, etc.) or any number of other easy modalities to include enhanced record sharing, mandating a universal insurance reimbursement form as we already use universal, albeit exceedingly complicated codes and buying insurance across state lines. We would focus on the expensive patients as they are the lion’s share of cost. This legislation MIGHT do this, but I frankly don’t see how it will. It certainly was not designed to do this and it comes at a large expense.

        Examples, SOME (in my pessimistic estimate, MOST) social security disability causes waste, fraud and abuse of healthcare (almost if not entirely subsidized by Medicaid, cost-shifting, etc.). Pts seek very thick and expensive charts and medical records to be able to submit to the government to ‘prove’ they are disabled. Serial MRI scans and neurology evaluations for multiple sclerosis diagnoses with ultra low yield of actual therapeutic gain per dollar spent, similar for orthopaedic and many other complaints. In fact, I estimate that I’ve seen more aggressive and expensive workups to ‘prove’ pts do NOT have a disease with an elephant in the room shouting the patient only seeks secondary gain of disability, pending lawsuit, worker’s comp, etc. Low back pain would never be covered under disability in my eyes as many people have it and one can always work through it. Objective weakness, etc. that is limiting might, however. This topic could explode into a myriad of directions, but my premise is that an efficient system of objectively finding disease with which we can treat with reasonable returns for dollars spent should be employed. We can and should be sure that no one gets superfluous, medically futile care, workups, etc. I assume medical ethicists have no qualms with this, though some may argue I’m blowing it out of proportion.

        • I’m wasting web space, but for redundancy, my arguments are meant to highlight the difference between HEALTHCARE and ‘healthcare expenditures’ with the former having some therapeutic yield per resource spent and the latter being a nebulous term indicating resources allocated in the healthcare industry.

          As a physician, I feel that the therapeutic yield of our collective monies is low. Arguments include monies spent on defensive medicine (won’t change with ACA), money that lines the pockets of lobbyists, legislators and producers of power chairs (when quadriplegic pts have to buy most of their wheelchairs themselves, but obese pts get federal funding as the feds are funded partially by the power chair companies. Will worsen with ACA.), vascular surgeries on current smokers (no change), medically futile end of life care (a big one there, I agree with ACA’s original stance, will never change as too politically devastating), health insurance execs and paper pushers whose sole job is to make it more difficult for docs and hospitals to collect (will likely benefit from PPACA as these private insurance companies will fail, only to be replaced with bureaucrats, red tape, complex systems of reimbursement under ACA as budgets will need to pass Congress and Senate who have every incentive to decrease true cost to those entities not lining their pockets but every incentive to increase taxpayer allocations to those entities lining their pockets).

          The ACA is a large power grab by the government under the auspice of expansion of private or subsidized ‘free market’ health insurance policies. Insurance companies that offer the best healthcare network will be burdened with the pts who use healthcare as they will pay nominally more for a ‘cadillac’ company. Collection of expensive patients can and will eventually cause these insurance companies to fail without government assistance. The federal government will eventually control costs, access (true access, not insurance coverage, e.g. – Medicaid), and ultimately quality. This may take decades, but it will happen.

          • Well, I am hardly an expert but it seems to me that if you have a whole lot of people using the system not paying into it, and then you get them to pay something, you are going to reduce costs overall. Perhaps not for them, but they should be paying something if they can, which they can. Most of my Dr.’s patients have jobs in the local wine industry and they get offered insurance by their employers but they don’t’ want to pay the $100 a month or so of their share. Cell phones, expensive wine, no problem there.

            The system is not working and it is getting worse, and it has to change. When people die because they can’t afford to go to the Dr with a simple infection because they don’t feel they can afford it, when people like me in the top 10% of income earners are spending 30% of their gross income on medical, and this kind of thing is affecting millions of people you can have all the political philosophy you want but the freedom to die is not much freedom you care about at some point.

            I wish the Republicans had wasted 42 votes trying to put in place a better plan but they didn’t, they are just playing politics with people’s lives and I appreciate that Obama at least did something however imperfect. He has broken the ice, now let’s work on improving it.

            I used to advocate for market based improvements, and am still open to it but it has been decades with not a finger raised by the Republicans to do anything, so I have given up waiting. The problems get worse daily.

      • They want a discount because they’ll see the Doctor for 10 or 15 minutes and he wants to charge them over $100 for the visit. He’s not fed up, he’s charging more than the non-insured market will bear.

        • Yes, I agree, in fact he is charging them $165 a visit and I doubt if he
          spends even ten minutes with them. Actually, I don’t know whether he gives
          them a discount or not but that is his basic fee.

          And that brings up another part of the problem, health care workers are
          making too much money. I see Dr’s on this site criticizing Obamacare and
          part of what it looks like to me is they are defending their economic
          interests. I think the hospitals are making too much too, certainly are
          charging too much.

          So I look at France and see that Dr’s there make a lot less, but in exchange
          they get a lot fewer headaches.

          I think you could say almost everyone is charging too much, Wall Street,
          unions, etc etc. We have a system where for years everyone has focused on
          maximizing their profits. It is a good thing, we are told, individual
          economic freedom leads to the greatest benefit for all.

          But so many groups are working the system and have gotten so good at it over time that they can control the marketplace.

          So ironically we end back at the same place we started, Obamacare is a government system designed to level some of that greed out, but it becomes another government system that the regulated can then work and game to maximize their profits at the expense of everyone else. It will just take them a few years to figure out how to do that.

          So some of those regulated, like Dr.’s tell us it is bad philosophy and
          defend the present system, more or less. But they are the beneficiaries of that system, one that is increasingly dysfunctional.

          The answer, we have to regulate and we have to make continuous changes to ensure it works for the community as a whole, and not just a limited number of individuals who are getting an outsized benefit.

          • Napablogger, there are a lot of things that can be easily misunderstood with regard to the provision of health care. Despite the high fees that you see, frequently the hospitals only receive a fraction of that fee and many would have to close their doors if it weren’t for large donors. On the other hand some hospitals gouge the uninsured so I think we have to be careful about generalizations.

            Physician fees to many seem very high, but one has to recognize the overhead involved which for a primary care provider is probably around 60% or more. Along with a variety of interests I also happen to have practiced medicine for many decades and watched my overhead climb from about 30% to way over 60%. My added overhead was due primarily to government intervention over the years.

            Cross country comparisons of earnings is extremely different and a number of years ago I tried as best as I could to fairly compare the French primary care physician to his counterpart in America. On an hourly rate it appeared to me that the earnings were relatively close. What one has to calculate is the numbers of hours worked and what benefits the French and American physicians have. The French benefits I believe are quite substantial. Additionally one has to calculate comparative salaries within the country. Average American income is higher than average French income.

            • your fees increased due to government regulations? not from insurance companies demands for paperwork and justification?

              my doctor’s office told me that they like medicare the best of all the insurers , because they just send the bill and it gets paid.

              I have no reason to doubt what you are saying, I get my info mostly from this site and they have published research that contradicts what you are saying. For instance, when Caroll published his ten part article on why health care was so expensive, he gave info that showed that health care salaries in America were ahead of the general rate of increased wealth/inlflation. In fact he said the main reason costs were higher were due to higher salaris in health care across the board.

              Dr’s make a lot of money, but I think it is ok because they have a lot of responsibility and it takes a lot of work to get there. The rest…hospitals, respitory therapists, even nurses make too much money, at least where I live, in California. Some nurses here are making $300,000 a year.

              My basic instincts are conservative, but with health care I like Obama because as mediocre as his plan seems to be, at least he did something. No one else can say that.

            • Napablogger: “your fees increased due to government regulations? not from insurance companies demands for paperwork and justification?”

              YES! …And I refused all capitated plans (HMO’s) including MA.

              “my doctor’s office told me that they like medicare the best of all the insurers , because they just send the bill and it gets paid.”

              Depends partially upon the location of the practice. Also fees may have increased in recent years to primary care providers. I am now retired from the practice of medicine so I can’t be sure about recent events though I understand their mechanisms. Additionally if your physician is in an area that has a high number of seniors he might find it not as comfortable when Medicare does sweeps of physician offices with audits and fines where many of their prior practices were found illegal by the federal court system. The fees for Medicare are on average lower than those for private insurers.

              When looking at physician incomes one has to be careful to separate the work done as a physician and other types of income streams. My income as a physician was satisfactory for me, but not that high. My income from companies I created or was involved in was quite high. One has to also look at the specialty. Medical Economics has one of the better analysis of physician income and I know that some economists that testified in court regarding losses used this resource in their testimony.

              Doctors make a lot of money. That is true when comparing them to the average individual. When one compares the average physician income to those that excelled in the universities equal to physicians one might completely reevaluate what their opinion is. I can’t be sure about the present, but I know when I went to medical school my grades were consistently the highest or next to the highest in all science fields and I had to compete with those that had majors in the subject and weren’t just fulfilling a science obligation. That was true with most of the others in my class that got accepted to medical school.

              When I got a pretty cushy job in the chemical industry for the summer while still studying at the university I found out that they were giving these jobs to look for future employees. They went to the best schools and picked out the best students in science. This may be anecdotal, but is important. 2/3rds of those picked in my group were actually going to go to medical school.

              The reason I believe this is important for the economists among us is because this may mean that healthcare, at least at that time, is draining our industries from the best and brightest science students. Those are the people that advance science, patents and add tremendous wealth to the nation, not necessarily becoming wealthy themselves. I worry less about physician fees than I do of this drain in talent.

              I disagree with your opinion regarding the ACA. The entire bill is counterproductive and doesn’t meet the needs of the nation. The incentives are all wrong.

      • “A couple years ago my Dr. told me that most of the patients he sees under 40 did not have health insurance and when they came in they all wanted a discount. He was fed up with it. ”

        If he was reasonably priced then his answer should have been, ‘look at how much money you have saved over the years by not having insurance and after you pay my bill you still will be far ahead.’

        • The problem is they don’t care. They hold on to that adolescent idea that you will never die and never get sick…until they do.

          My Dr told me that because of my position in the wine industry, he thought I could do something. I think, not so much, but maybe if I really wanted to.

          What he doesn’t realize is that the wine industry and even the vineyard workers offer great health care plans that most industries would be envious of. It’s just that most of the workers under 40 are too cheap to pay the low share they have to pay to get them.

          I really can’t talk, I did the same thing in my 20’s and 30’s, then when I got sick I went to the emergency room and got talked to by the Dr that I should get a regular Dr. I said thanks just give me some medicine and let me get out of here.

          Unless you make people do this a lot of them just won’t and won’t care that others are having to pay for them.

    • Businesses produce using their employees. Employees are human beings. Human beings all need certain things including healthcare, food, and old age care. When their salaries are insufficient to provide these needs, they fall on the social safety net. In other words, we are already paying the extra dime per pizza that Papa John’s does not provide. Likewise, when a Walmart employee gets SNAP benefits, we are all paying for them. This is true even if we are not patrons of Papa John or Walmart.
      These companies have turned the needs of their employees into externalities and dumped them on the rest of us.
      I have a rudimentary understanding of Hayek and do believe that the price mechanism is superior to centrally planned economies. But in order for the price mechanism to work doesn’t it have to include all costs of a product? Government makes market economies work by enforcing criminal laws, contracts, and preventing producers from using externalties us a unjust subsidy to them.

      • Exactly my thoughts, and I do not understand why this is not taken into account when evaluating the costs of Obamacare.

        Yes, there will be more tax spending, but there will be lower insurance costs for more people, for businesses overall, and it should at least balance out.

    • I would love to see a “health care special” on their menu, priced wherever they need it to be, where “all proceeds from this meal will help us buy healthcare for our wonderful employees.” it could be a healthy salad or a humongous pizza, but I would certainly be interested in trying it!

    • I guess these things are all not really worth worrying about either…

      I basically agree with Austin that the costs can be dealt with – but there WILL BE consequences – some of businesses FT employees can be converted to part time and have their hours limited – that is certainly not good for them – and may not be good for the businesses. Another approach would be to make the best employees work more – and cut back on the total number of employees – that will have bad consequences for those cut.

      I still think the right way to have managed this would have been to do serious cost reductions first – then go to a somewhat less comprehensive universal coverage system that focused on health care – not on a bunch of loosely related stuff – preventive care….

    • Oncodoc makes a good point that occurred to me last week when reading about the Representative from FL who has made reforming SNAP his mission.
      He yammered on about a culture of dependence while neglecting to mention that companies like Walmart etc….who pay the minimum wage and employ many low-wage workers benefit from their workforce’s depending on government benefits.

      Looking at the total picture I have to ask, are we better off sticking with a ridiculously low minimum-wage and subsidizing basic needs or should we raise the minimum wage so they could take in enough to meet their needs? Economists will tell you that raising the minimum wage eliminates jobs and few actually attempt to support families on that wage so raising it cuts low-skill workers who need the experience out of the labor market. I have to ask whether subsidizing those who are stuck in that low-wage category with SNAP and Medicaid might not be more efficient.

      CEOs want to pump up stock prices by lowering costs and legislatures refuse to raise taxes what is going to give?

      If you raise the minimum wage to a living level would you be taking the money from shareholders, who in this 401(k) era are likely retirees attempting to stretch their own meager dollars. People love to talk like people who receive benefits are somehow deficit, but it seems to me that the whole situation links wage earner and stockholder together.

    • -Telling a business that they should “just raise their prices” to cover an additional operating expense is tantamount to telling a household coping with an additional bill to “just make more money.”

      If a business thought that they could raise their prices X% without suffering any adverse consequences, presumably they would have done so without the impetus provided by operating expenses that are suddenly X% higher.

      @oncdoc:

      -The short answer to your question is “No.” There are innumerable examples of markets, and none of them require the calculation of the intangible costs associated with the production of a given good or service in order to function. The primary reason for this is that there is not any consensus regarding what these costs are, much less how to determine them or who should directly bear them.

      If you want a certain cohort of workers to earn, say, $20 per hour and the monetary value of their outputs to an employer is only worth 10, then the optimal way to do so is to simply use general revenues to cut them a check for $10 per every hour they work, rather than punishing people who employ them for the low value that consumers place on the goods or services that they are involved in making.

      • I absolutely disagree. If you just cut a check for $10 to bring these workers’ pay to $20, the business has no incentive to get more value out of them. They won’t invest in workers or equipment.

        • I absolutely disagree. If you just cut a check for $10 to bring these workers’ pay to $20, the business has no incentive to get more value out of them. They won’t invest in workers or equipment.

          -The value that the business derives from the workers has nothing to do with the value of the money that the government gives directly to the worker as a “negative income tax.” That’s the whole point. Every employer already has a significant incentive – e.g. profit – to maximize the value of the outputs of every employee. Forcing them to pay $20 per hour for outputs worth only $10 per hour simply gives them an incentive to lay off those employees whose wages exceed the value of their outputs (negative marginal product). invest in machines to replace NMP workers, move to a place where they can pay lower wages, or simply shut down – all of which directly and significantly harms the very people that those who want to force employers to pay higher wages claim that they want to help.

          Paying a negative income tax out of general revenues has none of these adverse unintended consequences, and allows for more efficient targeting of wage subsidies to people who really need them. That is – you can more heavily subsidize a single mom with two kids who’s trying to support her family by working at Taco Bell more than the child of the middle income parents who is funneling his earnings into a gaming console.

    • @PhedUp and @David – Please excuse the following business lecture. What seems obvious to MBA types is rather obtuse to economists.

      @PhedUp – Our business has less than 50 employees and we are hoping that some of our competitors with more than 50 employees get in a cost squeeze so we can get a few more sales. We have existing capacity to handle about twice our current sales volume without adding additional employees. We have similar view to our suppliers. As an example if we see a price increase we feel we cannot pass onto our customers, should we consider promoting competitor brands or private branding from China? Where is our alliance, with our suppliers or our customers? From this point of view the Affordable Care Act is a positive for businesses with less than 50 employees.

      @PhedUp and @David – Our business is an internet retailing segment with a significant amount of sales coming from Amazon and other shopping engines. We have about 6,000 products. Like a lot of retailers we pick our prices based on the combination of gross margin and expected inventory turnover versus profit margin percentage. As an example if we are competing on Amazon we try to one of the three lowest prices. We expect a certain amount of turnover and there is a big drop off in volume if you are not in the top three. Most of the time this works. We can easily raise prices on products we do not compete on and when we find inventory mishaps by our competitors but those price increases do not help very much with fixed costs such as additional Employer Mandate costs. Pricing is intricately linked to inventory turnover and customer psychology. So we can raise prices tactically where we can maintain our inventory turnover rate but generally not via an across the board price increase with unknown impacts on inventory turnover. It is funny. A 1% to 2% price increase can stop some product sales dead because the customer rebels. Pricing changes have complicated effects.

    • JayB hit it right. A business of that size with such low profit margins already would have increased prices if they could. An alternative is for the business to print money, but when caught they would go to jail. That is the difference between private business and the federal government. The federal government can print money without anyone going to jail and they don’t have to follow the GAP rules of accounting.

    • Cheap labor is one tough issue, and the sincerity and intelligence of the responses shows just how tough it is.

      The restaurant industry has been creating lousy jobs for the past 200 years. But without those jobs, some people would have starved or turned to crime.

      Actually the answer is to provide social benefits like health care through general progressive taxation. Let the employer create jobs however they can. If we need sales taxes also, that is fine. The customer pays those taxes.

      Trying to make lousy jobs into good jobs sounds progressive, but it runs a big risk. It is better to have a poor job and decent social benefits, versus no job and poor benefits.

    • The costs of health care for low paid employees should not be “intangible”. We have plenty of actuaries who can make very reasonable assessments of the present value of these risks. The CEO of Papa John’s estimated it at 25 cents per pizza, and I do not doubt him.
      The question in my mind is whether this cost should be paid directly to the employee by the employer or be part of the social net costs that all of us pay even if we are not customers of Papa John.
      My thinking on this is colored by my personal career. Warning, non-scientific old guy pontification ahead. Lack of health insurance does not prevent cancer. When underinsured people get cancer, they are rarely able to finance the shortfall themselves; after all, there are only a few meth cooking jobs out there. When I headed the cancer committee for a large hospital, we reviewed the charts of all new diagnosis of cancer. A number of the underinsured received no anticancer treatment for treatable disorders, but most received care on an ad hoc basis by crosssubsidization from the paying customers. This often required a drawn out process. Others wound up going through the bankruptcy process. The social net has holes. People drop through. The ones that are caught by the net undergo a stressful process not uncommonly involving further impoverishment through bankruptcy. The subsidy process of the health instutions for the self pay patients is inefficient. The only real savings that I see in the current system is the foregoing of care by some people, and this makes me shudder.
      If you are cool with the way things are, please make your choice known to the politicians. However, please do not tell me that health care needs can not be calculated nor that the current system is cost efficient.

    • The email represents a questionable anecdote. Questionable because there is no way of ascertaining whether those facts are accurate and whether the circumstances surrounding the supposed facts either support or detract from the argument.

      Still the supposition is that for a 7million dollar payroll they have a profit of 300K that’s 4% of payroll and probably less than half that percentage in total cost. Each business on average earns 50K for a payroll over a million? His average payroll cost per employee is 50K with a little over 2k per employee profit.

      Something just doesn’t seem right. I’ll guess that the 30 covered employees do well and that’s probably a network of family businesses that pay family well and that don’t want to earn much profit to be taxed and want to pay most of the employees very little. Small businesses do like to game the tax system.

      Ask for the name of the company and suggest the state might want to do a tax audit 😉

    • Jay B is on the right track. When unions or governments are able to impose higher wages, that means better jobs but fewer of them. Maybe a heck of a lot fewer.

      That does not matter in Northern Europe, because the birth rates are very low, there have been few immigrants, and until quite recently many women were out of the work force.

      It is true that some employers make a lot of money off cheap labor. We should catch them if you will through the income tax.

      Look at it this way. Walmart employees usually send their children to public schools. We do not expect Walmart to provide free private school tuition, and we do not blame Walmart for burdening the schools. We just collect general revenue from wealthier persons young and old.

      The same should happen with health care.

    • Can we just admit that the employer mandate as structured is BAD?

      The only employer mandate that might make some sense is a mandate that employers drop health insurance and give the amount of the premiums in increased pay.

      Your argument sounds like the straw that broke the camels back fallacy, that a straw is so small it cannot ever break the camels back so we can put an infinite amount of straw on a camel.

      Some restaurants are currently losing money and teetering on bankruptcy. This will just push them into bankrupts a little quicker. The effect will be small but real.