Why IHOP Owner’s Fears About ObamaCare’s Impact On Jobs And Economy Are Overblown

The Heritage Foundation is promoting the GOP argument that health care reform is a “job killer” by offering this profile of an IHOP franchise that will have to spend thousands of dollars to offer health insurance coverage to its employees:

Under the year-old law, Womack must provide health insurance to all full-time employees beginning in 2014. Right now, he employs nearly 1,000 full- and part-time workers and already offers insurance to his management staff. He simply does not know how he’ll generate the revenue to do more.

Womack estimates the cost of the law to his company will be 50 percent greater than his company’s earnings — in other words, beyond his ability to pay.

That’s not because his company of 12 IHOP restaurants in Indiana and Ohio is unprofitable. Quite the opposite, in fact. By industry standards, he’s doing well. But labor-intensive restaurants generate profits of just 5 percent to 7 percent per employee.

Watch it:

Now, it’s certainly true that some businesses will have to spend more on health care coverage under the new law, but here, Heritage really did its homework in finding the exact kind of business that will be most affected by reform. Step back a moment and realize that the premise is wrong at the outset: businesses are not required to provide coverage under the law, as the Heritage piece claims. Rather, businesses with more than 50 employees (like this chain of IHOP stores) that do not offer insurance would be required to pay a penalty of $2,000 per full time employee (minus the first 30 employees) if any employee receives subsidized coverage through the exchange.

As the Urban Institute’s John Holahan and Bowen Garrett explain, on the aggregate, the impact on businesses is minimal:

Smaller businesses: Premium contributions for firms with fewer than 100 employees would fall by 8.2 percent “because such firms have the option of purchasing coverage in the new Small Business Health Options Program (SHOP) exchanges, where administrative costs will be lower than in current markets, and premiums will fall as a result.” Firms under 50 employees are exempt from any employer requirement and will also have access to tax credits to help offset the cost of coverage. Firms with more than 80 workers “would pay $2.0 billion in assessments if their full-time employees receive subsidized coverage through the exchange. On balance, taking premiums and assessments into account, small businesses would save 8.7 percent compared with their current premium contributions” and would have more dollars to grow their businesses.

Firms between 100 and 1,000 workers: Medium-sized firms that don’t offer coverage (more than 95% already do) would pay, in aggregate, “$11.8 billion in assessments due to full-time employees obtaining subsidized coverage through the exchange.” However the total amount in assessments “is very small in comparison to wages and salaries in the United States (0.2 percent of the $6.4 trillion wage base) so any negative impact on jobs must also be small.”

The law assumes that employers have a responsibility to fund health care reform and increase access to coverage, to be sure, but Heritage purposely cherry picked this IHOP businesses and then exaggerated the affects of the law. For instance, Womack estimates that he would have to spend $7,000 to $10,000 per employee, when in reality the penalty for not offering coverage is $2,000 per every full time worker minus the first 35 (the video and blog post suggest that he would have to spend $7,000 for all 1,000 employees).

The effects of the law on Womack’s business may be difficult to calculate, but these exaggerations only serve to complicate that picture, suggesting that the law would pull the rug from under small businesses without detailing any of the benefits of reform. Towards the end of the video, Rep. Mike Pence (R-IN) suggests that “the real answer” for businesses who can’t afford health insurance today “is to simply lower the cost of health insurance,” which ACA is projected to do. According to the CBO, reform will reduce average premiums for employers with more than 50 employees by up to 3% and successful delivery system reforms like bundling payments, accountable care organizations, medical homes and care coordination could further lower the growth of health care spending. All this would result in more jobs and higher family incomes — allowing Womack to invest more dollars into his restaurants and expand operations.