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Thread: International Franchise Association - ObamaCare will cut franchisee profits in half !

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    Default International Franchise Association - ObamaCare will cut franchisee profits in half !

    With the FED's QE3 and stock market / commodity price reaction dominated today's financial news, this got very little news coverage ...

    from


    (snip)"The International Franchise Association held a convention in Washington this week where most of the Radio Shack, Dunkin Donuts, Curves and other franchisers were grumbling about new federal regulations, especially the impact of Obamacare.

    Most, said Atlanta Taco Bell and Kentucky Fried Chicken franchiser David Barr, presumed that the reports about how hard Obamacare will hit them were overblown. "They had their head in the sand," he told Secrets.

    That is until he pulled out his powerpoint showing how funding Obamacare will cut his--and likely their--profits in half overnight. With simple math the small business folks understood, he spelled out that their only choice is to slash employee hours so they aren't eligible for company-paid health care or stop offering insurance and pay the $2,000 per employee fine.

    Barr has 23 stores with 421 employees, 109 of whom are full-time. Of those, he provides 30 with health insurance. Barr said he pays 81 percent of their Blue Cross Blue Shield policy, or $4,073 of $5,028 for individuals, more for families, for a total bill of $129,000 a year. Employees pay $995.

    Under Obamacare, however, he will have to provide health insurance for all 109 full-time workers, a cost of $444,000, or two and half times more than his current costs. That $315,000 increase is equal to just over half his annual profit, after expenses, or 1.5 percent of sales. As a result, he said, "I'm not paying $444,000."

    Providing no insurance would result in a federal fine of $158,000, $29,000 more than he now spends but the lowest cost possible under the Obamacare law. So he now views that as his cap and he'll either cut worker hours or replace them with machines to get his costs down or dump them on the public health exchange and pay the fine. "Every business has a way to eliminate jobs," he said, "but that's not good for them or me."

    But that's not all. His experience tells him that most low-wage workers he would have to cover under Obamacare won't take it because their $995 share is too high, meaning those the program was set up for won't see any benefit. And those who do will because they have major health issues, likely resulting in higher premiums to him."(snip)
    Last edited by Melonie; 09-13-2012 at 04:35 PM.

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    God/dess Zofia's Avatar
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    Default Re: International Franchise Association - ObamaCare will cut franchisee profits in ha

    In my experience, $4,073 single coverage is a very reasonable price for group health insurance. Wait until next year when the carrier sends a 12-15% increase your way even if you have a good claims history! BTDT. Family coverage at my company is just over $12,000 for a family of four or right at $7,000 for family coverage of two or three. So, yes paying the $2,000 penalty seems attractive. I have decided not to go that way, but it's obviously an avenue to greater profits or a method to stem losses. What we really need is a simple national medicare system that employers pay a fixed percentage in and every employer pays the same amount. That won't happen until more employers start seeing health insurance costs rise too much.

    Z

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    Default Re: International Franchise Association - ObamaCare will cut franchisee profits in ha

    ^^^ all true ... but arguably beside the point where the International Franchise Association is concerned. Unlike your own business, which involves highly skilled workers receiving relatively high rates of pay where a $5000-$7000 'employer' cost of health insurance coverage for employees is a 'manageable' percentage of your total labor costs, these franchise businesses all involve unskilled or semi-skilled workers receiving relatively low rates of pay where a $5000-$7000 'employer' cost of health insurance coverage for employees constitutes an impossibly large percentage of their total labor costs.

    Also, unlike your high value added business where a $5-7000 per employee health care cost represents a marginal reduction in profitability, these low value added franchise businesses view a $5-7000 per employee health care cost as a MAJOR HIT TO THEIR BOTTOM LINE ... i.e. fully one half of total annual profits for the KFC franchisee example above. Thus these franchise businesses, and other low value added businesses, will have no choice but to take the 'minor' hit of the $2000 ObamaCare penalty, to drop existing employee health care, and to 'dump' their employees onto the gov't run health insurance exchanges.

    This wouldn't be a huge deal if franchise businesses i.e. low value added service jobs were a relatively small part of the US economy. Unfortunately, they are the only segment of the US economy experiencing sustained growth !!!

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    Default Re: International Franchise Association - ObamaCare will cut franchisee profits in ha

    Most franchise owners won't be affected, since the requirement for businesses to provide health insurance only applies to businesses with more than 50 employees. For small businesses that are already providing health insurance for their employees, they will actually save money, since they will now be getting a tax credit for it.

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    Default Re: International Franchise Association - ObamaCare will cut franchisee profits in ha

    ^^^ that's true as long as none of those small business owners 'grows' his business to the point of needing to hire a 51'st full time employee ... which will effectively cost the small business owner a minimum of $102,000 per year in addition to the 51st employee's salary !!!

    In regard to your claim about the tax deduction, it remains to be seen whether or not cost shifting away from the new state exchange insured workers and onto the remaining privately insured workers will increase insurance premiums more than the tax deduction is worth.

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    Default Re: International Franchise Association - ObamaCare will cut franchisee profits in ha

    Quote Originally Posted by eagle2 View Post
    Most franchise owners won't be affected, since the requirement for businesses to provide health insurance only applies to businesses with more than 50 employees. For small businesses that are already providing health insurance for their employees, they will actually save money, since they will now be getting a tax credit for it.
    Most francise operations have well under 50 employees, owners with multiple franchises would most likely have seperate corporations for each location.

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    Default Re: International Franchise Association - ObamaCare will cut franchisee profits in ha

    ^^^ obviously, separate corporations employing fewer than 50 full time employees will become the de-facto future 'standard'. Even so, strong financial incentive would exist for those sub-50 employee companies to 'drop' existing employer funded health insurance coverage for whatever portion of employees that had been receiving such health insurance coverage, in favor of pushing these employees to state health insurance exchange based coverage. Strong financial incentive would also exist to convert full time employees into part time employees.

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    Default Re: International Franchise Association - ObamaCare will cut franchisee profits in ha

    Quote Originally Posted by Melonie View Post
    ^^^ obviously, separate corporations employing fewer than 50 full time employees will become the de-facto future 'standard'. Even so, strong financial incentive would exist for those sub-50 employee companies to 'drop' existing employer funded health insurance coverage for whatever portion of employees that had been receiving such health insurance coverage, in favor of pushing these employees to state health insurance exchange based coverage. Strong financial incentive would also exist to convert full time employees into part time employees.
    All of the people with multiple franchises already have the individual operation in separate corporations for a variety of reasons including liability. This entire thread was a waste of time.

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    Default Re: International Franchise Association - ObamaCare will cut franchisee profits in ha

    I have a neighbor who is a District Manager with a large (she covers 15 stores) fast food franchise operator. They have over 100 locations throughout the southeast. A couple of different brands. Most of their stores are owned by one company so they have way more than 50 employees. More like 500 employees. In fact, they've offered health insurance for years. They've managed to be very profitable. I think the franchise concern about offering health insurance is overblown. The problem isn't the benefit, it's the ever rising cost of health insurance.

    Z

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    Default Re: International Franchise Association - ObamaCare will cut franchisee profits in ha

    The problem isn't the benefit, it's the ever rising cost of health insurance
    I agree if you add the qualifier the ever rising cost of PRIVATE health insurance. As proven by published prices at a 'cash only' surgery center which does not accept Medicare or Medicaid patients, and which does not provide medical treatment to anyone who hasn't first paid the quoted treatment price in cash, the DIRECT costs of actually providing health care can still be surprisingly low. As proven by countless reports, however, the official reimbursement rates for Medicare and Medicaid patient treatments are often even lower ... falling significantly below the care provider's actual costs of providing said health care. Thus PRIVATE health insurance carriers are overbilled to the point where the amount billed for patient treatments FAR exceeds the health care provider's actual costs of providing said health care, with the overbilled amount in turn being used to 'subsidize' the under-reimbursement by Medicare and Medicaid, as well as totally covering the costs of health care provided ( on credit ) to non-paying uninsured patients, to patients later filing for bankruptcy, etc.

    It is thus an obvious conclusion that, as more Americans gain coverage under Medicare ( baby boomers aging ) and Medicaid ( high unemployment, low income, ObamaCare expanded eligibility ), thus more Americans consume health care services where the the health care provider is forced to accept a Medicare / Medicaid reimbursement amount which is LESS than the actual cost of providing said health care, the shifted costs to PRIVATE health insurance carriers to allow the health care providers to make up for these losses must increase to even higher levels. And as the percentage of total PRIVATELY insured patients declines even further, shifted costs will rise to even HIGHER levels on a per PRIVATELY insured patient basis. Thus the only logical assumption is that the future cost to employers to provide PRIVATE health insurance coverage for low skill level / low pay rate US workers will significantly increase 'all-in' labor costs thus significantly reducing bottom line profitability for said employers. This in turn will incentivize employers of low skill level / low pay rate US workers to A. drop PRIVATE health insurance coverage in favor of 'dumping' employees on state health care insurance exchanges and paying the known amount of the ObamaCare fines per employee, to B. reduce the number of full time employee positions ( via automation, via conversion to part-time positions, via subcontracting etc. ) in order to reduce the total number of ObamaCare fines which must be paid, or C. close and sell the business, terminate all employees, and invest the proceeds.

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    Default Re: International Franchise Association - ObamaCare will cut franchisee profits in ha

    Trust Mel to have a catastrophic scenario.

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