Raising the Price of Pizza 10 to 14 cents. . .
Raising the Price of Pizza 10 to 14 cents. . .
Will pizza and food prices really have to increase to cover healthcare costs for the mostly young employees of the Olive Garden’s, Denny’s, and Papa John’s restaurants?
A 10 to 14 cents increase per pizza is being proposed by Papa Johns’ to pay for the PPACA. At the same time, Papa John’s is advertising a 2 million-pizza giveaway with the help of Peyton Manning “Two Million Free Pizzas” (must be a freebie?). Not sure myself how I might decide to account for the cost; but, here is a try; free pizza for 2 million NFL fans to increase sales, . . . cut employee hours to avoid the PPACA and keep the price, . . . raise prices 10 to 14 cents per pizza to have healthcare insurance for the restaurant staff, . . . or maybe a kind of half cheese/half sausage combo. . . healthcare and free pizzas with Peyton Manning promoting the social responsibility of Papa John’s?
Maggie Mahar at The Health Beat Blog “Can US Businesses Afford Obamacare?” points to an interesting article by John Padua of Managed Care Matters discussing who bears the healthcare reform cost if restaurant owners opt out while Forbes Caleb Melby runs the numbers and questions the increased costs suggested by Papa’s John’s CEO “Papa John’s Obamacare Math” .
The issue(s): The Affordable Care Act dictates that full-time employees (30 hours or more per week) at companies with more than 50 workers need to be provided health insurance. CEO John Schnatter has further claimed that some employers will cut employee hours to avoid providing them with healthcare.
The Cost: John Schnatter estimates that Obamacare will end up costing his company $5-8 million annually.
The Price Increase: 10 to 14 cents per pizza
Checking John Schnatter’s Math: Last year, Papa John’s International captured $1.218 billion in revenue. Total operating expenses were $1.131 billion. If Schnatter’s math is accurate (Obamacare will cost his company $5-8 million more annually), then new regulation translates into a .4% to .7% expense increase. It is difficult to set that ratio against the proposed pie increase and across all sizes given size and topping differentials, but many of their large specialty pizzas run for $16. Remarkably, a 10-14 cent increase on a $16 pizza falls in a comparable range of .6% to .9%; but, the cost transference becomes less equitable if you are looking at medium pizzas which run closer to $12, meaning a .8% to 1.15% price increase.
Lets say that Papa John’s sells exactly half medium/half large specialty pizzas. Averaging the ranges for both sizes, then averaging that product yields a .86% price increase — well outside the range of what Schnatter says Obamacare will cost him.
So how much would prices go up, under these 50/50 conditions, if they were to fairly reflect the increased cost of doing business onset by Obamacare? Roughly 3.4 to 4.6 cents a pie.
3.4 to 4.6 cents does not seem like such a huge increase to bear by either customer or the business and if the advertising is done right; it might prove more positive than giving away 2 million freebie pizzas during the NFL season . . . a little like Schooner Tuna in the movie “Mr. Mom,‘we are in this together for the long haul.'” What customer would not buy into this?
The Issue(s): From the annals of I made this; “Everyone is looking for a way ‘not‘ to provide insurance for their employees. It is essentially a huge tax on all us business people,” declares Denny’s RREMC Franchise Owner CEO John Metz on Fox News. To offset costs further, John adds; “he also will slash most of the staff’s time to fewer than 30 hours per week” to start January 2014.
Talk about giving a long notice for plant closures to employees. What happens if franchise owner sidesteps the insurance provision of the PPACA and cuts hours to fewer than 30? John Padua of Managed Care Matters says the cost falls back on the US citizenry, employees, and customers of these restaurants.
“If companies do not provide insurance for low-paid workers, we taxpayers have to. That is the way Obamacare works; folks with incomes below 400% of the FPL can get subsidized coverage. If restaurants cut workers’ hours so as not to insure employees, all of us taxpayers get to pay for their health insurance. These companies are avoiding their responsibility and increasing our tax burden. “The Cost of Obamacare -14 cents per pizza”
The Cost: Maggie Mahar raises the question in her “Can They Afford It???” post. Metz employs 1,200 associates at his Denny’s RREMC franchise. Taking the extreme case of all 1200 employees going into the state exchange and being subsidized up to 400% of FPL; by slashing everyone’s hours to 28, Metz avoids the $2,000 penalty (~$2.34 million in total) for those going into the state exchange.
The Price Increase: 5% surcharge to all meals in 40 Denny’s in Georgia, Florida and Virginia. (note: I wonder how that will appear on the bill?)
Checking The Math: The CBO (which forever appears to be anti-healthcare reform) found in a recent study, 2014 comprehensive healthcare insurance could be had at $3,400 for an employee up to 30 years of age and single. Understanding we are not talking about writing off Metz’s employee expenses from his corporate income tax yet and knowing the PPACA requires an employer to pay 65% of the employee’s healthcare insurance, the $3,400 per person (down from a projected $6,700 without the PPACA) now becomes $2,210 per person.
Denny’s franchise owner Metz is angry with Obama, the PPACA, and his employees. Granted, the example is as much an extreme as Metz’s knee jerk reactions and posturing; but, it points to the overall fallacy in the too-much-healthcare- cost is a drag on my business argument. Both of these entrepreneurs did take grief for their stances. Denny’s CEO John Miller did call john Metz to discuss his stance and John Schnatter has been called out in various blogs and is the subject of multiple boycotts.
Much of this sounds like sour grapes starting with SCOTUS affirming the PPACA and is carryover from the re-election of Barack Obama to the Presidency. Some have protested the validity of the PPACA claiming it was immoral to force business owners to pay for employee healthcare insurance. In an email exchange, John Paduca answers:
“In response to your query as to when it became an employers’ responsibility to provide health insurance, that would have occurred when PPACA was passed, signed into law, and upheld by the Supreme Court. Laws run this country, not morals. If ‘morals’ did, we never would have invaded Iraq or water-boarded prisoners or interned Japanese Americans or overturned legitimate governments in Africa and Central America or supported the Shah of Iran. ‘Morals’ are personal; laws are societal.”
Maybe it is just Republicans having to cancel their airline tickets to Boston for the celebration on November 7th which has placed both Johns in a bad mood. Or could it be pent up anger with the very people who elected Barack to The White House for a second term? You know, those 47 percenters who might make up the bulk of the restaurant workers.
Why shift it onto the consumer at all???
I see a 5% net profit for PJ’s, plus a $160M/yr SG&A that has fat in it no doubt.
http://research.stlouisfed.org/fred2/series/CP/
shows corporate America isn’t hurting . . .
Fred:
I am not advocating a shift to consumers at all. What I am pointing out is business can pay for it even without the tax deductions from Federal Corporate income tax. In the last three paragraphs I do give some reasons why business owners are rebelling. Besides being told they have to do this, read below as taken from my post:
Much of this sounds like sour grapes starting with SCOTUS affirming the PPACA and is carryover from the re-election of Barack Obama to the Presidency. Some have protested the validity of the PPACA claiming it was immoral to force business owners to pay for employee healthcare insurance. In an email exchange, John Paduca answers:
“In response to your query as to when it became an employers’ responsibility to provide health insurance, that would have occurred when PPACA was passed, signed into law, and upheld by the Supreme Court. Laws run this country, not morals. If ‘morals’ did, we never would have invaded Iraq or water-boarded prisoners or interned Japanese Americans or overturned legitimate governments in Africa and Central America or supported the Shah of Iran. ‘Morals’ are personal; laws are societal.”
Maybe it is just Republicans having to cancel their airline tickets to Boston for the celebration on November 7th which has placed both Johns in a bad mood. Or could it be pent up anger with the very people who elected Barack to The White House for a second term? You know, those 47 percenters who might make up the bulk of the restaurant workers.
Of course, the reality is that there is no certain relationship between unit pricing and costs of production.
You’d think a businessman might understand that . . .
JzB
Bill alias Run
can’t help noting you are comparing Obamacare with waterboarding and apparently deciding that they are equally valid because they are the law, and morals be damned.
i would not go so far as to compare the two, but the fact that Obamacare delivers me into the hands of the criminal insurance-healthcare complex does make me feel that there is something immoral about it.
and unlike all the rest of you law abiding citizens i say waterboarding is evil whatever the law, and we are evil for sanctioning it.
Bill,
i would pay the extra fourteen cents per pizza and never notice it. never buy less pizza.
it’s true i wouldn’t have the fourteen cents to spend on something else. but not only do i think that would come out in the economic wash, i am fairly sure the employees who got that fourteen cents need it more than i do.
I’m happy to read that you found someone that put 2+2 together; the taxpayers will end up w/ the burden b/c companies will be dropping their coverage and turning them over to the exchanges. What PPACA fails to do is incentivize Employers to keep offering insurance – if the average cost is $5600/employee, but I can pay $2000/employee by not offering coverage, why wouldn’t these publicly traded companies drop coverage? Simple math. This is before we tackle the issue of employers not really caring about their employees.
Jazz:
In all my years of doing throughput analysis in manufacturing and working the purchasing/materials/distribution stint; I have met few upper level managers who understood the costs of manufacturing other than whacking Labor for whatever reason. Oliver Wight called many of the “cement-heads.”
coberly:
The comparison made by John Paduca is between laws and morals.
What are the incentives now for companies to provide healthcare insurance and how does the PPACA change those incentives?
Bill aka
what you quoted looks to me like a justification of PPACA as “the law,” saying that “morals are personal.”
sure, that is a “comparison between” but the argument looks to me like “law trumps morals.”
which we know. and the rest of what i said above follows.
what strikes me is that i am on your side here, but i no longer expect that to mean anything to people who seem to think “if you disagree with me about ANYTYHING , you are the enemy.”
good luck with that.
coberly:
Both of your comments are non sequitors in relation to the main topic of the post.
Bill aka
i specialize in non sequiturs because most people never think of the implications, the possibilities, or the unexamined assumptions.
Even though the price of a pizza just increase several cents, it still shows that the companies don’t want to pay insurance for workers. They use this method to shift the insurance to customers. But the workers who need healthcare are customers. so they pay their own healthcare. May be companies should be taxed more.
Jiaze LI:
In the olden days when corporate taxes were much higher, the gov allowed companies to deduct 100% of employee healthcare insurance. Now is it just 50% of healthcare insurance. There might be some reasoning to increasing corporate taxes and then allow companies to exact 100% of the balance after subsidies. It is definitely a thought to be considered.
Mr. Critter:
Companies greater than 100 are expected to pay 65% of healthcare premiums which 50% can be deducted from their income tax. The point here is that the expense is actually less than the $2000 in penalties which will be paid otherwise.
Zach:
Under the PPACA the gov is providing incentives through the state exchanges and placing the max at 65% of total healthcare insurance expenditure leaving 35% for the employee. You get to use the balance or leftover of the cost and deduct it (50%?) from your corporate income tax in which case the result is NOW less than the penalty of $2000. This differs from what exists today.
Companies smaller than 50 have subsidies to help pay for healthcare insurance and are exempt from the penalty. Read the post again carefully.
Bill aka:
so are there some other ways to solve this problem except for more taxes? it’s not easy to get a high tax….