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Sub Par Reporting on the ACA

The Berkeley Blog, September 23, 2013

By Ken Jacobs

In a story that purports to illustrate how the Affordable Care Act (ACA) will hurt fast food businesses, Venessa Wong at Bloomberg News inadvertently shows how small those impacts are likely to be in reality. She gives the example of Firehouse Subs, which currently does not offer health benefits to anyone working 30 hours a week or more. If they were to do so, according to CEO Don Fox it would cost the company an estimated $4,000 a year per store. You read that right, $4,000 a year. He says this will slow down the expansion of the sandwich shops. The article gives only two options for employers to meet the costs – reduce hours or take it out of their margins.

Looking quickly at the helpful graphics in the article, we see that the average shop has $800,000 a year in sales. A $4,000 annual increase on a store with $800,000 in sales is an increase of 0.5% relative to sales. A quick look for a Firehouse Sub menu on the internet shows the price of a sandwich at $5.79. If all of the additional cost was passed on to consumers, it would be a whopping 3 cents per Sandwich, raising the price to $5.82. I suspect that most customers won’t mind paying an additional 3 cents to know that the people handling their food have access to health care.

Even a 3 cent increase assumes all of the costs are passed on to consumers. Health benefits have positive impacts on worker productivity and reduce absenteeism and turnover. Replacing one worker in the fast food industry is estimated to cost about $2,000 a year. Once this is factored in, the actual cost to the sub shop is likely to be well under the already very low $4,000. The notion that these costs would effect growth in any way defies economic logic.

The article mentions the employer requirements in Hawaii and San Francisco, but unfortunately, ignores the research on both. The article even cites a brief by my colleague Dave Graham-Squire and myself, which summarizes the research on Hawaii which found no measurable impact on employment, and a small increase (1.4 percent) in part-time workers as a result of that state’s much stronger employer requirement. Research by Will Dow here at the UC Berkeley School of Public Health, Carrie Colla and Arindrajit Dube, likewise found no negative employment impact in the restaurant industry in San Francisco after the passage of that city’s health care policy.

The employer requirement could have been structured better. San Francisco provides a good model, scaling the amount paid by hour and so avoiding incentives to change hours to avoid the law. However, the solution proposed by the restaurant industry – raising the threshold to 40 hours a week – would only make the problem worse. Cutting full time workers’ hours below 30 is a costly proposition in most industries once you factor in the costs of turnover, unemployment insurance, administration and supervision. Reducing hours from 40 to 39 to avoid the penalty would be relatively costless. While we can expect some employers to cut workers’ hours as a result of the current law, the number would explode if the restaurants’ proposal was adopted.

The employer responsibility provisions in the Affordable Care Act are designed to reduce the incentive for employers to drop coverage and shift costs onto the public. If employers choose not to provide coverage, they are required to contribute towards the public cost of the care for their workers. For better or worse, the Affordable Care Act was designed to leave our system of employer-sponsored insurance in place as the main source of coverage for Americans under the age of 65. The employer responsibility provisions are a necessary part of the law.

 

Original Article


 
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