The Times Board of Economists

Hold the fries: Obamacare may drive up fast-food costs

2013-01-27T00:00:00Z 2013-12-18T16:30:38Z Hold the fries: Obamacare may drive up fast-food costsVanessa Renderman, (219) 933-3244

Next year's order of a burger, fries and pop could cost more, as the fast food industry braces for the impact of the Affordable Care Act.

Often, workers who prepare and serve food are not offered insurance. That will change in 2014 because of a mandate through the act, commonly known as Obamacare.

"The bottom line is they are required to provide insurance for full-time workers," said Micah Pollak, an economics professor at Indiana University Northwest in Gary. Pollack represents the Education sector on The Times Board of Economists

Employees who work 30 hours or more a week will qualify, he said.

Uncertainty lies in how employers will absorb the cost.

"The easier solution is to pass it on to the consumers," Pollak said. "I don't think that's likely to happen in the short term."

One restaurant cannot have an overnight price increase, especially if a competitor across the street has not raised its prices yet, he said.

The fast-food industry is not alone in dealing with the mandate, but it will be one of the hardest hit because of its thin profit margins and its workforce. The issue came up during a recent meeting of The Times Board of Economists at Innsbrook Country Club in Merrillville.

A 2012 survey by consulting firm Mercer showed employers that will be hit hardest are those with large part-time populations, such as retail and hospitality.

In theory, employers could scale back the hours of full-time workers and bring them to part-time status. But in practice, they may struggle to hire enough people to cover the remaining hours, Pollak said.

"You may see wages going up for this because of the increased demand for part-time workers," he said.

The penalty for not offering insurance to full-time workers is $2,000 per employee a year, so fast food restaurant owners need to weigh the cost of the penalty against the cost of insuring them or scaling back to part-time workers, Pollak said.

John Barney, president of Barney Enterprises, which owns for Wendy's restaurants in the region, said it is hard to know the full impact of the mandate at this point. Barney represents the Restaurants sector on the Board of Economists.

He cannot approach employees and ask or suggest anything related to offering them insurance next year, and he does not know the cost of the policies. Rather, he has to work out several scenarios.

"I would like to be able to provide medical insurance at a reasonable level," Barney said. "The requirements are so burdensome."

Obamacare is the biggest issue facing the industry, he said. Some people think the industry should have been providing insurance all along.

"If we were providing that, we'd be charging more for our product," he said. "We're not making more money (by) not providing that. And if we have to provide that, which the law now says we will, we're going to have to charge more. And how does that happen? How do you transition into that?"

Barney said many employees at the management level already turn down the medical insurance.

"I don't think the crew people, even if you offer it to them, are going to take the insurance," he said.

It may be cheaper to pay the individual penalty for being uninsured.

Charging more on the menu is not necessarily the answer to covering costs, Barney said.

If prices increase 10 percent, for example, revenue will not also increase 10 percent, because some customers will not pay the higher price, he said.

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