Andrew Puzder: Job Creation Is Price of Obamacare

Monday, 26 Dec 2011 08:09 PM

 

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I am not an expert on health-care policy, but I do know something about job creation. So when a House Oversight and Government Reform subcommittee asked me to testify about the effect on employers of the Patient Protection and Affordable Care Act, sometimes known as Obamacare, I thought I could offer some insights.

As I told the committee in a July 28 hearing, it is critical that Congress does a good job of balancing the benefits of new legislation against the costs of that legislation. That process begins with recognizing that laws like Obamacare come at a price.

Our company, CKE Restaurants Inc., employs about 21,000 people (our franchisees employ 49,000 more) in Carl’s Jr. and Hardee’s restaurants. For months, we have been working with Mercer Health & Benefits LLC, our health-care consultant, to identify Obamacare’s potential financial impact on CKE. Mercer estimated that when the law is fully implemented our health-care costs will increase about $18 million a year. That would put our total health-care costs at $29.8 million, a 150 percent increase from the roughly $12 million we spent last year.

The money to cover our increased expenses will have to come from somewhere. We are a profitable company and, after paying our obligations, we reinvest our earnings in the business. Reinvesting in the business is how we grow, create jobs and opportunity. This is true for most U.S. businesses.

Cutting Spending

To offset higher health-care expenses, we will have to cut spending on new restaurant construction, one of our largest discretionary spending areas. But building new restaurants is how we create jobs. An $18 million increase in our costs would more than consume the $8.8 million we spent on new restaurant construction last year, leaving nothing for growth. We will also need to reduce our general capital spending, which also creates jobs and allows us to improve our infrastructure and maintain our business. In summary, our ability to create new jobs could vanish.

To reduce the financial impact of Obamacare, many businesses, including ours, will have to consider increasing the number of part-time employees (those who work less than 30 hours a week as defined under the health-care law) and reducing the number of full-time employees. So, some individuals seeking full-time work will need to find two jobs.

Automation will also become more appealing. For example, although we value the personal touch, electronic ordering kiosks will become more economically desirable. Nationwide, 63 percent of our employees are minorities and 62 percent are female. Unfortunately, these cuts will affect them the most.

The complexity of this legislation makes it hard to anticipate costs in the future. Our investments pay off -- when they are successful -- over the long term. Because we don’t know what our health-care expenses will be in two or three years, we are unable to determine with any certainty how much our investments will have to return for us to be profitable. All of that counsels in favor of holding off on new investments and saving our funds. We want to grow. But we are unable to do so knowing that large and undetermined liabilities will absorb funds we otherwise would invest for expansion.

My testimony was followed by that of Grady Payne, chief executive officer of Connor Industries Inc., a supplier of cut lumber and assembled wood products for shipping and crating needs. Based in Fort Worth, Texas, it has plants and employees in eight states and employs 450 people. He laid out the options open to his company under the health-care law, each of which would cost $1 million or more. According to Payne, that amount is “more than the company makes.” He concluded that his company’s goals have turned “from ‘hire-and-grow’ to ‘cut-and- survive.’”

Scaling Back

Victoria Braden, the president and CEO of Braden Benefits Strategies Inc., a corporate employee-benefits adviser based in Johns Creek, Georgia, also testified. She said adoption of the law led to immediate job cuts at her company as she scaled back an expansion into a new line of business. Obamacare “is devastating to my business, expensive for me and my clients to administer, and works against our goals of helping businesses to expand, and putting people back to work,” she said.

I understand that many members of Congress believe providing everyone with health insurance is a top priority. Several committee members said so at the hearing, and I respect them for caring about the uninsured. My point to them was this: Everyone has a stake in job creation. As far as I am aware, no one in Washington -- Republican or Democrat, liberal or conservative -- can achieve their goals unless our economy prospers and creates jobs. Washington needs to understand that legislation like the health-care law has costs as well as benefits, that the costs suppress job growth, and that when too much legislation kills too many jobs, everyone suffers.

Chief executives have responsibilities to their existing employees, customers and shareholders. We simply cannot risk their jobs and their money by investing when we know that legislation like Obamacare will make it so much harder to earn a profit. The sooner both parties in Washington understand this, the sooner we can all begin looking for ways to strengthen the social safety net without hurting the economy.

(Andrew Puzder is the chief executive officer of CKE Restaurants Inc. and co-author of “Job Creation: How It Really Works and Why The Government Doesn’t Understand It.” The opinions expressed are his own.)

 

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