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'Obamacare' will add to Papa John's pizza price, Schnatter warns

by Joe Arnold


Posted on August 8, 2012 at 4:53 PM

Updated Thursday, Aug 9 at 3:16 AM

LOUISVILLE, Ky (WHAS11) -- The Affordable Care Act will add up to 14 cents to the cost of each pizza sold by Papa John's, the pizza corporation's founder and CEO, John Schnatter, told a shareholders' conference call last week.

Schnatter's comments had the restaurant industry and political world buzzing on Wednesday after they were reported by the Politico website on Tuesday.

"Our best estimate is that the Obamacare will cost about 11 cents to 14 cents per pizza or 15 cents or 20 cents per order from a corporate basis," Schnatter said in response to a question from a financial analyst.  "To put that in perspective, our average delivery charge is $1.75 to $2.50 or about ten-fold our estimated cost of the Obamacare to Papa John's."

Supporters of the health care suggest that is a small price to pay to expand health insurance for all.

"(The uninsured) are struggling to make ends meet," said Jodi Mitchell, the Executive Director of Kentucky Voices for Health, "to get coverage is a huge burden lifted.  And, it's also a burden lifted from all of us" because of costs associated with uninsured seeking medical care in emergency rooms and the lack of preventitive care.

The company is not explaining how it arrived at those figures.  Late Wednesday afternoon, as the story was picked up by more news outlets and the company's position became a matter of debate, Papa Johns's issued a statement:

We certainly understand the importance of healthcare to our customers, our employees, small business owners and their employees. As a publicly traded company, we were responding to a direct question from an analyst on our quarterly financial conference call about the anticipated costs of complying with the Patient Protection and Affordable Care Act.

When certain business costs increase – such as fuel, ingredients or employee healthcare – there is an impact to the price of products and services.

The vast majority of Papa John's restaurants are owned by small business people, each of whom will be impacted in different ways by costs associated with the Patient Protection and Affordable Care Act. Papa John’s remains fully committed to providing our customers with better ingredients and better pizza at the best value.

Last month, McDonald's estimated the Affordable Care Act will cost each of its restaurants between $10,000 and $30,000 per year, a total of more than $400 million per year.

Papa Johns appears to be the first corporation to reveal the cost to customers, and that impresses a local competitor.

"(I) respect that he has the guts to explain how its going to affect his bottom line and business, because I don't think a lot of people are doing that," said George Timmering, a partner in Bearno's Pizza 14 individually owned restaurants in Louisville.

Schnatter said though he is not supportive of the Affordable Care Act, Papa Johns' business model is well suited to absorb the costs and pass it on via the sales of millions of pizzas every year.

"Let's say fuel goes up which is does from time to time," Schnatter explained, "and we have to raise delivery charges. We don't like raising delivery charges but the price of fuel is out of our control as is Obamacare. So if Obamacare is, in fact, not repealed, we will find tactics to shallow out any Obamacare cost and, of course, strategy is to pass that cost on the consumer in order to protect our shareholders' best interest."

In April, Schnatter hosted a fundraiser for Republican presidential candidate Mitt Romney, but the comments do not appear to be related to any political campaign.

Under the law, companies with more than 50 full time employees or an equivalent number of part-timers are required to provide health insurance to full time workers or pay a $2000 fine for every full-timer worker after the first 30.

With 14,000 part-time employees in its total workforce of more than 16,000 employees, it is unclear to what extent the Affordable Care Act will directly affect Papa John's.  The company already offers medical insurance to its managers and full-time employees and allows part-time workers to participate in health insurance plans.

Though an employer's number of part-time workers is factored into the equation to determine a "large employer" of more than the equivalent of 50 full-time workers, part-time workers are not factored into the penalty phase.  An employer is required under the ACA to provide health care coverage only to full-time workers, according to the Congressional Research Service.

Timmering, however, said he is bracing for higher costs as suppliers raise prices to offset their own health care costs.

"The Affordable Care Act is going to increase costs to all businesses and therefore it's going to domino, trickle down...  it's going to affect prices and costs everywhere," Timmering said.  "Even for small business.  We're affected.  If a large manufacturer has got to provide health care, then they're going to put those costs down to us when they sell us their products."

"There is a lot of misinformation that is being circulated," said Jodi Mitchell,  "and also there is a lack of information because it was a political debate until the Supreme Court decision.  So, I think now folks are struggling to say, 'Okay, it's the law of the land, what's in the law?'"

Timmering added that the competition for "top notch" workers might force him to begin offering health insurance to his employees if larger companies are offering it.

Companies, however, will pass costs on to consumers with higher prices and to workers with lower wages, said Stephan Gohmann, a University of Louisville economist.

"If you're an employer and hire a worker, maybe you're willing to spend $50,000 per year for a worker, you don't really care if that goes to health insurance or if it goes to the worker," Gohmann explained.  "But you're going to spend $50,000 on that worker.  If health insurance premiums go up, the worker gets less money."

And for employees of companies that already offer health insurance, Gohmann warned that rising health care costs may prompt employers to drop health insurance coverage and opt for the ACA's $2000 per employee penalty.

"Some companies will just pay the fine and stop providing health care," the professor said.  "and that's going to be pretty devastating for the workers because your health insurance will change if that's the case."

Gohmann also cautioned that the law discourages small businesses with fewer than 50 employees to expand their workforce.