Dukes up: operators hit with misleading statistics could be KO'd by workers' health insurance law

Nation's Restaurant News,  Dec 22, 2003  by Richard Berman

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Even before deposed California Gov. Gray Davis signed into law an enormous mandate on employers to pay for their workers' health insurance, the AFL-CIO announced that it would push for similar laws in 25 other states. And signaling support at the federal level, Sen. Ted Kennedy, D-Mass., recently called the law a "model for the nation."

What all of that means is that business interests, especially in such labor-intensive industries as foodservice, must ready themselves for a fight.

Supporters of the bill succeeded by harping on the large numbers of Californians who don't have health insurance. What they didn't say is that more than half of the state's uninsured are: (1) illegal immigrants; (2) members of households that enjoy annual incomes in excess of $75,000; or (3) members of low-income families eligible for government-provided health insurance who have failed to register for it.

Despite the legislation's $11.4 billion cost to California industry, even its supporters admit that, after full implementation, 65 percent of the state's uninsured will remain without coverage. How could something so costly yield so little?

First, more than 2.5 million uninsured Californians either don't work or don't work enough hours to qualify for employer coverage under the new law. And, second, the expensive initiative requires businesses to cover more than 1 million people who already receive insurance through government programs.

The California legislation is devastating for restaurants. Consider the case of one California operator. It was reported that, for approximately $73,000 a year, he provides health insurance for the 20 managers and assistants of his three Carl's Jr. restaurants in Northern California. Covering his remaining 100 employees would cost more than $360,000. The franchisee makes a 20-cent profit margin on each $2 burger. If he doesn't raise prices, he would have to sell 1.8 million additional burgers each year--more than 1,000 per store per day--to meet the new obligation. Instead, he reportedly plans to sidestep California's new law by having his nonmanagement employees work 20 hours a week so that they fall below the threshold for coverage.

A typical restaurant will have to spend more than $2,500 per worker per year to fulfill California's new mandate. Employ 200 or more workers, and you'll be required to cover families too, at an average cost exceeding $4,000 a year. Meanwhile, the average profit per employee at one successful chain restaurant is $3,300. In other words the California bill alone could eat up all your profits in the state.

But it gets worse. In San Francisco, where a recent ballot initiative set the minimum wage at $8.50 an hour, the effective cost of hiring a low-skilled worker, who will now get employer-sponsored health insurance for him and his family, is a whopping $10.50 an hour. That's more than twice what it would cost to hire an equivalent worker in neighboring Nevada. No wonder a Dallas restaurant group backed away from a planned purchase of Chevy's, a struggling chain with 58 outlets in California.

The unsuspecting people of the 25 states targeted by the AFL-CIO are about to be bombarded with half-truths and misleading statistics. Supporters of the California law were touting a survey showing that 64 percent of "business respondents" endorsed employer health care mandates. Sound fishy? Fewer than one in 10 survey respondents actually owned companies that would be paying the bill.

When calculating the legislation's cost, supporters conveniently omitted two populations: the 1 million workers who now are covered by government programs but under the new law would receive employer-sponsored insurance and the millions of Californians whose premiums are paid in part by their employer but not at the 80-percent level businesses soon will have to pay. Through that kind of statistical fiddling, the law's backers were able to estimate the cost at $1.3 billion.

A funny thing happened when the Employment Policies Institute announced that the real price tag of the California legislation was $11.4 billion. The law's sponsor, the left-wing state Sen. John Burton, conceded that the original cost projection of $1.3 billion had been understated grossly. He argued that the real expenditure was five or six times that lowball estimate. And therein lies a lesson. Burton's admission was a small--but telling--victory. With appropriate resources and commitment, industry successfully can challenge flawed and harmful statistics.

Whether it's allegations about the economic cost of obesity, the number of drunk-driving fatalities or something as simple as 64 percent of business respondents supporting a costly health care mandate, widely accepted statistics play a crucial role in the development of policy. Ask any politician. Politicians don't want to go into a debate without being armed with statistics.

The majority of statistics used to justify legislation harmful to industry comes from anti-corporate think tanks and activist groups. Because those number factories have a political agenda, they exaggerate their statistics, making them vulnerable to rigorous questioning.