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The Price of the New Health Care Law
Posted by Randy | January 03, 2012
What is the price of the new health care law? Jobs for Americans, according to Andrew Pudzer, the CEO of CKE Restaurants, which operates Hardee’s and Carl’s Jr restaurants. In this op-ed for Bloomberg News, Pudzer shares how the new health care law will impact their company: “we will have to cut spending on new restaurant construction, one of our largest discretionary spending areas…[and the way] we create jobs.”

Editorial:  Job Creation Is Price for New U.S. Health Law

Andrew Puzder - Dec 26, 2011

[Andrew Puzder is the chief executive officer of CKE Restaurants Inc.  The hyperlinks below are included in the original editorial.]

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.
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  • Thomas G commented on 1/4/2012
    I can't stop laughing here, honestly. Is this a serious outreach to the constituency? How long is it going to take for some in congress to comprehend that its about the health of the country, millions of people and the profits of a restaurant hardly measure up? Congressman Forbes, you are being intellectually dishonest with the voters by not conveying the details of the Congressional Budget Office that reports that the health care legislation cuts costs by several hundred billion dollars. My goodness it is going to be a long year on this blog if this is the direction you intend to lead us. I don't think you realize, that refusing to even show up to vote for a tax cut extension for the middle class, when you made sure to show up to cast every vote to give and to protect tax cuts for millionaires and billionaires. That is a betrayal of the middle class. To attempt to roll back serious advances in health care reform is a betrayal of the middle class. To attempt to untangle critical reforms of the financial sector that caused the economic meltdown is a betrayal of the middle class. To refuse, to even consider a 1 penny increase in the tax rates of millionaires and billionaires, with rates at 1931 levels, is a betrayal of the middle class. To vote, as you have sir, to shove this great nation into its first ever default on the public debt was a betrayal of the middle class, and indeed, a betrayal of the entire country and the epitome of failed leadership. It's going to be a long year, a very long year sir.
  • christy whipple commented on 1/6/2012
    This country needs businesses to grow and bring jobs - full-time work with benefits - so families can avoid government aid. Unfortunately, the rich owners are no longer willing to do this. More gov. intervention leads to less jobs, less jobs leads to depressed men who cannot do without gov. aid to feed their families. Sounds a lot like East Germany.
  • christy whipple commented on 1/6/2012
    More government intervention will lead to less full-time jobs, less jobs will lead to depressed men depending upon the gov. to feed their famililes. Bring back full-time work with wages above $8 an hour.
  • Gregg J commented on 12/7/2013
    Just curious, how much public assistance do Mr. Pudzer's employees take? Why would I care what this CEO thinks when his fast food employees are a burden on the taxpayers.
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