Health Care Law upheld, restaurant industry responds

June 28, 2012 | by Alicia Kelso

The United States Supreme Court upheld a majority of the provisions within the Patient Protection and Affordable Care Act (PPACA), with a 5-4 decision June 28. The act was introduced and signed by President Barack Obama in 2010.

The majority opinion from Chief Justice John Roberts, read: "The Affordable Care Act's requirement that certain individuals pay a financial penalty for not obtaining health insurance may reasonably be characterized as a tax."

Roberts was joined by Justices Ruth Bader Ginsburg, Stephen Breyer, Sonia Sotomayor and Elena Kagan in casting the majority vote. Together, they concluded that the mandate, which requires virtually all Americans to obtain minimum health insurance coverage or pay a penalty, falls within Congress' power under the Constitution to "lay and collect taxes."

In response to the decision, National Restaurant Association lawyers from employment firm Seyfarth Shaw filed a brief arguing against the decision and claimed the Supreme Court and Congress exceeded their Constitutional authority.

"The decision of the U.S. Court of Appeals of the Eleventh Circuit regarding 'severability' should be reversed, and the rest of Affordable Care Act must be struck down as well," the brief read.

NRA president and CEO Dawn Sweeney also released a statement in response to the decision, expressing strong concern about a majority of provisions with the act.

"Today's ruling by the Supreme Court is troubling for restaurant operators and business owners across the country," Sweeney said. "We encourage Congress to continue efforts to repeal the law, since the Court's decision leaves the employer requirements in place, provisions which impact restaurant operators' ability to grow and create jobs."

Based on today's ruling, employers with 50 or more full-time equivalent employees must offer affordable health insurance of minimum value to full-time employees and their dependents or pay penalties.

The NRA claims that the cost of such coverage or the penalties could threaten restaurants' slim profit margins.

"This unworkable law cannot stand as is," Sweeney said. "We need reform that addresses the increasing costs our members are faced with each year. Restaurant owners are looking for solutions that will allow them to provide better health care coverage options for their team members, but they cannot be saddled with excessive costs and regulatory burdens that threaten their very business. We ask members of Congress to take action that helps the restaurant industry continue to help create jobs and grow the national economy."

Sweeney added that the association will continue to evaluate the law's impact as the full ruling becomes clear.

Meanwhile, restaurant industry executives will work to understand the financial and personnel implications of the Supreme Court's ruling.

"Our hope was that the Supreme Court would strike most, if not all, of the bill. We hesitated to conduct a complete analysis until we knew with greater certainty exactly what road we were headed down," said Don Fox, CEO of 515-unit Firehouse Subs. "Given today’s ruling, we will be stepping up our due diligence and planning."

Firehouse Subs operates 30 corporately-owned restaurants while the rest are franchised units.

"For those franchisees with three or more restaurants, including ourselves, there will be significant costs incurred in terms of the insurance coverage they will be forced to provide. There will also be incremental costs associated with the administration of this program," Fox said.  "The franchisee’s ability to absorb these costs will vary depending upon each individual operator's financial circumstances -- this is true of every business across America. 

"In some cases, it may be ruinous, since the operator will simply not have the existing profitability to absorb the expense of providing coverage.  In all cases, the customer will lose, since it is virtually certain that business owners impacted by the bill will need to examine their prices and take hikes in order to compensate for the increased cost of doing business.  Given the general state of the economy, the inflationary impact of this bill is something that our country can ill afford."

National Council of Chain Restaurants' response

The National Council of Chain Restaurants' executive director Rob Green released a statement about the decision.

"Today's decision will impose costly burdens on the chain restaurant industry, thousands of small business franchisees and their employees. Throughout the legislative debate on the ACA and over the last two years, NCCR has voiced the industry's consistent concerns that the law would do significant harm to job growth and the economy. We're afraid that continues to be the case as the industry braces itself for 2014.

"The ACA imposes heavy mandates on employers using punitive penalties for non-compliance. The law will particularly damage the chain restaurant industry, which operates on thin margins and cannot support costly government imposed mandates. Many chains have indicated they will have no choice but to cut back on workers' hours or close restaurants in order to avoid the penalties.

"NCCR opposed the ACA and has advocated instead for reforms that expand access through lower costs. In 2009, Congress and the president went about health care reform the wrong way. Instead of making health insurance more affordable, they focused on unrealistic mandates and penalties that do nothing but punish employers and weigh down the economy.

"NCCR will continue to work to repeal the ACA and replace it with common-sense reforms that lower the cost of health care insurance for all Americans."

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Photo provided by Sam Howzit via Flickr.

Topics: Business Strategy and Profitability , Consultant / Analyst , Insurance / Risk Management , Legal Issues , National Restaurant Association , Operations Management

Alicia Kelso / Alicia has been a professional journalist for 15 years. Her work with, and has been featured in publications around the world, including NPR, Good Morning America, Voice of Russia radio, and Franchise Asia magazine.
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