Mar 23, 2015 - 4:15pm

IHOP Owner Gets Pancaked by Obamacare

Senior Editor, Digital Content

The five-year anniversary of the president signing Obamacare is an unhappy one for many businesses.

Take Scott Womack. In 2011, he testified for the U.S. Chamber about the costly burdens Obamacare had on his 12-store IHOP franchise in Ohio and Indiana:

“For restaurants, providing qualifying coverage to all full time employees is a huge new expense,” says Womack, a 25-year restaurant veteran and the owner and president of Womack Restaurants, a 12-unit IHOP franchise in Indiana and Ohio. Womack testified on behalf of the U.S. Chamber before the House Ways and Means Committee on January 26.

Womack estimates it would cost him $7,000 per full time employee to provide health care coverage. “This new expense is beyond our ability to pay. I estimate the cost to my company to be 50% greater than our company’s earnings. Let me state this bluntly: this law will cost my company more money than we make,” Womack told the committee.

With restaurants unable to raise prices in a weak economy, Womack says his only alternatives are to cut costs, cut staff, reduce employees’ hours and transition full time workers into part-time status, or pay the $2,000 per employee penalty for not providing coverage. “For my company, these penalties amount to 60% of our earnings,” Womack estimates.

He warned Congressmen that unless major changes were made to the law, futures plans to invest in new restaurants would be off the table.

Sadly, what happened was more dramatic than he predicted.

Robert Bluey, reporting for the Daily Signal, found that Womack no longer owned those IHOP restaurants; Obamacare’s impending employer mandate, along with other factors, forced him to sell them in 2014:

“We had to keep evaluating the nature of the business and the impact of Obamacare along with all the other pressures on labor,” Womack told me. He cited actions by the National Labor Relations Board and the threat of a minimum-wage hike as other challenges.

Womack said he was able to weather the recession. He remained hopeful Congress would make changes to the law or the 2012 election would usher in a president who would repeal it.

When that didn’t happen, he simply wasn’t confident about the long-term prospects of running a casual-dining operation. IHOP, with servers and cooks, is a labor-intensive business. At the time he sold last year, Womack had 16 restaurants and more than 1,000 employees.

“We felt that environment was not the place to be for the next 10 to 20 years,” he said.

Womack now owns some Popeyes chicken franchises in Kansas City. Nevertheless, Obamacare still remains a problem, as he explained to the Daily Signal:

His insurance provider boosted rates by 40 percent in one year, forcing him to cut back on coverage.

He offered the plan to all 180 employees. Only two of the 140 hourly workers signed up.

“For our industry, the employer mandate doesn’t work,” Womack told me. “You’re talking about a large percentage of people who are not inclined to buy the insurance coverage. They looked at how much it cost and they’re not buying it.”

Womack described these employees as “younger people who are looking for part-time work.” Yet as a result of offering everyone insurance, his previously insured managers found themselves paying more for worse coverage.

“We had very generous health insurance benefits for our managers and we covered a substantial amount for dependents,” he said. “That’s all going to have to change so we can offer the same thing to everyone. We can’t afford to offer dependent coverage to our entire workforce. So our managers will actually take a hit in terms of the coverage they get.”

For other businesses dealing with the employer mandate, Obamacare has meant massive record-keeping costs:

Brad Mete estimates his staffing company, Affinity Resources, will spend $100,000 this year on record-keeping and filing documents with the government. He's hired two extra staffers and is spending more on services from its human resources provider.

The Affordable Care Act, which as of next Jan. 1 applies to all companies with 50 or more workers, requires owners to track staffers' hours, absences and how much they spend on health insurance. Many small businesses don't have the human resources departments or computer systems that large companies have, making it harder to handle the paperwork. On average, complying with the law costs small businesses more than $15,000 a year, according to a survey released a year ago by the National Small Business Association.

"It's a horrible hassle," says Mete, managing partner of the Miami-based company.  

This illustrates the problem Katie Mahoney, Executive Director for Health Policy at the U.S. Chamber, told the House Ways and Means Committee last year, “First and foremost, the greatest complaint we hear from our members is about the extraordinary expense of complying with the reporting requirements.” The unintended consequence is “businesses must redirect resources to report on the coverage they offer, rather than use those resources to pay for a greater portion of the cost of that coverage,” and in extreme cases, the “expense of these reporting requirements” may push “employers to stop offering coverage all together.”

One way to ease the cost and record-keeping burden of the health care law on employers is by restoring the 40-hour workweek. The House passed a bipartisan bill in January, and it’s awaiting a Senate vote. Reinstating the 40-hour work week would be a critical step in helping businesses better manage the consequences of Obamacare’s new mandates.

Editor's note: The post has been updated to clarify that other factors, including the health care law, lead to Womack selling his IHOP restaurants.

Urge Your Senators to Support a 40-Hour Work Week

More Articles On: 

About the Author

About the Author

Sean Hackbarth
Senior Editor, Digital Content

Sean writes about public policies affecting businesses including energy, health care, and regulations. When not battling those making it harder for free enterprise to succeed, he raves about all things Wisconsin (his home state) and religiously follows the Green Bay Packers.