McDonald’s CFO Peter Bensen said complying with the Affordable Care Act will cost as much as $420 million annually.
As a result, in 2014 when the new law goes fully into effect, it’s possible McDonald’s menu prices will be raised to cover the health costs.
And higher menu prices to offset healthcare expenses won’t be just confined to McDonald’s.
Smart Money’s Jen Wieczner says analysts project that businesses with a large number of hourly wage workers, who traditionally had minimal or no health insurance — from fast food joints to retailers — may have to adopt a similar strategy.
“I would expect prices at McDonald’s to go up,” says Les Funtleyder, who manages a health care fund at Poliwogg, a hedge and venture capital firm.
Wieczner claims some analysts believe companies may use health care as an excuse to raise prices, even if the added costs don’t warrant the increase.
Peter Saleh, a restaurant analyst at Telsey Advisory Group, expects sit-down diners at restaurants like The Olive Garden, owned by Darden Restaurants, and The Cheesecake Factory, which own a greater proportion of their locations than some fast food chains, to eventually pay at least 2% more to eat there.
But Saleh says it’s too soon to know how the companies will cope with the new mandates: “A lot of them at this point aren’t willing to give us estimates about it.”
Although company executives have been publicly discreet, they’re discussing ways they can compensate for increased health-care costs in meetings with investment strategists.
Wieczner notes that Nicholas Oleson, a financial planner with the Philadelphia Group, says his large corporate clients have suggested raising prices up to 3 percent while their employees pay up to 7 percent more in insurance premiums.
Funtleyder, a health care fund manager, says it’s in consumers’ best interest for companies to keep their wage workers insured because they typically represent the young, healthy portion of the insurance market, and thus, their premiums subsidize the cost of care throughout the system.
“If you have to pay more for your happy meal, you might have to pay less elsewhere,” Funtleyder says.
As the WSJ’s Lousie Radnofsky notes, the majority of Americans under age 65 who have health insurance get it through an employer, and the question remains how many companies will continue to offer coverage after major changes take place beginning in 2014.
According to a study by consulting company Deloitte, approximately one in ten employers in the US plans to drop health coverage for workers in the next few years as the bulk of the federal health-care law begins, and more indicated they may do so over time.
Another consulting firm, McKinsey & Company, said they found 30% of employers say they would “definitely or probably” stop offering health insurance after 2014.
Radnofsky adds that around one in three companies said they could decide to stop offering health coverage if they find that the law requires them to provide more generous benefits than they do at the moment.
“If a tax on high-cost plans takes effect in 2018 as scheduled; or if they conclude that the cost of penalties for not providing insurance could be less expensive than paying for benefits.”
Regardless of your position on Obamacare, of this you can be sure: whatever additional corporate costs associated with the new health-care law will, in one way or another, be passed on to us collectively as consumers.