In exchange for lower health premiums under Obamacare, some experts say shoppers could pay higher prices on everything from printer paper to French fries.
Complying with the Affordable Care Act will cost as much as $420 million annually, McDonald’s CFO Peter Bensen said during a conference call Monday, according to CFO Journal. And when the new law goes fully into effect in 2014, it’s possible menu prices will be raised to cover the health costs.
Analysts say 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 (MCD) to go up,” says Les Funtleyder, who manages a health care fund at Poliwogg, a hedge and venture capital firm. (A McDonald’s spokeswoman says the company doesn’t set prices for its franchised restaurants, which represent about 90% of its 14,000 U.S. outposts, and that “it would be premature and inaccurate to speculate on raising menu prices to offset these costs.”)
But experts say the price hikes could extend beyond chicken McNuggets. 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 (DRI), and The Cheesecake Factory (CAKE), 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.”
- 10 Things Food Trucks Won’t Say
- Is McDonald’s Blending Into Starbucks?
- 10 Things Presidential Candidates Won’t Say
Businesses bracing for additional costs as a result of the health-care law tend to be those that previously provided barebones coverage, or so-called “mini-med plans,” which charge low premiums but provide limited benefits, according to a spokesman for the Department of Health and Human Services. These companies represent less than 2% of the market, according to the spokesman. Starbucks, on the other hand, doesn’t anticipate additional expenses to insure its employees because its benefits already meet the standards of theAffordable Care Act, CFO Journal reports.
Even if companies haven’t publicly discussed whether their increased health-care costs will trickle down to their price tags, executives have floated the possibility in meetings with investment pros. Nicholas Olesen, a financial planner with The Philadelphia Group, says his clients at large pharmaceutical and software companies have suggested that they may raise prices 2 or 3% while their employees pay up to 7% more in insurance premiums.
Still, says Funtleyder, 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 therefore 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.