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28-06-2012 20:12:00

Restaurants, Retailers Disappointed With Health-Care Mandate

--National Restaurant Association says mandate threatens chains' already-slim profit margins

--National Retail Federation argues the law is unreasonably complicated to administer

--Some corporations, like Starbucks, are supportive of mandate and already compliant

By Annie Gasparro

Restaurant and retail chains say they are "deeply disappointed" by the Supreme Court's decision Thursday to uphold the health-care law, arguing the mandate will increase labor costs, prevent expansion and make business tougher in an already struggling economy.

"As it stands, the law wrongly focuses more on penalizing employers and the private sector than reducing health costs," said National Retail Federation Chief Executive Matthew Shay in a statement. "Although the Court upheld the law's constitutionality, many problems remain: It penalizes employers too much; it doesn't do enough to reduce the cost of health care; and it is unreasonably complicated and difficult to implement and administer."

Based on the Supreme Court's ruling to uphold the law, employers with 50 or more full-time equivalent employees must offer some level of health insurance to full-time employees and their dependents, or pay a penalty. An employee is considered full-time if he or she works on average at least 30 hours per week.

The National Restaurant Association said the employer requirements outlined in the law "threaten the economic health of the restaurant industry," and "impact restaurant operators' ability to grow and create jobs."

National Restaurant Association Chief Executive Dawn Sweeney said in a statement that the costs of providing coverage or paying penalties "could threaten the very slim profit margin on which most restaurants operate."

Many large restaurant chains, such as Dunkin' Brands Inc. (DNKN), Burger King Worldwide Inc.(BKW), Yum Brands Inc. (YUM)--owner of Pizza Hut, KFC and Taco Bell--and DineEquity Inc. (DIN)--which owns Applebee's and IHOP--are heavily franchised in the U.S. As a result, the franchise owners will be struck with these higher labor costs, which could prevent them from reinvesting in the business in other ways.

"We are deeply disappointed by the High Court ruling to uphold the Affordable Care Act, which places undue burdens on the franchise small business community," International Franchise Association Chief Executive Steve Caldeira said in an interview. He says the requirements of the act are unaffordable for small business owners, and puts up barriers for franchise owners looking to expand their businesses.

However, Mr. Caldeira added that small business owners are smart. "A lot of them are shifting their business models from full-time to part-time workers, or they will raise prices on consumers" in order to offset the impact on profit margins, he said.

Earlier this month, Home Depot Inc.'s (HD) Chairman and Chief Executive Frank Blake said that "as an employer of over 250,000 associates in the U.S., the impact of the Supreme Court's decision on health care will be significant." Now that the decision has been made, Home Depot adds, "We're evaluating our program to determine the best approach, based on the Supreme Court's ruling."

Starbucks Corp. (SBUX), however, is an outlier in the restaurant space, as it supports the Affordable Care Act and has offered health benefits to full- and part-time cafe workers for 20 years. "We have advocated for health-care reform for at least 10 years," spokesman Jim Olson told Dow Jones. Starbucks said that, as it stands, the company is already compliant with the requirements the Act sets for 2014.

Target Corp. (TGT) said it "remains committed to providing affordable, quality health-care benefits" and "will continue to implement the health-care reform provisions as prescribed by the law."

For pharmacies, the additional insured Americans could provide a boost in business. "With the Supreme Court decision, approximately 30 million more Americans will have access to health insurance and the type of convenient, affordable and trusted care Walgreens offers," Walgreen Co. (WAG) said in a statement. "We share America's vision for a better and more affordable health-care system...In addition, we will continue expanding the role of health-care providers at our Take Care Clinics to offer convenient primary care," such as health testing and immunizations.

CVS Caremark Corp. (CVS) said it will continue to work with policymakers to solve the ongoing "health-care cost-quality-access" dilemma. "We believe effective pharmacy care has an important role to play in managing health care costs, and we are committed to making innovative solutions available," Chief Executive Larry Merlo said in a statement.

The National Retail Federation said it will redouble efforts to repeal the law, while working with regulators to smooth implementation for retailers. The National Restaurant Association also said it encourages Congress to continue efforts to repeal the law, and that as the analysis of the Supreme Court's ruling becomes clearer, it will continue to evaluate the impact on the industry.

-Karen Talley, Joan Solsman and John Kell contributed to this article.

Write to Annie Gasparro at annie.gasparro@dowjones.com

(END) Dow Jones Newswires

June 28, 2012 14:12 ET (18:12 GMT)

Copyright (c) 2012 Dow Jones & Company, Inc.

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