Obamacare May Cost Small Business 'Whiners' 65% of Annual Profits

Today the NY Times has a case study on the cost of Obamacare to one small business. The business in question is Baked in the Sun, a California baker with 95 employees.

Baked in the Sun does about $8 million in annual revenue, however margins for bakers are tight so their annual profit is only about $200,000. Because the business has over 50 employees, they will be required to offer health insurance to their employees or pay a fine for not doing so.

The owners estimate that the cost of compliance would be $108,000 per year plus $10,000 in overhead to manage the plan. The cost of paying the fine for not offering insurance would be $130,000. So they have a choice between losing 64% or 65% of their annual profits.

The article goes on to note that not all employees will take the insurance being offered. Some will already have it through another individual–a spouse or parent. So the actual cost of offering a plan will likely be less than the potential cost. Of course, no one knows what the plans themselves will cost yet so it’s all a guess at this point.

In any case, just a week ago Five Guys burgers announced the cost of Obamacare compliance was going to force them to raise prices. Matt Yglesias, who writes for Slate, was quick to call them “whiners.”

Obamacare is going to reduce his profits by about one-eighth and he (and any investors in his business) will eat the loss. With corporate profits as a share of the economy at an all-time high, nobody’s going to cry for him either. 

In other words, eat the 1/8 loss of profits and shut up about it. But unlike Five Guys, Baked in the Sun facing a loss of up to 2/3 of their annual profits, meaning they will almost certainly be forced to raise prices:

“It’s ironic that our success meant we could grow,” Ms. Shein said, “and
now we will be competing against smaller companies, with 50 employees
or fewer, who will be able to charge less per item because they don’t
have the financial burden of health insurance.” Prices are currently
similar among local competitors, Ms. Shein said, and she believes the
increase in her prices could affect her sales, possibly significantly.

I pointed out on Twitter that it was weird Yglesias hadn’t said anything about Baked in the Sun and his response was that he’d already said all he had to say. The cost of compliance and the potential loss of revenue from smaller competitors–it’s all irrelevant. Just stop whining, he explained.


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