Papa John's Real ObamaCare Problem

A blog about business and economics.
Aug. 8 2012 9:53 AM

Papa John's Real ObamaCare Problem

Papa Johns Pizza Founder John Schnatter
Papa Johns Pizza Founder John Schnatter

Photograph by Jason Merritt/Getty Images.

Thinking more about this whole question of Papa John's and ObamaCare, I think the real problem for the company (as opposed to its CEO—the biggest problem for John Schnatter personally is that he'll pay higher taxes) isn't that the Affordable Care Act will raise its labor cost, it's that it'll lower labor costs for its competitors.

Firms with fewer than 50 employees are exempted from the ACA's "employer responsibility" provision (which says you pay a penalty if your workers don't get health insurance), and firms with fewer than 25 employees get subsidies. Specifically, if you have fewer than 25 employees and your employees earn less than $50,000 on average then you get a tax credit to defray 35 percent of the cost of providing health insurance to your workers. It seems to me that many non-chain pizza operations are going to fit that criteria, and the Affordable Care Act will essentially let them offer workers a dollar's worth of compensation with 65 cents worth of revenue.


In a lot of lines of business, you basically have big companies competing with other big companies. But food service in general and pizza in particular aren't like that. Obviously Papa John's does compete with Dominoes and other large chains. But a huge share of the pizza market is held by non-chain operators. Some of them are offering a high-end product that Papa John's isn't really competitive with, but there's lots of middling-to-bad independent pizza out there in this fine country and its just as likely that the chains will expand by taking those places out as by competing with each other for market share. And now along comes ObamaCare to subsidize the competition. Not for any particular policy reason closely tailored to the goals of the law, but basically for the sake of a talking point—Democrats can say, accurately, that, far from burdening small businesses, the Affordable Care Act goes out of its way to help them. 

Now, to an extent, Papa John's can try to get around this through the franchising mechanism. Papa John's says a typical restaurant has 20-25 employees. So a single-store franchiser can get on the good side of this subsidy. But right now about a fifth of their outlets are company-owned and it's typical for a franchiser to operate multiple restaurants. I don't think that creating financial incentives for fast food chains to shift toward more fragmented franchising was a policy goal of the ACA, but it seems to be a consequence and not one that's undertaken for any real reason.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.



More Than Scottish Pride

Scotland’s referendum isn’t about nationalism. It’s about a system that failed, and a new generation looking to take a chance on itself. 

What Charles Barkley Gets Wrong About Corporal Punishment and Black Culture

Why Greenland’s “Dark Snow” Should Worry You

Three Talented Actresses in Three Terrible New Shows

Why Do Some People See the Virgin Mary in Grilled Cheese?

The science that explains the human need to find meaning in coincidences.


Happy Constitution Day!

Too bad it’s almost certainly unconstitutional.

Is It Worth Paying Full Price for the iPhone 6 to Keep Your Unlimited Data Plan? We Crunch the Numbers.

What to Do if You Literally Get a Bug in Your Ear

  News & Politics
Sept. 16 2014 7:03 PM Kansas Secretary of State Loses Battle to Protect Senator From Tough Race
Sept. 16 2014 4:16 PM The iPhone 6 Marks a Fresh Chance for Wireless Carriers to Kill Your Unlimited Data
The Eye
Sept. 16 2014 12:20 PM These Outdoor Cat Shelters Have More Style Than the Average Home
  Double X
The XX Factor
Sept. 15 2014 3:31 PM My Year As an Abortion Doula
  Slate Plus
Slate Plus Video
Sept. 16 2014 2:06 PM A Farewell From Emily Bazelon The former senior editor talks about her very first Slate pitch and says goodbye to the magazine.
Brow Beat
Sept. 16 2014 8:43 PM This 17-Minute Tribute to David Fincher Is the Perfect Preparation for Gone Girl
Future Tense
Sept. 16 2014 6:40 PM This iPhone 6 Feature Will Change Weather Forecasting
  Health & Science
Medical Examiner
Sept. 16 2014 11:46 PM The Scariest Campfire Story More horrifying than bears, snakes, or hook-handed killers.
Sports Nut
Sept. 15 2014 9:05 PM Giving Up on Goodell How the NFL lost the trust of its most loyal reporters.