[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]

                       BUSINESS AND JOB CREATION



                               before the


                                 of the

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELTH CONGRESS

                             SECOND SESSION


                              HEARING HELD
                             MARCH 16, 2012



            Small Business Committee Document Number 112-058
              Available via the GPO Website: www.fdsys.gov



76-465                    WASHINGTON : 2012
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                     SAM GRAVES, Missouri, Chairman
                       ROSCOE BARTLETT, Maryland
                           STEVE CHABOT, Ohio
                            STEVE KING, Iowa
                         MIKE COFFMAN, Colorado
                     MICK MULVANEY, South Carolina
                         SCOTT TIPTON, Colorado
                      CHUCK FLEISCHMANN, Tennessee
                         JEFF LANDRY, Louisiana
                   JAIME HERRERA BEUTLER, Washington
                          ALLEN WEST, Florida
                     RENEE ELLMERS, North Carolina
                          JOE WALSH, Illinois
                       LOU BARLETTA, Pennsylvania
                        RICHARD HANNA, New York

               NYDIA VELAZQUEZ, New York, Ranking Member
                         KURT SCHRADER, Oregon
                        MARK CRITZ, Pennsylvania
                      JASON ALTMIRE, Pennsylvania
                        YVETTE CLARKE, New York
                          JUDY CHU, California
                     DAVID CICILLINE, Rhode Island
                       CEDRIC RICHMOND, Louisiana
                         GARY PETERS, Michigan
                          BILL OWENS, New York
                      BILL KEATING, Massachusetts

                      Lori Salley, Staff Director
                    Paul Sass, Deputy Staff Director
                     Barry Pineles, General Counsel
                  Michael Day, Minority Staff Director

                            C O N T E N T S


                           OPENING STATEMENT

Hon. Mike Coffman................................................     1


Dr. Keith Small, Dentist, Cody Dental Group, Denver, CO..........     3
Mr. Matt Tynan, Secretary and Treasurer, Tynan's VW, Nissan, Kia, 
  Aurora, CO.....................................................     4
Mr. John W. Leevers, President, Leevers Supermarkets Inc, 
  Franktown, CO..................................................     7
Mr. Mark Rogers, President and Chief Operating Officer, Roaring 
  Fork Restaurants, Castle Rock, CO..............................    10


Prepared Statements:
    Dr. Keith Small, Dentist, Cody Dental Group, Denver, CO......    19
    Mr. Matt Tynan, Secretary and Treasurer, Tynan's VW, Nissan, 
      Kia, Aurora, CO............................................    22
    Mr. John W. Leevers, President, Leevers Supermarkets Inc, 
      Franktown, CO..............................................    29
    Mr. Mark Rogers, President and Chief Operating Officer, 
      Roaring Fork Restaurants, Castle Rock, CO..................    34
Questions for the Record:
Answers for the Record:
Additional Materials for the Record:
    2011 Economic Impact Report: The Economic Impact of 
      Franchised New Car Dealerships on the Colorado Economy.....    39

                      BUSINESSES AND JOB CREATION


                         FRIDAY, MARCH 16, 2012

              House of Representatives,    
            Subcommittee on Investigations,
                         Oversight and Regulations,
                               Committee on Small Business,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 10:06 a.m., at 
the Greenwood Village City Hall Auditorium, 6060 South Quebec 
Street, Greenwood Village, Colorado, Hon. Mike Coffman 
[chairman of the subcommittee] presiding.
    Present: Representative Coffman.
    Chairman Coffman. Good morning. This hearing will come to 
    I would like to thank each of you, especially our 
witnesses, for taking time out of your schedules to be here 
with us today as we examine the impact of the President's 
health-care law on small businesses.
    Before we begin, I would also like to sincerely thank all 
of the staff here at Greenwood Village City Hall for hosting 
this hearing.
    Over the past few years, our committee has held several 
hearings on topics related to health care and small businesses. 
Many agreed the health-care system needed reform because the 
cost of health care continued to escalate.
    Small-company owners said that although they had 
traditionally offered health care to their employees and wanted 
to continue to do so, the concentration of health insurers gave 
them few options for purchasing coverage, and those options 
were extremely expensive.
    Witnesses at our hearing suggested a number of solutions, 
such as allowing small businesses to join together to purchase 
health insurance across State lines, which could increase 
competition and reduce costs; tort reform to bring down the 
cost of physicians' malpractice insurance; and permitting 
physicians assistants, nurses, and other health-care 
practitioners to expand their duties to reduce the cost of 
health-care delivery.
    Very few of them suggested that we should mandate employers 
to provide health insurance, raise Medicare and other taxes, or 
increase penalties for health savings account withdrawals. 
Unfortunately, each of these provisions are found in the 
President's health-care law.
    Of specific interest to us in this hearing is the employer 
mandate and how that provision will affect small-business job 
creation. Beginning in 2014, the new health-care law requires 
any employer with more than 50 full-time equivalent employees 
during the preceding calendar year to provide health insurance 
to their employees. If the employer fails to do so, he or she 
faces penalties up to $2,000 or $3,000 for each employee.
    My concern is what happens to those businesses who are 
right around 50 employees, and there are a lot of these 
companies. According to the Small Business Administration 
Office of Advocacy, there are approximately 143,000 firms that 
employ between 40 and 74 people, with a total of about 7.5 
million employees at those firms.
    Is a company that is just below the 50-employee threshold 
likely to hire more workers if they are unable to provide 
health insurance? Is a company that has 52 employees going to 
maintain a contract in face of penalties?
    Regardless of the answers to those questions, the greater 
concern here is why, with the economy struggling with 
historically high unemployment, is the President so intent on 
implementing laws that make small-business owners make those 
kinds of decisions. We ought to be making it easier for them to 
expand and produce jobs, not harder.
    That leads me to another point I would like to discuss at 
this hearing, the confusion and uncertainty the President's 
health-care law is causing small businesses as it is 
implemented over the next few years.
    Between now and full implementation in 2018, 46 new 
provisions will be implemented. This is on top of the 46 that 
have already been implemented over the past 2 years. The sheer 
number of things to track and comply with has got to be 
confusing for small mom-and-pop shops struggling to get by in 
difficult economic times. And it all goes back to the question: 
Why are we making hard things harder for small businesses 
instead of easier?
    We have an excellent panel to discuss these issues, and I 
again would like to thank everybody for being with us today.
    Our first witness is Dr. Keith Small from Denver. Dr. Small 
is the senior member of the Cody Dental Group, joining the 
staff in 1967. For 7 years, he was a member of the visiting 
faculty at the L.D. Pankey Institute for Advanced Dental 
Education in Key Biscayne, Florida.
    He is currently a clinical associate professor in the 
Department of Restorative Dentistry at the University of 
Colorado School of Dentistry.
    He also serves as mentor to the Centennial Dental Study 
Club in Denver, is a member of the Advisory and Leadership 
Board of Directors of the University of Colorado at Denver 
Health Sciences Center School of Dentistry, and is a member of 
the Denver Academy of Restorative Dentistry.
    Thank you for being with us today, Dr. Small.
    Dr. Small, could you go ahead and move that microphone 
closer to you? Thank you.


                    STATEMENT OF KEITH SMALL

    Dr. Small. I would like to take this opportunity to thank 
you for this chance to present our small-business concerns of 
the health-care reform law, perhaps even to the continued 
existence of our 66-year-old dental practice.
    Our corporation attorney for the professional corporation 
has advised us that if there are not significant changes, that 
it would raise question as to whether we can continue to exist 
in our existing organization. And part of that is that we are 
just above the 50 threshold of employees.
    The Cody Dental Group was founded January 1, 1946, and is 
now the oldest dental group practice in the United States. We 
have 62 employees, 14 dentists, 14 hygienists, two x-ray 
technicians. And since 1986, we have had a cafeteria plan in 
place for our employees.
    The cafeteria plan has three different components, the 
medical insurance category, the flexible spending accounts with 
a maximum of $8,000 per year, and the child or daycare with a 
maximum limit of $5,000 per year. The cost of the medical 
insurance aspect of the health plan right now seems to have 
more questions than it does answers, in terms of determining 
what those actual costs will be.
    But with a typical overhead cost in a dental office easily 
in the range of 70 to 80 percent or more, the impact on small 
business is a major, major concern.
    I would like to address some comments specifically to the 
flexible spending account portion, because that has such a 
major impact on our employees.
    During the health-care reform legislative debate, there 
were numerous comments made to the media that there would be no 
adverse impact on the so-called middle class. I think that was 
defined as $200,000 per year income for single filers, or 
$250,000 for joint filers. And at the signing, President Obama 
had the observation that within 10 years, the new law would 
produce a $1.4 trillion surplus. I am not sure how that math 
comes about.
    However, the major impact on the health-care reform law 
comes into the flexible spending category of the cafeteria 
plan. January 1, 2011, the coverage for over-the-counter 
medical-related products was deleted. And my observation is 
that probably has more of an impact on the family units with 
    But the biggest impact will be January 1, 2013, when the 
maximum flexible spending account will be lowered from $8,000 
per year to $2,500 per year.
    This represents an almost 70 percent reduction in coverage. 
Since 1986, employees in our office who were faced with major 
medical expenses were able to plan ahead and obtain coverage 
for the major part of those by setting aside up to the $8,000 
limit in their cafeteria plan.
    One of the current reference points in terms of cost is 
superior performing hearing aids will cost in the range from 
$7,000 to $8,000 today. The January 2013 maximum so then would 
not even cover the cost of one hearing aid. There are also a 
number of prescription costs, newer drugs, which typically are 
much higher in cost, where your annual cost will exceed $2,500 
per year for that single prescription.
    So I would submit that the severity of the reduction 
targets the very individuals in that so-called middle class 
that weren't really supposed to be severely impacted by this 
new law.
    The flexible spending accounts do have a use-it-or-lose-it 
proposition, so there is built-in protection there against 
overuse, and the protection is also provided so there will not 
be a conduit for tax-free funds to flow to the pocket of that 
    So basically, the abrupt change in the flexible spending 
account of the reduced medical over-the-counter items in 
January 2011, and then almost 70 percent reduction taking 
effect next January in 2013, does represent a major and sudden 
negative impact on the budget of the people who need the help 
the most.
    Thank you.
    Chairman Coffman. Thank you, Dr. Small.
    Our next witness is Mr. John Leevers--oh, I'm sorry. I 
stand corrected.
    Next, we have Mr. Matt Tynan, secretary and treasurer of 
Tynan's Volkswagen, Nissan, Kia in Aurora. A native of Denver, 
he earned his bachelor's of arts degree from Benedictine 
College in 1987, and a master of science degree from Emporia 
State University in 1990. Matt has previously served as cochair 
of the Legislative Policy Committee for the Colorado Automobile 
Dealers Association and as a trustee of the Catholic Foundation 
of Northern Colorado from 2005 through 2011.
    He has been active in his family's automobile dealership 
since 1994. Combined, his company employs approximately 200 
individuals in Aurora and Fort Collins.
    Thank you for coming here and for your testimony, Mr. 

                    STATEMENT OF MATT TYNAN

    Mr. Tynan. Thank you, Chairman Coffman, for holding this 
important hearing.
    Again, I am Matt Tynan, secretary and treasurer of Tynan's 
Volkswagen and Tynan's Nissan in Aurora, Colorado, and Fort 
Collins Nissan, Kia in Fort Collins, Colorado.
    I am here testifying on behalf of the Nation's 16,000 
franchised automobile dealerships, and the almost 1 million 
people they employ who are represented by the National 
Automobile Dealers Association.
    In 1963, my father, Edward Tynan, began Tynan's as a family 
business, and we are very proud to still be a family business. 
While we have remained in business for nearly 50 years, the 
last 10 or so have been extremely challenging. As reported by 
Tim Jackson in the Colorado Automobile Dealers Association, new 
car sales in Colorado reached 208,000 units in the year 2000. 
In 2009, new car sales in the State of Colorado had dropped 
104,000 units. Obviously, this 50 percent reduction in new car 
sales negatively impacted our business and nearly every other 
new car dealer in the State.
    Over that same period of time, to put this in perspective, 
sales at our Volkswagen dealership, a dealership that began 
operating in 1968, went from approximately 100 new units a 
month to 30 units per month.
    Over these years, we took steps to reduce our expenses by 
eliminating certain positions, changing pay plans, and reducing 
benefits. Our most expensive line item is our people. Our 
people are also our most valuable asset.
    The people we employ are some of the best and brightest in 
the industry. The calculation is simple: The greater their 
success, the greater the success for our dealership.
    We make a real investment in our employees. We have to. To 
avoid regulatory entanglement, our sales and finance operations 
staff must be kept up-to-date on changes in the law, both at 
the State and Federal level. But it doesn't stop at that front 
    With the complexity of today's vehicles, servicing vehicles 
requires strong computer skills. We must invest in our 
technicians, provide them with training, special tools and 
equipment necessary to fix and maintain today's cars and 
    One way we attract and keep our staff is by providing 
competitive benefit packages, and this includes a rather costly 
health plan. Health care is a very personal issue for all of my 
employees and for me and my family. I see and talk to virtually 
every one of our employees in the Metro Denver stores on a 
daily basis, so I know how important this is.
    I am not a large corporation. I do not work out of a 
penthouse office or behind a big mahogany desk. I get the same 
health coverage for my wife and five kids as we provide for our 
employees. These people are part of my family, and we want to 
do right by them. I might add that the same is true for 
thousands of other dealerships across the country.
    Our H.R. people work each year to find the most affordable 
plans with the best coverage. Each year, that becomes 
increasingly challenging, and each year it becomes more 
difficult to build a business and hire additional staff.
    Over the last 9 years, our health insurance premiums have 
remained relatively flat. We have accomplished this by 
increasing deductibles and co-pays, changing coverages, and 
aggressively shopping our health insurance plans. We have had 
to change carriers.
    We are not alone. Every small business across Colorado that 
is trying to do the right thing faces exactly the same burden. 
In just 2 years, providing health coverage for the men and 
women who work for me and their families will be turned on its 
head and not for the better.
    The implementation of the Patient Protection and Affordable 
Care Act, a centerpiece of this Administration's domestic 
agenda, will drive costs higher, not lower.
    Since we employ more than 200 people, we would be required 
by law to offer our full-time employees health benefits with 
specified affordability and minimum value requirements. If the 
coverage does not satisfy these requirements, we pay a fine. 
Even if one full-time employee went to a new health exchange 
and purchased a government-subsidized plan, we pay a fine. If 
we choose not to offer health coverage, we pay a fine.
    Instead of trying to do the best by our employees, it will 
become a simple math calculation: Is the fine less than 
providing coverage for our people?
    The same law that mandates that we provide this coverage 
provides a loophole so we don't have to. How does this make 
    Within a relatively short amount of time, the health-care 
delivery system will be less accessible and far more expensive 
than today. Supply and demand dictate what we can get for a new 
or used vehicle. With the economy suffering the past several 
years, the value of used cars is significantly higher, because 
demand for them is high. The same is true for health care.
    With mandatory coverage, the demand for health care will 
sky rocket. With a limited supply of hospitals, doctors, and 
nurses, the price of care will go up and the cost to cover our 
employees will rise and continue to do so.
    Eventually, health-care costs will escalate so high it will 
be impossible to offer an in-house plan, so our only option 
will be to pay the fine and to have our employees fend for 
themselves in the state-regulated, government-subsidized 
    Many other businesses will do the same calculation and see 
the State exchanges as a viable option. As the Government 
program becomes overwhelmed by people forced into the State 
exchanges, our Federal penalties and our State taxes will have 
to increase to cover the influx of people.
    So how do we fix this problem? A simple solution is a 
complete repeal of the entire health-care reform bill, 
replacing it with an affordable system that preserves consumer 
choice while not sacrificing quality care. I am sure that is 
easier said than done.
    Small steps have been made to reduce the burdens of health-
care law. I applaud Congress for successfully repealing the 
1099 tax-reporting requirement for any expenditure over $600. 
That provision alone would have been death by a thousand paper 
cuts. It would've cost our staff hours and hours of paperwork.
    I want to thank Chairman Coffman for his efforts to 
eliminate that burden. It is a good first step, but it is far 
from enough.
    Another important step would be to eliminate the so-called 
employer mandate to require employers to offer plans with 
certain coverage requirements. The mandate changes the meaning 
of full-time and leaves the unelected bureaucrats to define 
minimum health coverage, leaving small-business owners 
uncertain about the future.
    I mentioned this earlier in my testimony, fortunately the 
American Job Protection Act, H.R. 1477, would repeal this 
    Chairman Coffman, I saw that you were an early cosponsor of 
that legislation, and I commend you for doing so.
    H.R. 1477 removes any requirement that employers with over 
50 or so employees provide insurance coverage or pay fines. 
Repealing this provision is absolutely critical to keeping this 
program from harming my dealership and small businesses 
throughout Colorado.
    In closing, I want to thank Chairman Coffman for the 
opportunity to testify today. Our goal, as every other 
entrepreneur in Colorado, is to build a thriving, self-
sustaining business to support our family and the families of 
the men and women who work for us.
    I urge you to continue your work to fix the problems 
associated with the new health-care law, to do what you can to 
implement real, market-driven reforms that increase competition 
and make health insurance more affordable.
    Thank you.
    Chairman Coffman. Thank you, Mr. Tynan, for your testimony.
    Our next witness is Mr. John Leevers, president of Leevers 
Supermarkets Inc. in Franktown. He is actively involved in the 
daily operations of LSI and has 22 years of experience in 
retail operations, human resources, and finance. Mr. Leevers is 
also responsible for long-range planning, evaluating 
acquisitions, establishing strategic direction, and initiating 
store expansions and capital investment.
    He is a 1993 graduate of the University of Denver, with a 
degree specializing in finance and management.
    I appreciate your participation, Mr. Leevers.

                  STATEMENT OF JOHN W. LEEVERS

    Mr. Leevers. Thank you. Good morning, Mr. Chairman, and 
thank you for the opportunity to testify on behalf of the 
National Grocers Association on an issue that will undoubtedly 
affect the way in which all small businesses operate.
    The NGA is a national trade association representing and 
servicing the retail grocery and food companies and wholesale 
distributors that comprise the independent sector of the food 
distribution industry. An independent retailer is a privately 
owned or controlled food company operating in a variety of 
    NGA members also include retail grocery or food companies, 
and wholesale distributors, affiliated associations, as well as 
manufacturers, service suppliers, and other entrepreneurial 
companies that support NGA's mission and philosophy.
    My name is John Leevers, and I am the president of Leevers 
Supermarkets Inc. We were founded in 1938 by my grandfather. My 
brother and I are third-generation grocers, celebrating 75 
years next year. I'm excited about that.
    Like many small employers around the country, we have tried 
to make the best of difficult times and hope the worst is 
behind us. We have been fortunate in that we have recently been 
able to open three new stores here in Colorado.
    But we fear our future growth will be stifled by the 
effects of Affordable Care Act. The Affordable Care Act has 
changed the way in which small businesses think about benefits. 
And in this new era, the decisions companies make with regard 
to benefit administration will affect their ability to compete.
    As a result, we have spent a considerable amount of time 
and resources analyzing how to proceed in 2014, when what are 
key provisions for us are implemented--the most significant, 
the employer mandate. We welcome the opportunity to share these 
experiences with the committee.
    Leevers Supermarkets today operates 13 stores and employs 
around 300 people here in Colorado. Eleven of our Leevers 
stores operate under the Save-a-lot banner, and as such utilize 
a price-driven format. The focus of this price-driven format is 
on efficiencies. We differ from traditional grocery stores in 
that we sell only a limited assortment of product, and our 
operations are extremely streamlined to keep costs low.
    In 2014, we are faced with the decision to either continue 
to offer coverage as we have it today and absorb additional 
costs of administration burdens associated with the Affordable 
Care Act, or, alternatively, to drop coverage, as some of the 
others have suggested, leaving our employees to fend for 
themselves, despite our years of corporate support of our 
employees' benefits.
    Simply put, neither decision is attractive to us, and both 
decisions could have significant repercussions on our business.
    Over the years, as health-care costs have increased, we 
have seen erosion in the benefits we have been able to offer. 
In the not-so-distant past, we offered benefits to all 
employees and health-care coverage was free. More recently, in 
light of the cost of care, we have been forced to limit 
eligibility in our plans to full-time employees and individuals 
who hold certain jobs.
    If the Affordable Care Act is maintained as written, we 
will have a very difficult decision in front of us beginning in 
2014. It is likely that we will not be able to be in a position 
to afford health-care benefits of any kind.
    For us, like most small employers, discontinuing coverage 
makes sense from an economic standpoint. As I stated earlier, 
our stores employ between 20 and 40 employees at each location, 
and we have roughly 300 employees.
    Because of costs, we have had to restrict employee 
eligibility in our plan, and we currently have 65 individuals 
participating. We self-insure our health coverage and our costs 
are roughly $10,000 per covered life. Thus, the total cost of 
our health benefits for our company today is roughly $600,000. 
And we pay about 80 percent of such costs, or about $480,000.
    The Affordable Care Act greatly expands the number of 
employees who would need to be covered on our plan by defining 
a full-time employee as an employee who has averaged at least 
30 hours of service per week over the course of a month. 
According to the shared responsibility provisions of the 
Affordable Care Act, we must either provide such individuals 
with coverage or pay a penalty of $2,000 per full-time 
    Prior to the Affordable Care Act, we would not have 
considered employees who worked 30 hours per week full-time and 
consequently would not have offered them the opportunity to 
enroll in the plan. This provision alone increases the number 
of eligible employees in our plan from 65 to around 250. If we 
were to continue coverage, even if our medical trend costs were 
to stay stable, which is not likely to be the case, the cost of 
our plan beginning in 2014 would skyrocket to around $2 
    Again, the Affordable Care Act penalty for discontinuing 
coverage is $2,000 per full-time employee, disregarding the 
first 30 full-time employees. If the 30-hour workweek 
definition stands, our total number of employees defined as 
full-time for health-care benefits would rise to roughly 250. 
Thus, our liability under the shared responsibility provision 
would equal about $440,000.
    As you can see, purely from a financial standpoint, the 
decision to drop coverage makes sense for us. This is 
especially true considering the fact that because of our size, 
there's very little we could do to bend the cost curve on the 
cost of benefits in the coming years. As you know, the cost of 
health-care coverage is heavily dependent on the size of your 
pool. In general terms, if you have a large pool, the impact of 
a catastrophic event will be spread over a large number of 
people and the per capita cost will be less. This is as true 
for self-insurance as it is for insurance. Thus, one strategy 
for lowering costs is becoming included in a larger pool. The 
Affordable Care Act, however, prohibits small businesses with 
more than 100 employees from purchasing coverage through an 
exchange. Thus, while other small employers may benefit from 
the aggregation possible through an exchange, we are, 
unfortunately, precluded from exploring this option.
    However, if we must make the decision to discontinue 
coverage, we are cognizant that certain noneconomic factors can 
come into play. Like any business, our employees are our 
greatest asset. We understand that dropping coverage is likely 
to have a profound effect on employee relations.
    Members of the committee, the Affordable Care Act has 
placed our business between a rock and a hard place. The shared 
responsibility provision forces us to try to decide between two 
bad decisions. We can choose to continue the provision of 
health benefits and be saddled by unsustainable costs, 
resulting from mandated increases not only on the number of 
beneficiaries we must cover under our plans, but also the 
richness of the benefits we must offer.
    The alternative, discontinuing coverage, is equally 
problematic and forces us to ignore time-tested justifications 
for providing benefits that will result in severe employee-
relations issues.
    Thus, unless significant changes are made to the Affordable 
Care Act, it stands to do irreparable damage to many small 
businesses. Specifically, we recommend the definition of full-
time employee be amended to reflect the way in which employers 
generally categorize employees as full-time or part-time.
    I look forward to working with you on these changes and 
answering any questions you may have.
    Chairman Coffman. Thank you, Mr. Leevers.
    Our final witness is Mr. Mark Rogers, president and chief 
operating officer for Roaring Fork Restaurants. Mr. Rogers 
leads over 250 employees in several locations throughout 
Colorado. He also serves as the secretary and treasurer of the 
Colorado Restaurant Association. He received a bachelor of arts 
degree from Baylor University, and his masters in business 
administration from the University of Colorado.
    Welcome to the committee, Mr. Rogers.

                    STATEMENT OF MARK ROGERS

    Mr. Rogers. Thank you very much. Good morning, Mr. 
    My name is Mark Rogers, and I'm grateful for the 
opportunity to address some of the ramifications the new 
health-care law will have on employers and the workforce, 
particularly the impacts the new law will have on small 
businesses and job creation.
    While this law includes some important insurance reforms 
and increased access to coverage for many people, taken as a 
whole, the law is biased toward mandating coverage rather than 
providing meaningful cost control.
    This legislation will create increased uncertainty in our 
long-term business planning and force employers to choose 
between absorbing rising premiums or paying mandated penalties, 
slowing the growth of small and midsized businesses as we 
struggle with the costly new requirements during a time of 
economic recovery.
    I am a small-business owner and franchise partner for 
Cheddar's Casual Cafe, a company my father originally cofounded 
in 1978. Now, along with my father and sister, I have started a 
pair of companies called Roaring Fork Restaurants, Inc., to 
expand Cheddar's franchises across the State of Colorado, as 
well as Riverside Restaurant Group, LLC, which facilitates the 
purchase and construction of restaurant properties.
    Our first Cheddar's franchise restaurant is Aurora; our 
second house in Colorado Springs. We truly are building this 
business from the ground up. My father made sure of such, as I 
have worked as a server, bartender, dishwasher, assistant 
manager, and manager, obviously, teaching me a great deal about 
the restaurant business.
    As we continue our franchise expansion, I am particularly 
concerned about the health care employer mandate, which will 
prohibit and hamper our growth.
    I am here today on behalf of the International Franchise 
Association, or IFA. The IFA's mission is to safeguard the 
business environment for franchising worldwide. IFA represents 
more than 90 franchised industries, including more than 11,000 
franchisees, 1,100 franchisors, and 500 supplier members 
nationwide. There are more than 800,000 franchised 
establishments in the United States, creating 18 million 
American jobs and generating $2.1 trillion in economic output 
each year.
    According to a study prepared for the IFA by the Hudson 
Institute, the franchise industry will be particularly hard hit 
by the employer mandate provision of the new health-care law.
    The new law will affect tens of thousands of franchise 
businesses like mine, putting more than 3.2 million full-time 
employees earning their living in franchise business at risk of 
losing their jobs, and adding costs of more than $64 billion in 
employer mandate penalties, not including the additional costs 
in time for regulatory compliance.
    The report also shows that the new law will make it harder 
for small businesses with 50 or more employees to compete with 
those that have fewer than 50 employees. Therefore, the effects 
of the new law are anti-small business growth by inadvertently 
discouraging many franchisees from owning and operating 
multiple locations, creating a competitive disadvantage for 
franchisees who do own more than one or two locations.
    The study also demonstrates that the employer mandate 
provides an incentive for franchisors and franchisees to 
replace current full-time workers with part-time and temporary 
workers. This is the wrong direction for both our economy and 
millions of unemployed Americans.
    The real irony here is that in the name of expanding health 
coverage, health-care coverage, Congress and the Administration 
are making it more difficult for workers to enter and 
eventually be promoted in the workforce at a time when we 
desperately need growth.
    I will go off script here for a moment and say that this 
will change not only the restaurant industry in Aurora and 
Colorado, but across the entire country. It will either force 
restaurants to cut their staffs significantly, or it will 
create two kinds of employees, almost a class system of 
employees, those that are full-time, those that are part-time. 
Restaurants will absolutely have to cut those that are full-
time, those that are working more than 30 hours a week, or else 
have to provide insurance coverage.
    And in our case, and in many restaurants across the 
country, it is much more expensive to pay for that insurance 
coverage than pay for the penalty. So therefore, they will cut 
their staffs to almost strictly part-time employees.
    I think that that class system within restaurants, at 
least, would be terrible for the entire industry, as well as 
the country.
    I think it will also force people to get multiple jobs, and 
what you are going to see is there are servers and bartenders 
and cooks who work 40 to 42 hours a week, supplying their 
families with everything that they need. Well, with restaurants 
having to cut their staffs and cutting those folks to now less 
than 30 hours, or 29 and half hours per week, they will be 
forced to get a second job. So now you're going to be forcing 
many folks in the entire restaurant industry to now go get 
multiple jobs, which will make it more difficult for them, 
driving to multiple jobs. This is tax season--having to file 
multiple returns. It'll make it much were difficult.
    It'll force restaurants to pass the costs as well on to the 
consumer. Our restaurant, and I look at our corporate entity as 
a whole, established that it will force us to raise our costs, 
our menu prices, 3 to 4 percent at minimum in order to deal 
with paying the penalty. And I would say that based on what we 
have established, we will pay the penalty, because it will be 
much more expensive to pay the coverage.
    We assume that, as you said, with 250 employees, you're 
talking about more than $400,000 a year that it will cost our 
businesses just to pay those penalties at $2,000 per employee.
    This new health-care law imposes yet another unnecessary 
layer of regulatory burden on business owners as we attempt to 
understand and comply with these new provisions and face the 
increasing costs of doing business. Because of the employer 
mandate, it will be more difficult for businesses to estimate 
the cost to expand and hire new workers for tens of thousands 
of business owners already struggling to recover from the 
deepest recession we have had since the Great Depression.
    Franchise small-business owners should not be forced to 
choose between absorbing rising insurance premiums and paying 
tax penalties for noncompliance. The framework of the current 
law threatens the economic viability and job creation potential 
of franchised businesses vying to recover from the economic 
downturn by imposing excessive cost burdens on the backs of 
small businesses.
    As one of those small-business owners, I urge Congress to 
further review the impacts and consequences of the health-care 
reform law as a whole and repeal this onerous employer-mandate 
    I would also say, with regard to our business of over 200 
employees, 200 to 250 employees, it will cost us $400,000 a 
year. I will say that even my father yesterday talked about 
changing our management structure, so you're not only talking 
about the hourly employees, you're talking about changing our 
management structure. We have four to five managers per 
restaurant. And you think, well, perhaps we have to change 
those from working 40 to 50 hours a week down to 30 hours a 
week, in order to just pay the penalties. Now you're talking 
about affecting the lives of all those managers.
    And the last thing I wanted to say, and it struck me what 
these gentlemen said. I always tell people I'm in the people 
business. I am not in the restaurant business; I'm in the 
people business, whether that is our employees or our 
    With our employees, I've paid for hotels, traveling, I've 
given advances, I've given loans, I've done everything I can to 
take care of our employees. Now I think of the fact that I'm 
going to be the one that is going to be cutting back on their 
benefits, and I'm to be the one making life harder for them 
just in order to survive, in order to be able to actually have 
employees and take care of customers, we will have to face 
paying the penalty instead of the costs of providing coverage 
to all those employees.
    Thank you very much for the time.
    Chairman Coffman. Mr. Rogers, thank you for your testimony.
    I think all of you have well-expressed the unintended 
consequences of this legislation.
    Let me ask some questions to all of you.
    And the first one is, I think employers want to offer 
health insurance to their workers, both to do the right thing 
and to stay competitive. But thin margins leave employers 
unable to absorb these continuing cost increases.
    First of all, do you think most small firms want to offer 
health insurance but simply can't in this economy?
    Why don't we start with you, Mr. Small, and then we will go 
    Dr. Small. Yes, absolutely. It just becomes cost-
prohibitive to be able to do this.
    I moved to Denver in 1967. For the first 15, 18 years, we 
did pay all of the medical insurance costs for our employees. 
And then it got to the point, as costs were increasing, when I 
first got here, it was like $5,000, $6,000 to cover everybody 
on my 25-, 30-member staff. As we got larger, but particularly 
as the premiums skyrocketed, it got up to the point where we 
were up in the $50,000, $60,000 range. And the consultants told 
us that within 3 years, their estimate was that we would be 
between $104,000 and $120,000 in premiums. At that point, for 
the next 3 years, we froze what our participation was and had 
the employees pay that differential as that price went up.
    In 3 years, we had exceeded the $120,000 limit for our 
staff premiums by about $20,000. And so at that point then, we 
stopped doing that. We had some other group plans, but those 
have faded also.
    So there is no question, the desire would be to provide 
that kind of coverage for your staff. And they really are like 
family. I have four people I've worked with who have been on my 
staff, on our staff, for over 40 years.
    Chairman Coffman. Thank you, Dr. Small.
    Mr. Tynan, do you think that most small firms want to offer 
health insurance, but simply can't in this economy?
    Mr. Tynan. Yes, Mr. Chairman.
    The car dealers that I am familiar with would like to offer 
those benefits to their employees, and the comments that you 
made in your opening statement about ways to address the 
increasing costs, I believe that our associations would be in 
concurrence with those comments about addressing tort reform, 
going across State lines, and the other comments that you made 
in terms of addressing health insurance.
    Chairman Coffman. Okay, and just let me mention that we 
will have tort reform--there will be tort reform legislation on 
the floor of the House in April, next month.
    Mr. Leevers, go beyond your firm. Do you think most small-
business employers want to offer health insurance but simply 
can't do to the economic situation that we are all in right 
    Mr. Leevers. Certainly, every small-business person that I 
know, and entrepreneur that I know, would prefer to offer 
benefits. It is not only the right thing to do and people feel 
like it is the right thing to do, but it is what we need to do 
to be competitive with big firms and what is going on out there 
in the market. So the simple answer is, absolutely everyone 
would prefer to offer those benefits if they could afford to.
    We used to offer them to everybody at no cost, and over the 
years, we have had to just maintain coverage, the best coverage 
we could, for the people that we could, we have had to cut back 
on who is eligible. And then we had to begin, since we are 
self-insured, we pay up to the first $40,000 of any individual 
claim. So I, effectively, have a $40,000 deductible with all my 
    We have had to continue--we started out at $5,000. In order 
to make sure that our coverage stays as good as it can be, it 
went to $10,000, and to $20,000, and to $30,000, and to $40,000 
over the years, just to maintain somewhere in the neighborhood 
of 8 to 10 percent increases on an annual basis.
    So we certainly realize, I think, something needs to be 
done about the cost of the health care in this country, 
especially for small- and medium-size businesses. And everybody 
would certainly prefer to offer if they can, but we don't think 
this is the way to do it.
    Chairman Coffman. Mr. Rogers.
    Mr. Rogers. I would say, of course, my business is a little 
different in the restaurant business, because it is such a 
transient workforce, it is difficult to think of providing 
health-care coverage for someone that might work for you for 3 
    But I would say, as an entrepreneur, looking at the big 
picture, of course.
    We have a young woman that is a cook for us. She started as 
a culinary assistant making $7.50 an hour in Aurora when we 
opened the restaurant 2 years ago. She has worked up now to 
make about $12.50 an hour. She doesn't have any health 
    And about 3 weeks ago, she was hobbling around. And she had 
ingrown toenail, but should have any health insurance, so she 
didn't want to have to go spend a bunch of money to get ingrown 
toenail fixed. She has a child home, and that was just too 
    Well, without insurance, it costs about $850 to have her 
ingrown toenail fixed, and you know, my father and I paid for 
her--I paid for her to go to the doctor and get it taken care 
of, because it was the right thing to do to help her.
    In the greater scheme of things, I think that is what 
you're asking, of course, we want to take care of our employees 
and, of course, we want to provide insurance or health care for 
any and all of them.
    If the restaurant business wasn't such a transient 
workforce, I would say, absolutely, we would want to provide 
for each and all of them. And you know, I think the case with 
that young worker, Justine, shows that we absolutely want to 
take care of any and all of our employees.
    Chairman Coffman. Thank you.
    And the next question I think some of you have certainly 
touched on this, but for the record, if you could just 
reiterate your position. One of the main things I wanted to 
highlight in this hearing is to show this law will impact job 
creation and business expansion.
    As I mentioned in my opening statement, beginning in 2014, 
employers with 50 or more employees will have to provide 
insurance coverage to their employees or face financial 
penalties. My question to all of you, do you think a company 
that is just below the 50-employee threshold will be likely to 
hire more workers if they are unable to provide health 
insurance? Is a company that has 52 employees going to maintain 
or contract in the face of these penalties?
    Any insights from your current employment levels could help 
as well.
    And we will start with Dr. Small again.
    Dr. Small. I don't think there's any question that if 
you're close to that 50 level, you are going to make sure you 
don't go above it or you don't go below it.
    With 62 on our staff, we have looked at that and said, is 
there any way that we can get down below that 50 level. That is 
impossible for us. We are close, but not close enough.
    We have, because of a dentist who just recently retired and 
moved to Florida, we have capacity to take two additional 
practices into our facility right now, but we're holding off 
because we are trying to find out some answers on subjects that 
we are talking about today before we do any kind of expansion. 
That kind of expansion would add at least six and maybe eight 
additional employees.
    Chairman Coffman. Okay.
    Mr. Tynan.
    Mr. Tynan. Mr. Chairman, I think any company would look at 
the situation if they were at that threshold level to see if 
pulling back to below 50 employees, if they could make their 
business operate and reduce their exposure to the mandates 
within the health-care reform.
    We have three separate corporations, and we group those 
three separate corporations together for the purposes of 
expanded our insured pool. And I would think we would have to 
look at breaking those three individually up, and perhaps even 
making one of our corporations, splitting it into two, to get 
below the 50-person threshold, if we thought that we could get 
adequate health insurance coverage at an affordable price with 
that smaller pool, vs. staying grouped together with all of our 
    I'm certain any company that was on the threshold at 50--
our smallest corporation has 60 employees. Could we cut back to 
49 people?
    Chairman Coffman. Now, would that inherently cause an 
increase in premiums, because you're dealing with a smaller 
group? So you're fragmenting into smaller groups.
    Mr. Tynan. Right.
    Chairman Coffman. So would the aggregate amount be more 
than you would have otherwise purchased for those groups?
    Mr. Tynan. Exactly. And that is why you have an insurance 
broker who is going to run the numbers for you and can say, if 
we break it up this way, it will be less expensive and you will 
have less exposure, or you will be better off paying the fine, 
going to the exchange, or you should continue your health 
insurance plan.
    Chairman Coffman. Mr. Leevers.
    Mr. Leevers. I would echo those sentiments. We're in an 
industry where the national average for grocery stores net 
profit is between 1 and 2 percent. That is published numbers.
    When you have something that is such a significant cost as 
health care and other benefits are with employees, people are 
going to do whatever they need to do to figure out how to work 
with that, because the numbers I proposed earlier are just 
simply untenable.
    As you proposed, would you look at separating, and other 
companies already do this for other reasons, but separating 
grocery stores into individual companies? Would you look at 
cutting back in certain areas? Changing the number of employees 
who are considered part-time or full-time, reducing hours under 
30 to keep people outside of those?
    Yes, there is no question that small businesses and 
individual stores, in particular, are going to have to look at 
changing the way they do business based on that law.
    Chairman Coffman. Mr. Rogers.
    Mr. Rogers. So insurance for us costs well over $2,000 per 
    Chairman Coffman. Today it does, okay.
    Mr. Rogers. Yes. I was thinking about the threshold that 
you said. If you're at 49 employees and you thought about going 
to 50, and let's say that it costs half of $2,000 just for 
coverage, you immediately are going to cost that company 
$50,000 if it costs $1,000 per person. If you add and hit the 
50 threshold, you will immediately overnight cost the company 
    So I don't think there's any question that none of those 
businesses at the threshold of 48, 49 people are ever going to 
want to go above at what it is going to cost them.
    And in terms of growth, there are a few public restaurant 
companies today that look at their business as profit per 
employee. And I know one of them is Outback Steakhouse. And 
they figure their profit per employee is right at $2,000. And 
therefore, they figure for each person they are hiring, and 
they realize that they have to pay the penalty instead of 
covering folks, then in essence, take away all the other costs, 
at essence, they're getting zero profit by hiring one more 
    So the thought would be, let's keep the same workforce and 
try to get more out of that workforce. That is our only shot at 
trying to better our numbers.
    It is a terrible way to look at business. I mean, it is 
awful. For the last several decades, you always, when you were 
doing well, you looked at growing, you looked at adding people 
to increase sales. And I think that people don't look at their 
business that way anymore, based on this new law.
    Chairman Coffman. I'm going to start the reverse, with you, 
Mr. Rogers, this time.
    Instead of mandates and penalties, that I believe will do 
little to actually lower health insurance and delivery costs, 
what other steps could be taken to reduce costs? Do you think 
being able to purchase health insurance across State lines or 
medical malpractice reform might help to reduce costs, or other 
ideas that you might have?
    Mr. Rogers. I think that being able to buy insurance across 
State lines would absolutely help. I think it would make it 
more competitive.
    As it is today, our insurance continues to go up, 
regardless. So I think making it more competitive in any 
possible way would help.
    And, yes, I think that tort reform there would help 
greatly, too. I think that helped where I'm from, the State of 
Texas, helped greatly. And I believe, if you could have Federal 
tort reform, of course that would help.
    So anyway to make it more competitive would help all 
    Chairman Coffman. Right. Thank you.
    Mr. Leevers.
    Mr. Leevers. I would agree that the tort reform, in our 
opinion, would be a significant step in the right direction.
    Being able to pool and buy across State lines is 
significantly impactful to us, because we're big enough to be 
out of the small, but we are not big enough to get into any 
large pools. So that really has significant impact for us, 
being able to pool up with others.
    In addition to that, again, the nature of our business is 
very part-time. We have a lot of people who don't look at our 
business as their primary. It might be a second job. It might 
be a high school job. It might be an evenings and weekends job 
for a housewife.
    So that coupled with the fact that our business fluctuates 
fairly dramatically from the first of the month to the end of 
the month, and seasonally, makes these things very, very 
    So reforming the definition of a full-time employee on a 
per month basis is absolutely critical for us.
    Chairman Coffman. Mr. Tynan.
    Mr. Tynan. Mr. Chairman, tort reform seems to me to be the 
single biggest issue that needs to be addressed.
    Chairman Coffman. Dr. Small.
    Dr. Small. I would second that comment.
    Chairman Coffman. Thank you.
    Let me ask a question for Mr. Rogers and then anybody else 
can respond to it.
    You mentioned in your testimony that you essentially 
learned the restaurant business from the bottom up. In light of 
this law and the coming regulations, along with other 
regulations coming out of this Administration, I'm wondering if 
the Federal Government might be dampening the entrepreneurial 
spirit. Are these actions slowly but surely killing an entire 
generation of potential entrepreneurs? What do you think, Mr. 
    Mr. Rogers. Yes, I think without a doubt. I look at our 
parent company, when we purchased the rights to Colorado as a 
franchise territory, we became a franchisee instead of a 
franchisor. I saw my father was an entrepreneur for 34 years 
with this business, and I wanted to follow in his footsteps.
    I look at it today, knowing that our corporate group has 
the opportunity to buy us out again, similar to the way we did 
when we sold out to them a few years ago. So I look at this 
opportunity and think, when I sell out, do I want to be an 
entrepreneur again and go start another restaurant company? I 
think, do I want to go out and purchase a small restaurant 
chain and grow it?
    And just last night I told my wife I might not. I said it 
is so difficult today as an entrepreneur, especially in the 
restaurant business, and thinking about this health-care 
mandate, that it would be better, in my opinion, to go more of 
a corporate route. So I think there's no question it's killing 
the entrepreneur spirit of wanting to go in and start something 
and create something and grow something, because it is hard on 
the little guy.
    And I see how easy it was, or, it was much easier to start 
businesses when my father created this company in 1978. And how 
much more difficult it is today, with all the regulation, and 
this, in a way, I agree with you, is absolutely killing the 
entrepreneur spirit.
    Chairman Coffman. Mr. Leevers.
    Mr. Leevers. My father's favorite saying is all I ever 
wanted to do is sell groceries for just a little bit more than 
I pay for them.
    And somehow we've created so much regulation in general 
around business today that we have to do a whole lot more than 
sell groceries for a little bit more than we paid for them.
    And I think it absolutely is dampening the spirits of 
entrepreneurs and their willingness to take the risks and incur 
the expenses and the risks involved with those, to comply with 
all kinds of regulations. This just layers on another huge 
chunk on top of what is already I think drowning small business 
in America.
    Mr. Tynan. Mr. Chairman, recently a customer who is 
purchasing a car on our Nissan showroom floor told me that 
there was more paperwork in buying a car than there was in 
buying their last home. And we are in a highly regulated 
industry, both at the State and Federal level, and we have 
revenue earners and revenue burners.
    We need far more revenue earners in our business than 
burners. But regulations like this health-care mandate require 
so much time and energy to try to understand how to comply, 
what your potential costs are and the fines that you're going 
to face, that we're burning more revenue just trying to 
understand it. It is certainly stifling entrepreneurial spirit 
in our businesses.
    Chairman Coffman. Dr. Small.
    Dr. Small. I think there is no question that it stifles 
that spirit. In the dental field, we run a much smaller cottage 
industry. We don't have those kind of issues that these other 
three gentlemen have. But no question, it is a dampening 
    Chairman Coffman. Well, let me tell you, I thank you so 
much for your testimony today. And if you have any additional 
comments, certainly you can submit them for the record. But I 
will also defer to you in a minute if you have something.
    I just want to say that I think that there are tremendous 
unintended consequences with this legislation. And I'm 
concerned about it in terms of job creation. It seems to me 
that, from the testimony today, that certainly the cost, the 
increasing cost, is an unintended consequence, but also that 
for businesses to survive, for small businesses to survive, a 
push from full-time to part-time employees, to come under that 
threshold established in the law, and also for firms to say, 
you know, I'm not going to add that 50th employee. And so, I 
mean, this legislation is clearly, I think, as described today, 
is going to have a chilling effect on small businesses.
    And of course, it's interesting to see in Washington, D.C., 
that some of the very large and politically connected employers 
are getting the kind of waivers that are not available to small 
    So are there any additional comments you would like to make 
today, anybody would like to make today?
    Thank you so much for your testimony. It has been very 
    Okay, we'll close here. With that, as we conclude, I would 
like to mention for the record that members of the committee 
will have 5 legislative days to submit statements and 
supporting materials for the record.
    [The information follows:]
    Chairman Coffman. With that, the hearing is now adjourned.
    [Whereupon, at 11:04 a.m., the subcommittee was adjourned.]