White Castle’s crocodile tears

About a month ago, White Castle stirred up several places when it cried that the health care bill would cost it 55% of its net earnings.

The company offers insurance to all employees. The company claims to cover approximately 85% of the total cost. That 15% or so, however, is more than 9% of total income for a lot of employees. The company implied it was the majority of employees but never gave a definitive number. What the company’s spokesperson said was that the $3,000 per person penalty for payment being over 9% would eat 55% of the net profits.

Let’s take that apart a moment. First, please keep in mind that White Castles have the second best sales per store of any fast food in the nation, with only MacDonalds doing better.

Now allegedly there are between 10,000 and 14,000 employees. Let’s make some assumptions, breaking when possible in White Castle’s favor. Let’s assume that only half of the 10,000 are paying more than 9% of their incomes. That makes the penalty worth $3,000 * 5,000 or $15 Million. That makes net profits about $27.25 million – we’ll be nice and say it’s $27 million.

Now according to the annual insurance surveys from Kaiser, individual plans from providers cost an average of $11,000 per year. Employees paying 15% (what White Castle requires) are paying about $1650 per year. $1650 is 9% of $18,333 per year. So either White Castle’s insurance is more expensive, or the average wage (using the assumptions) for half its employees is less than $9.16 per hour.

Enter the crocodile tears. The company says it’s probably going to have to remove all the insurance to do the job, and ‘only’ pay the $2,000 per employee penalty. Let’s hit that math a minute, shall we? Remember I assumed White Castle only had about half its employees getting the penalty. Uncovering everyone – all 10,000 people – brings a penalty of $20 million. That’s more than $15 million, so what gives? The gain of $93.5 million from no longer paying 85% of anyone’s insurance.

In other words, sacrificing the employee insurance increases net profits from $27 million to $100.5 million.

Oh, we need to look at one more thing to complete the balance. Assume the 5,000 people that would earn the penalty are all earning minimum wage – $7.50 per hour. To reach the $9.16 per hour to cover the penalty line would cost $16.6 million. In other words it would cost just about what the penalty would be.

So the company’s got three basic choices. The owners (it’s privately held, remember – this is all going to one extended family) can get by on a mere $12 million, either by paying the government an extra $3000 per head or by paying their employees an extra $1.66 an hour. Or they can screw their employees and get $100 million a year instead.

Bets on which way they’ll choose?

Bets on how they’ll choose to frame it as “all the government’s fault”?

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One thought on “White Castle’s crocodile tears

  1. Great post. I hadn’t heard about this. As a White Castle fan, I’ll have to reconsider my penchant for snarfing them down when back home. I always thought that White Castle took care of its employees, although it didn’t pay much. At least better than McDonalds or the other fast food stores that my kids worked at. I hope they do the right thing by their employees. We can live with the usual business complaint about loss of profit and evil government but the alternative really hurts thousands of low paid working people in a crap economy.

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