Full text of "Dual standard : health insurance for American and foreign employees of multinational corporations : hearing before the Committee on Labor and Human Resources, United States Senate, One Hundred Third Congress, second session, on examining the disparity in health care coverage for American and foreign employees of certain multinational corporations, July 22, 1994"

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\0) ^ DUAL STANDARD: HEALTH INSURANCE FOR AMER-
ICAN AND FOREIGN EMPLOYEES OF MULTl-
NATIONAL COMPANIES .^____

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Dual Standard: Health Insurance for...

HEARING

OF THE

COMMITTEE ON

LABOR AND HUMAN RESOURCES

UNITED STATES SENATE

ONE HUNDRED THIRD CONGRESS

SECOND SESSION

EXAMINING THE DISPARITY IN HEALTH CARE COVERAGE FOR AMER-
ICAN AND FOREIGN EMPLOYEES OF CERTAIN MULTINATIONAL COR-
PORATIONS

JULY 22. 1994

Printed for the use of the Committee on Labor and Human Resources

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U.S. GOVERNMENT PRINTINC OFFICE
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\V, ^ DUAL STANDARD: HEALTH INSURANCE FOR AMER-

^ ICAN AND FOREIGN EMPLOYEES OF MULTI-

NATIONAL COMPANIES

4.L 11/4: S.HRG, 103-729

pal Standard: Health Insurance for...

HEARING

OF THE

COMMITTEE ON

LABOR AND HUMAN RESOURCES

UNITED STATES SENATE

ONE HUNDRED THIRD CONGRESS

SECOND SESSION

EXAMINING THE DISPARITY IN HEALTH CARE COVERAGE FOR AMER-
ICAN AND FOREIGN EMPLOYEES OF CERTAIN MULTINATIONAL COR-
PORATIONS

JULY 22. 1994

Printed for the use of the Committee on Labor and Human Resources

ik'ii«»roi«t

U.S. GOVERNMENT PRINTING OFFICE
82-962 CC WASHI.NGTON : 1994

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ISBN 0-16-045858-4

COMMITTEE ON LABOR AND HUMAN RESOURCES

EDWARD M. KENNEDY. MaauchusetU, Chairman

CLAIBORNE PELL. Rhode IsUnd NANCY LANDON KASSEBAUM, Kaiimc

HOWARD M. METZENBAUM, Ohio JAMES M. JEFFORDS. Vermont

CHRISTOPHER J. DODD. Connecticut DAN COATS. Indiana

PAUL SIMON, niinoi* JUDD GREGG, New Hampshire

TOM HARKIN, Iowa STROM THURMOND, South Carolina

BARBARA A. MIKULSKI. Maryland ORRIN G. HATCH. Utah

JEFF BINGAMAN, New Mexico DAVE DURENBERGER, Minnesota
PAUL D. WELLSTONE, Minnerota
HARRIS WOFFORD. Pennsylvania

NiCK LnTLEI'lELD. Sta/f Director and Chief Counsel
Susan K. HaTTAN, Minority Sta/f Director

CONTENTS

STATEMENTS

Friday, July 22, 1994

Kennedy, Hon. Edward M., a U.S. Senator from the State of Massachusetts,

prepared statement 4

Wellstone, Hon. Paul D., a \}S. Senator from the State of Minnesota, pre-
pared statement (with attachments) 16

Newman, Brenda and James, Whitesburg, KY; Nellie Kincer, Whitesburg,

KY; and Deborah Accuardi, Accuardi's Old Town Pizza, Portland, OR 20

Huston, Allan, president and ceo, Pizza Hut, Inc., Wichita, KS 33

Gruber, Jonathan, assistant professor of economics, MIT, and faculty research
fellow. National Bureau of Economic Research, Washington, DC; David
R. Henderson, John M. Olin visiting professor, Washington University,
St. Louis, MO; William P. Fisher, executive vice president. National Res-
taurant Association. Washington, DC; and Robert Chlopak, Chlopak, Leon-
ard, Schechter, and Associates, Washington, DC 60

Prepared statements of:

Mr. Gruber 62

Mr. Henderson 6€

Mr. Fisher 71

Mr. Chlopak 75

Glickman, Hon. Dan, a Representative in Congress from the State of Kansas,

prepared statement 82

ADDITIONAL MATERIAL

Articles, publications, letters, etc.:

Economic and Price Effects of Health Care Mandates, memorandum from
Rick McGahey, Executive Director, Joint Economic Committee, to Sen-
ator Kennedy, dated July 21, 1994 6

Pizza Hut's Double Standard, from the New York Times — Editorials/
Letters, Friday, July 22, 1994 18

Memo to Anthony Tassi, from Edwin Hustead, The Hay Group, Hay/

Huggins Co., dated July 21, 1994 82

Communications to:

Kennedy, Hon. Edward M., Chairman, Committee on Labor and Human
Resources, from ClifTord H. Raber, vice president, government rela-
tions, McDonald's Corporation, Oak Brook, IL, dat^ July 20, 1994
(with an attachment) 80

an)

DUAL STANDARD: HEALTH INSURANCE FOR
AMERICAN AND FOREIGN EMPLOYEES OF
MULTINATIONAL COMPANIES

FRroAY, JULY 22, 1994

U.S. Senate,
Committee on Labor and Human Resources,

Washington, DC.
The committee met, pursuant to notice, at 10:25 a.m., in room
SD— 430, Dirksen Senate Office Building, Senator Edward M. Ken-
nedy (chairman of the committee) presimng.

Present: Senators Kennedy, Pell, Simon, Wellstone, Wofford,
Kassebaum, Coats, Gregg, and Hatch.

Opening Statement of Senator Kennedy

The Chairman. We will come to order.

We meet this morning to consider the flagrant discrepancy be-
tween the health benefits provided by two maior U.S. corporations
for their workers here at home compared to the benefits they pro-
vide to their workers abroad. Simplv put, these companies are ap-
plying an unacceptable double standard. The disparity is shocking.

In Germany and Japan, Pizza Hut and McDonald's contribute 50
percent of the cost of employee health insurance, but according to
a recent report by the Health Care Reform Project, they pay far
less to cover their workers here at home.

It might be understandable if foreign corporations were exploit-
ing American workers; but these two corporations are
quintessentially American — as American as pizzas and Big Macs.
These American companies are working hard to make sure that
their American workers do not get a fair slice of the pie, or the
burger. They do not want to give American workers tne kind of
health benefits they give to their employees abroad, or their execu-
tives here in the United States.

They claim that a program of employer-employee shared respon-
sibility for health insurance will force them to cut jobs. Yet the
Health Care Reform Project suggests that business is booming in
the countries where Pizza Hut and McDonald's insure their work-
ers. In Japan, Pizza Hut has announced plans to more than triple

(1)

the number of restaurants. In Germany, the number of Pizza Hut
employees rose by a quarter between 1992 and 1993.

But you do not have to go abroad to see the holes in their argu-
ment. In Hawaii, shared responsibility has been the law for 20
years. According to their own 1991 report, McDonald's Hawaii op-
eration had the highest sales percentage increase of any State for
2 years in a row. They were in the top five in profits for 5 years
ninning.

I am sure we will hear some arguments from the other side. We
welcome that debate. My own view is that this debate is already
awash in crocodile tears. But we must now allow the debate over
numbers to obscure the real issue, which is the right of every
American to decent health care.

The majority of American companies already do the right thing —
they insure their workers. Just yesterday, over 120 companies and
business groups, including some of the country's most prominent
names, released two letters endorsing the principles of universal
coverage and shared employer responsibility. Even among small
businesses, those with fewer than 25 employees, more than half
offer health insurance to their workers and contribute to the cost.

Today we will hear from the owner of a small pizzeria who is
doing all she* can to help pay for insurance for her employees. Yet
giants like Pizza Hut and McDonald's, with all their enormous
profits, claim they cannot do the same.

Even worse. Pizza Hut and McDonald's are using the profits they
have earned from their American employees to campaign against
health reform that would make them pay their fair share for health
care. Both corporations are members of the steering committee of
the Healthcare Equity Action League, a group dedicated to defeat-
ing employer mandates. It is a textbook example of special inter-
ests working against American workers to keep them from getting
guaranteed health care.

We are also concerned about the reports of Pizza Hut's efforts to
suppress the truth about their double standard for workers. Last
week. Health Care Reform Project tried to place television adver-
tisements about Pizza Hut's health benefits, but the ads were
never broadcast. According to press reports, Pizza Hut threatened
the stations with a lawsuit and intimidated them into refusing the
ad. A Pizza Hut spokesman claimed the ad was libelous, but when
asked what part of the ad was false, he said he would have to
check with his lawyers.

Today, we will try to get to the bottom of these charges, and I
am going to play the ad and ask what is false about it.

Finally, I want to call attention to a memorandum that I re-
quested from the Joint Economic Committee. Last week. Pizza Hut
took out a full -page newspaper advertisement, suggesting that an
employer mandate might force them to raise the price of a large
cheese pizza from $11 to $19, the price in Germany. I asked the
Joint Economic Committee to consider this claim.

Briefiy, the JEC staff memo concludes that: "Such claims cannot
be supported by economic analysis." The reason is that prices are
determined by many factors— rent, raw, materials, restrictive im-
port and retailing policies, and exchange rates. You cannot at-

tribute price differences on pizza, or any other commodity, to one
factor like health care.

The JEC also turned up an interesting fact. According to their
survey, the price of pizza in Canada, which has universal health
coverage under a single-payer system is lower than in the United
States. The chart over here shows the price of pizza in Canadian
and U.S. cities in U.S. dollars.

You can see Toronto, Quebec, Montreal and Ottawa, with a sin-
gle-payer system; their cost for pizza is less than even here in the
Unitea States. Does this mean that Pizza Hut and others are going
to back a single-payer system? Obviously not.

Senator Wellstone. Well, wait a minute, Mr. Chairman.

The Chairman. They will probably say that many other factors
must be taken into account. And that is exactly the point. They will
use questionable economic claims to scare people away from health
reform.

But this is not iust about the price of pizza. The JEC staff memo
also points out tnat many Pizza Hut workers are covered as de-
pendents of workers for other company. Just before getting into
that, when I looked into that, I said, well, that is interesting about
the single-payer and what we have in the United States without
any kind of mandate. So then I thought, well, I had better check
the one State in the country that does have a mandate; so I
checked Hawaii. I thought I had better look at the one State in the
United States that does have a mandate, Hawaii, and to my dis-
may, I found out that a pizza that costs $11.49 here costs $14.59
in Hawaii. I thought it might be the smoking gun against the man-
date.

So I picked up the phone and called Alaska, which is right next
to Canada and does not have a mandate, and found out that a
large cheese pizza there costs $15.99, which is over $1 more than
what it cost in Hawaii. So we have our two offshore States, the
non48, and the State with the mandate is still cheaper than the
State without it. So it looks like the higher price in Hawaii has
more to do with long shipping distance and remote location than
the cost of the mandate.

The JEC staff memo also points out that many Pizza Hut work-
ers are covered as dependents of workers for other companies. In
effect, Pizza Hut is being subsidized by others that do the right
thing and provide health insurance to their workers and families.
They use this as a reason for not covering. About 71 percent of
their workers are being covered, they suggest, and of course, they
are, but it is by others. That is part of the issue about a fair play-
ing field for all.

Many manufacturers are bearing not only their own health care
costs, but those of Pizza Hut and other free riders. According to two
economists from the Brookings Institute, real health care reform
could reduce payroll costs by up to 7 percent in the turcraft and
motor vehicle industries, a point that is often overlooked, that real
reform could actually reduce the payroll costs for many companies
involved in international competition.

We are at a turning point in the social history of this country.
The challenge before Congress is clear — do we stand with the
American people, or with special interests? Should every corpora-

tion do its part, or should some get a free ride while others pay
more? It is time to give American workers the same rights tnat
German and Japanese workers have. It is time to make health care
for all Americans a right, too.

[The prepared statement of Senator Kennedy follows:]

Prepared Statement of Senator Kennedy

We meet this morning to consider the flagrant discrepancy be-
tween the health benefits provided by two major U.S. corporations
for their workers here at home, compared to the benefits they pro-
vide to their workers abroad. Simply put, these companies are ap-
plying an unacceptable double standard. The disparity is shocking.
In Germany and Japan, Pizza Hut and McDonald's contribute 50
percent of the cost of employee health insurance. But according to
a recent report by the Health Care Reform Project, they pay far
less to cover their workers here at home.

It might be understandable if foreign corporations were exploit-
ing American workers. Rut these two corporations are
quintessentially American — as American as pizzas and Big Macs.
These American companies are working hard to make sure that
their American workers don't get a fair slice of the pie or the burg-
er. They don't want to give American workers the kind of health
benefits they ^ve to their employees abroad — or their executives
here in the United States.

Together, McDonald's and PepsiCo, Pizza Hut's parent, made
nearly $3 billion in profits last year. Their CEOs received more
than $5 million in compensation. But they claim they can't afford
to contribute their fair share of the cost of health msurance for
workers who barely make more than the minimum wage. They
claim that a program of employer-employee shared responsibility
for health insurance will force them to cut robs. Yet the Health
Care Reform Project suggests that business is booming in the coun-
tries where Pizza Hut and McDonald's insure their workers. In
Japan, Pizza Hut has announced plans to more than triple the
number of restaurants. In Germany, the number of Pizza Hut em-
ployees rose by a quarter between 1992 and 1993.

But you don't have to go abroad to see the holes in their argu-
ment. In Hawaii, shared responsibiHty has been the law for 20
years. According to their own 1991 report, McDonald's Hawaii op-
erations had the highest sales percentage increase of any state for
two years in a row. They were in the top five in profits for five
years running. It's easy to see why a leading business consulting
firm called Hawaii the Nation's number one small business

hotSpOt. ^ , , J ,ir 1

I'm sure well hear some arguments from the other side. We wel-
come that debate. My own view is that this debate is already
awash in crocodile tears. But we must not allow the debate over
numbers to obscure the real issue, which is the right of every
American to decent health care.

The majority of American companies already do the right thing.
They insure their workers. Just yesterday, over 120 companies and
business groups — including some of the country's most prominent
names— released two letters endorsing the principles of universal
coverage and shared employer responsibility. Even among small

businesses — those with fewer than 25 employees — more than half
offer health insurance to their workers and contribute to the cost.

Today, we will hear from the owner of a small pizzeria who is
doing all she can to help pay for insurance for her employees. Yet
giants like Pizza Hut and McDonald's, with all their enormous
profits, claim they can't do the same.

Even worse, Pizza Hut and McDonald's are using the profits
they've earned from their American employees to campaign against
any health reform bill that would make tnem pay their fair share
for health care. Both corporations are members of the steering com-
mittee of the Healthcare Equity Action League, a group decHcated
to defeating employer mandates. It's a textlx)ok example of special
interests working against American workers to keep them from
getting guaranteed health care.

We are also concerned about reports of Pizza Hut's efforts to sup-
press the truth about their double standard for workers. Last week,
the Health Care Reform Project tried to place television advertise-
ments about Pizza Hut's health benefits. But the ads were never
broadcast. According to press reports. Pizza Hut threatened the
stations with a lawsuit and intimidated them into refusing the ad.
A Pizza Hut spokesman claimed the ad was libelous. But when
asked what part of the ad was false, he said he would have to
check with his lawyers.

Today, well try to get to the bottom of these charges. I'm going
to play the ad, and ask what's false about it.

Finally, I want to call attention to a memorandum that I re-
quested from the Joint Economic Committee. Last week, Pizza Hut
took out a full-page newspaper advertisement suggesting that an
employer mandate might force them to raise the price of a large
cheese pizza from $11 to $19, the price in Germany. I asked the
JEC to consider this claim.

Briefly, the JEC staff memo concludes that "Such claims cannot
be supported by economic analysis." The reason is that prices are
determined by many factors — rent, raw materials, restrictive im-
port and retailing policies, and exchange rates. You can't attribute
price differences on pizza, or any other commodity, to one factor
like health care.

The JEC also turned up an interesting fact. According to their
survey, the price of pizza in Canada, which has universal health
coverage under a single-payer system, is lower than in the United
States. This chart shows the price of pizza in Canadian and U.S.
cities in U.S. dollars.

Does this mean that Pizza Hut and others are going to back a
single-payer system? Obviously not. They will probably say many
other factors must be taken mto account. And that's exactly the
point. Theyll use questionable economic claims to scare people
away from health reform.

But this isn't just about the price of pizza. The JEC staff memo
also points out that mane Pizza Hut workers are covered as de-

Eendents of workers for other companies. In effect, Pizza Hut is
eing subsidized by other firms that do the right thing and provide
health insurance to their workers and families. Many manufactur-
ers are bearing not only their own health care costs, but those of
Pizza Hut £ind other free riders. According to two economists from

the Brookings Institution, real health care reform could reduce pay-
roll costs by up to 7 percent in the aircraft and motor vehicle indus-
tries.

We are at a turning point in the social history of this country.
The challenge before Congress is clear— do we stand with the
American people, or with the special interests? Should every cor-
poration do its part, or should some get a free ride while others pay
more? It's time to give American workers the same rights that Ger-
man and Japanese workers have.' It's time to make health care for
all an American right too.

Memorandum From Rick McGahey, Executive Director, Joint Economic

Committee to Senator Kennedy

economic and price effects of health care mandates

This memo discusses issues that have arisen regarding the purported economic
efTects of employer mandates to provide health care. In recent weeks, a variety of
claims have been advanced regarding the alleged impact of existing and proposed
employer health care mandates on the price and availability of goods such as con-
venience foods.

In response to your reauest, the stalT of the Joint Economic Committee has pre-
pared this memo. The boay of the memo presents a detailed discussion on these is-
sues, but the conclusions can be summarized here.

— First, anv discussions of the possible economic impacts of changes in health care
policy should not take place in a vacuum. The current state of health care in the
United States has many negative economic impacts, on the economy as a whole, and
on different business sectors, including small businesses.

— On the Question of why prices for goods like pizza differ across national bound-
aries, severaJ recent quotes suggest that the price difTerence, sometimes as much
as 75 percent or more, is caused oy mandatory health care coverage in dilTerent na-
tions. Such claims cannot be supported by economic analysis.

— Price variations are due to a host oi factors, including rents, which are tied to
land prices and other factors; price, availability and quality of raw materials; re-
strictive import and retailing policies; and exdiange rate variations among national
currencies. For all of these reasons, diflerenoes in prices for specific goods in dif-
ferent countries cannot be attributed to differences in health care policies.

— For example, pizza prices reported in an informal phone survey of Pizza Hut
restaurants in Canada were significantly lower than prices in the United States,
even though Canada has a single-payer health care system that goes well beyond
the legislation passed by the Labor Committee. Presumably, opponents of a single-
payer system would argue that nothing can be inferred about the economic impact
of Canadian health care policy solely by looking at the comparative prices of pizza
in the \JJS. and Canada. But that is exactly the point in regard to their use of Ger-
man and Japanese prices in the current debate.

— Further, a narrow focus on the comparative price of specific goods obscures two
other major economic problems generated by current domestic health care policies.
First, some firms are free riders" who do not provide insurance, which means that
health care costs for their workers are shifted onto other firms and taxpayers. This
creates economic distortions among companies and industries, and penalizes firms
that share the cost of health care coverage with their workers. A requirement that
each employer pay for its own workers would level the playing field and make the
competition fairer.

— Second, the cost shifting which is induced by "free riders" and other factors is
a major contributor to the crisis in health care costs. Without universal coverage,
businesses, and small firms in particular, will continue to pay ever-higher insurance
costs.

— These growing costs will lead to reductions or elimination of insurance coverage,
leaving more people without insurance. This will cause more cost shifting, which
will in turn continue to raise costs to firms that do provide insurance, in a negative
spiral of less coverage and higher costs. Without universal coverage, partial reforms

)uld make things worse, mpking health insurance more expensive while not getting

ats under control.

— The basic economic problem with arguing that employer mandates will drive,
up costs is the assumption thai businesses, workers and consumers are somehow
immune to the current crisis in health care, including rapidly rising health care

costs. In fact, however, Americans end up paying for those health care cost increases
somehow — whether it's in the price of pi2za, the price of health insurance, or in the
prices of goods produced by companies that do provide health benefits.

— In summary, universal coverage seems essential for getting spiraling health
care costs under control, and for addressing the "free rider" problems which are dis-
torting the economic playing field and contributing to excessive health care costs,
especially for small businesses. There are a variety of options for achieving univer-
sal coverage under debate in the Congress, and this memo takes no position on any
specific approach. But attributing international variations in the price of goods like
pizza to tne existence of specific health care policies in different nations cannot be
supported by economic analysis.

Tne remainder of this memo elaborates on these issues.

I. ECONOMIC COSTS OP THE STATUS QUO

In this year's annual report, the JEC stated that:

The most immediate structural economic problem that needs to be addressed
through government action is the crisis in the nation's health care system. The cur-
rent health insurance system, which is fragmented and cross-subsidized in complex
ways, is not an efficient way to provide health care to all Americans. Inefficiencies
in the system and inequities in its funding create distortions in labor markets and
reduce workers' standard of living, all while maintaining high and rising health care
costs. Without comprehensive reform, the economic distortions in the present system
will continue to depress the rate of growth of the American economy, and will lower
standards of living for American worKers and their families.

The problems with the current system are well known. Health care spending in
the United States is high and rising rapidly. One dollar out of every seven spent
by Americans in 1993 was spent on health care — 14.3 percent of U£. Gross Domes-
tic F^duct (GDP) comparea to an average of less than 9 percent of GDP among
other industrialized nations. Health care costs have increased at twice the rate of
income growth and are projected to consume nearly 19 percent of national income
by the year 2000.

High and rising health care costs in general have translated into hi^ and rising
insurance premiums for firms that provide health care coverage to their employees.
For those firms that provide benefits, the cost of coverage per employee has more
than doubled since 1987 to $3,968 in 1992. Overall, health insurance premiums as
a percentage of business payrolls have been rising even faster than health spending
generally. Employer-paid nealth costs per full time employee doubled between 1986
and 1992. On average, business costs for all forms of health care coverage grew by
8.5 percent during the 19808 after adjusting for inflation, compared to a 4.4 percent
real rate of increase for U.S. health costs generally and a 3.2 percent rate for the
other G-7 industrial nations.

Ultimatelv, it is American workers who are harmed most by rapidly rising health
care costs. Most studies find that between 80 and 100 percent of business health
insurance spending is ultimately paid for by workers tnrou^ reduced wages (or
slower wage growui). The Ex»nomic Report of the President notes that if business
spending on health insurance were the same share of total compensation today as
in 1975, average annual wages per employee could be as much as $1000 higher than
they are now.

Lower wage growth is not the only problem caused by the current health insur-
ance system, however. The system also distorts labor markets and provides incen-
tives for behavior that may prove costly to society in the long run. For example,
firms that provide health msurance end up subsidizing health care for the unin-
sured and under-insured employees of many other companies. Without a require-
ment for universal coverage, employers have an incentive to seek a cost advantage
over competitors by not ofTering health insurance to all or part of their workforce.
Under federal labor laws a company can restrict health insurance coverage to its
more highly-skilled "permanent" employees and reduce labor costs by substituting
temporary, part — time and other forms of contingent labor.

Avoiding nigh and unpredictable benefit costs by hiring more contingent workers,
leasing employees, contracting out, relocating jobs outside the United States and
other means has become common in some inoustries. (Xher labor market problems,
like "job lock" and accumulating fringe benefits costs to companies, are further prob-
lems with the status quo.

Any potentially negative effects of reform must be balanced against the hann that
would oe done if the current system were to continue unchanged. As Dr. Marilyn
Moon testified in hearings on health care held by the JEC in September 1993, " If
there is no national reform, many of the problems that are helpmg to spur change

will likely worsen, and the fwtchwork responBe of our health care systeni will leave
increasing gape in protection for familieB.

Under the currect systena, neither private insurers nor the government has an
efTective way to Udi. the growth in total health care spending, and health expendi-
tures continue to nse. Government attempts to control its own spending — for exam-
ple, by limiting reimbursements to health care providers under Medicare and Medic-
aid— may even cause spending to rise faster in the private sector, as some costs for
Medicare and Medicaia patients are shifted onto private insurance companies in-
stead. Even while costs nse, the number of people who are uninsured also rises, and
some of those with insurance nevertheless lack adequate access to care.

n. INTERNATIONAL VARIATIONS IN THE PRICE OF GOODS AND HEALTH CARE POUCY

In recent weeks, a variety of claims have been advanced regarding the alleged im-
pact of existing and proposed employer health care mandates on the price ana avail-
ability of goods such as convenience foods. How much of a burden would a reouire-
ment to provide health insurance coverage for their workers impose on fast food res-
taurants and similar low-wage employers?

Recent advertisements by Pizza Hut imply that health insurance mandates are
the reason that a pizza that costs about $11 in the United Sutes sells for $19 in
Germany. The New York Times reported that Senator Dole stated that pizza prices
in the VS. would rise to $20 if an employer mandate passed. Similarly, Herman
Cain, CEO of Godfather's Pizza, told President Clinton at a town hall meeting in
April that being required to pay health benefits would either drive up pizza prices
or reduce jobs.

The implication underlying all these claims about $20 pizzas is that paying for
employees' health care benefits will cost fast food restaurants so much that they
would have to raise the price of pizzas by 80 percent or more in order to cover their
expenses. But when existing labor costs and current proposals before Congress are
examined, these claims appear to be vast overstatements.

For example, David Scherb, vice president of PepsiCo (Pizza Hut's parent com-
pany) testified before the Ways and Means Committee last December that employee
payrolls account for about 30 percent of Pizza Hut's total costs. The rest of the budg-
et goes to cover things like rent, raw materials, advertising and so on. Under the
he^th care plan recently passed by the Senate Labor and Human Resources Com-
mittee, Pizza Hut franchisees, if they qualified as small businesses, could not be re-
quired to pay ntjore than 5.5 percent of their payroll costs for health insurance for
Uieir workers. This works out to less than 2 percent of their total cosU. Even if
Pizza Huts didn't qualify as small businesses, because they are owned by a large
corporate parent, their health care benefit paymenU would be capped at 12 percent
of payroll raising total costs by a maximum of^3.6 percent. On an $11 pizza, in other
words, costs would increase by less than 40 cents, around 4.4 percent of the $9 price
hike reportedly predicted by Senator Dole.

These commentaries also implied that employer mandates in other countries ac-
counted for the differences in the price of pizza and other goods. Several quotes in
the past week have suggested that the difference in prices, sometimes as much as
75 percent or more, can be attributed to health care coverage in different nations.

Such claims cannot be supported by economic analysis. Price variations are due
to a host of factors, including rents, which in turn are tied to land prices and other
factors; price, availability and quality of raw materials; restrictive import and retail-
ing policies; and exchange rate variations among national currencies. For all of
these reasons, differences in prices for specific goods in different countries cannot
be atmbuted to differences in nealth care policies.

For example, it is true that Japan has mandated employer health insurance pay-
ments, and the United Sutes does not. However, that is not the only, or most sig-
nificant, difference between markets in the two countries. Other factors, like the
cost of raw materials, the cost of renting stores, exchange rates, and taxes and im-
port fees account for most of the difference in prices in Japan and the United Sutes.
After all, Germany has employer mandates too, and its pizza prices aren't nearly
as high as Japan's.

The fallacy of attributing price variations to specific national health policies can
be shown by looking at Canada, which has a single-payer system that goes well be-
yond the legislation passed bv the Labor Committee. If heailth mandates determine
the price of pizza and other goods, one might would expect that the price of pizza
in Canada, a country much more like the United States than Europe or Japan,
would be higher than in the United States.

But an informal telephone survey conducted earlier this week of Pizza Huts m
different parts of the United States and Canada found that, even though Canada

haB universal health InBurance, Canadian pizzas are consistently cheap>er than iden-
tical pizzas in the United States. An "$11 pizza" (in this case, a large cheese pizza)
cost $11.09 (with tax) in Arlington, VA, and $12.65 in New York City— but less than
$10 in Toronto, Montreal, Quebec, or Ottawa.

If one were to follow the logic that blames hi^er pizza costs in Europe and Japan
on those nation's health care requirements, is it then a fair conclusion that a single-

Eayer system like Canada's reduces business costs, and would be preferred by Pizza
iut and others over the current VS. system? Presumably, opponents of employer
mandates and single-payer health plans would say that you can't draw such sweep-
ing conclusions from the price of one commodity, because there are many factors
that determine prices. And that is exactly the point with regard to their use of Euro-
pean and Japanese prices.

ra. JOBS, GROWTH, AND "FREE RIDERS"

If employers are required to provide health insurance for their employees. Pizza
Hut's advertisement implies that it will cost jobs. They say, "Without mandates in
the United States, Pizza Hut has created 41,(XX) new jobs and opjened 1,700 new
restaurants in the last five years."

What the ad doesn't mention is that growth in both employment and sales have
been strong for Pizza Hut in CJermany and Japan too, in spite of their health insur-
ance mandates. Pizza Hut in Germany has increased its employment by more than
20 percent over the past five years, for example. Gross sales for Pizza Hut in Ger-
many grew by 30 percent in 1993. And in Japan, Pizza Hut is reported as forecast-
ing that it will see a 350 percent increase in the number of stores over the next
five years. F*izza Hut's experience overseas demonstrates that with a good product —
and equal requirements for all employers — mandates won't inhibit a company's
growth.

Overseas experience with the job effects of employer mandates is consistent with
the predictions of independent analysts such as the Congressional Budget Office,
which states in its anaJysis of the President's health plan that it would have only
a sli^t impact on employment prospects for minimum wage workers. Similarly, the
respected consulting firm of Lewin-VHI found that an employer mandate with sub-
sidies for small businesses and low-wage workers might result in the loss of less
thsm one-tenth of one percent of all the jobs in the United States.

In fact, the lack of universal coverage in the United States creates serious eco-
nomic distortions, through "free riders'* who do not pay for their employees' insur-
ance. Those costs are instead jaaid for by other companies, taxpayers, and consumers
through cost-shifting. This puts other firms and industries at a competitive dis-
advantage, and feeds a negative spiral of reduced health coverage and rising insur-
ance costs.

For example, what happens to Pizza Hut employees who get sick under the com-
pany's current policy? It turns out that about 70 percent of them have insurance
anyway — paid for by other family members or their employers, not by Pizza Hut.
Not providing health insurance may reduce the cost of producing pizzas a little bit,
in other words, but the costs are borne somewhere else in the economy, through
taxes, higher insurance premiums, higher payments by consumers, or reduced medi-
cal services and access.

K fast food restaurants and other low-wage employers don't pay their share of
health insurance costs, it doesn't mean those costs just go away — somebody else
ends up paying them. And in many cases, they are paid by the companies that em-
ploy the parents or spouses of Pizza Hut workers. The cost of health insurance cov-
erage for a young woman working at Pizza Hut could show up in the price of the
cars manufactured by her father or mother, for example, instead of in the price of
pizza. Ultimately, cost ahiA.ing like that costs all consumers, and may even put
American companies at a disadvantage relative to foreign competitors.

And what happens to low-wage employers who do want to pay their fair share
of their employees' costs? Unfortunately, the current system puts them at a competi-
tive disadvantage. If most low-wage employers rely on others to pay for their em-
ployees' health benefits, those who pay for their own will have higher costs. Allow-
ing some employers a free ride at the expense of others not only costs consumers,
it puts pressure on all low-wage employers to reduce their own benefit pa>Tnent8
as much as possible. A requirement that each employer pay for its own workers
would level the playing field and make the competition fairer.

IV. UNIVERSAL COVERAGE AND COOT CONTROL

CoBt-ahiAing and free riders also contribute to evergrowing health care costs.
Without some form of universal coverage, this problem cannot be brought under con-
trol.

Why do we need mandates to participate in health insurance programs? Why not
let companies offer insurance to their employees, as Pizza Hut does, and let the em-
ployees choose whether they want to buy it or not? That way, people who need in-
surance could get it, and people who preferred to spend their money on day care
for their kids or on something else entirely could do that.

The idea of letting people choose whether or not to buy insurance sounds attrac-
tive, but it creates economic problems and makes it impossible to control overall
health care costs. First, people can't always tell when they will need insurance. A
young, healthy person might choose not to buy any insurance, reasoning that he
won't get sick, but then might end up needing medical care. If he has no savings
to pay for it, he's likely to end up receiving charity care in an emergency room some-
where. The costs of providing that charity care are then passed on to the people who
do pay for insurance, raising their premiums.

A bigger problem with a system without mandates, however, is that in fact people
are pretty good at guessing whether they're likely to be healthy or not. As a result,
older, sicker people are likely to choose health insurance if they have a choice of
company benefiu, and younger, healthier ones are likely to choose something else.
But if people with health problems make up the bulk of those who participate in
the insurance system, insurance comp>anie8 will be paying out relatively hign bene-
fits for each person paying insurance premiums. As a result, insurance premiums
will have to go up.

Without universal coverage, insurance reforms such as community rating, which
keeps companies from changing sick people more for their insurance or from denying
coverage to oeople with pre-existing health problems, make this problem even
worse. With that tjrpe of reform, companies are forced to spread the costs of provid-
ing care for an increasingly sick pool of insured people over all their customers, not
just the ones that are sick. So rates go up for everybody when relatively healthy
(>eople choose not to buy coverage.

But when premiums go up, even more businesses will drop or limit coverage, and
even more younger and healthier people will drop out of the system. Even those who
would like to have coverage simply may not be able to afford it. And the system
gets caught in a downward spiral — as more healthy people drop out, premiums rise,
and as premiums rise, more healthy people drop out.

This Has recently happened in the state of New York, which for the pxast year has
required insurance companies to use community rating but has not required every-
one to participate in the health insurance system. As might be expected, premiums
have gone up for younger, healthier people, as insurance companies have been re-
quired to provide coverage at reasonable prices to older and sicker people. As a re-
sult, healthier people have left, the insurance system — forcing companies to raise
premiums some more. After only nine months of this system, 25,000 fewer people
had insurance coverage in New York than did before the reforms were enacted.

Out-of -control health care cost increases hurt companies.workers and consumers.
Firms that do provide health insurance for their worfcers have seen their premiums
more than double since 1987. And the Council of Economic Advisors has calculated
that if health care costs were the same share of total compensation today as they
were in 1975, today's average wages could be as much as (1,000 higher than they
are now.

The problem with the argument that employer mtmdates will drive costs up too
much is that it assumes that under the current system businesses, workers and con-
sumers are somehow unaffected by rapidly rising health care costs. In fact, however,
Americans will end up paying for those health care cost increases somehow — wheth-
er it's in the price of pizza, the price of health insurance, or in the prices of goods
produced by companies that do provide health benefits.

Comprehensive health reform is needed to control these rapidly rising costs, be-
fore they erode more of Americans' standards of living. And controlling health care
costs could also help businesses avoid raising prices or laying off workers. Under
the Clinton plan, for example, CBO has found that 'Businesses costs for health care
would be substantially reauced overall." Without reform, rapidly increasing health
care costs will cause much greater problems for the American economy than poten-
tial marginal increases in labor costs at firms that currently are "free riders" on the
system.

03 '"^

(D
(D
CO
(D

12
The Chairman. Senator Kassebaum.

Opening Statement of Senator Kassebaum

Senator Kassebaum. Thank you, Mr. Chairman.

This morning's debate is just marking another chapter in our ef-
forts to try to find an answer to health care reform. And certainly
it marks, again, a debate regarding employer mandates.

As you know, Mr. Chairman, I support universal coverage; I sup-
port nealth care reform. I have not believed that the employer
mandate is the solution, and I have worked to try to find an an-
swer through other means, which is proving just as elusive, I would
argue, on your side of the aisle as it is on ours.

But there are many of us who are dedicated to health care re-
form. This particular debate regarding employer mandates has
been replayed in countless hearings and discussions, and I have
not really seen any evidence that it has garnered the support of a
majority of the Congress.

There are some major questions that have to be answered, and
it does not mean that there is not great sincerity in trying to find
some answers. It just means that there are implications regarding
employer mandates that have to be thought through with a seri-
ousness of purpose. And there is where I think the law of unin-
tended consequences does enter in.

The particular twist given to this hearing is that because employ-
ers in Europe and other foreign countries are required to pay for
health insurance for their employees, employers in the United
States should be required to do so as well.

Frankly, I think that is illogical reasoning. The not so subtle im-
plication is that multinational corporations are giving short shrift
to American workers while treating their foreign workers royally.
Playing to the current anti-foreigner sentiments may make a good
soundbite but it does not help us find sound policy.

The United States overseas comparisons used in the study which
prompted this hearing are so narrow that they miss the real point
entirely, and the real point is that employer mandates cost jobs.

Mr. Chairman, if you have a business that you are running for
profit, and a big business, where you have a large number of part-
time workers — and I might add that Hawaii's mandate does not
cover part-time workers — then, you really do have to t£ike into con-
sideration the consequences of decisions that you make. If one is
going to look at the benefits the European employer is required to
offer, one should also look at the economic costs of those benefits
in terms of unemployment, higher prices — and who knows, really,
what higher price it may be, whether it is $1 or whether it is $5,
but there would be a higher price and a heavy tax burden in one
way or another.

Why do we want to be like Europe in terms of unemployment?
Where the United States rate is 6 percent, the European rate is 12
percent. Who wants to see a marginal tax rate nearing 60 percent,
as is the case in Germany? Why would we want to give up world
leadership in the area of private job creation, to emulate the Euro-
pean model, where the only job growth is in Government employ-
ment?

I believe we need to have a good understanding of what really
is at stake here if we are going to move toward a mandate on pn-
vate businesses to buy health insurance for their employees. F\in-
damentally, it means we are going to adversely affect the ability
of businesses to thrive and grow.

I can certainly appreciate businesses such as the Accuardis and
their offer of coverage; but it does not translate to the same type
of business operation as Pizza Hut, with a large number of employ-
ees. It is a decision they made which, frankly, I think we would all
salute.

But in some cases, it means that businesses really will not sur-
vive; a mandate spells the difference. I think, between a vibrant
and flexible economy, which we need to have, and one which is
stalled in immobility and under the weight of mandates and taxes.

What is equally illogical about both the study and the hearing
is that Kansas-based Pizza Hut has been singled out for national
media attention. I think it rather puzzling, Mr. Chairman, to find
Pizza Hut has reached the top of the "most wanted" list of the pro-
mandate movement.

The fact of the matter is that Pizza Hut has been an industry
leader in trying to provide health insurance benefits for part-time
workers. They came to realize this was an important part of Uieir
obligation. The plan they offer was developed in consultation with
their employees, many of whom are young, on the basis of the cov-
erage they wanted and that they felt they could afford to pay.

One positive aspect of the hearing today is that it will give Pizza
Hut and others the opportunity to help set the record straight, and
most importantly, I nope it will help us sort through wnat em-
ployer mandates will mean.

I welcome particularly Pizza Hut's chief executive officer, Allan
Huston, to the hearing this morning, who has decided to come and
stand up and make what I think is a good case for Pizza Hut's self-
insurance plan.

Thank you, Mr. Chairman.

The Chairman. Thank you very much. I will have more to say
about Allan, welcoming him here, in just a few moments.

Senator Simon.

Opening Statement of Senator Simon

Senator Simon. Thank you, Mr. Chairman. I regret I have not
heard the earlier statements.

I start from a very simple base, that we have to protect Ameri-
cans as other countries protect their citizens. I just heard Senator
Kassebaum use the word "pizza." I read one head of a chain was
quoted as saying it would cost 6 cents more per pizza to provide
health insurance for all of their employees. I think the American
people are willing to pay 6 cents more per pizza. And frankly, if
nis competition is giving health insurance to tneir people, that com-
petition is at a disadvantage. But I think we are willing to make
the small sacrifice to see that all Americans are protected. It is just
that basic, and I hope the hearing today will illustrate that.

Thank you, Mr. Chairman.

The Chairman. Thank you very much.

Senator Hatch.

Opening Statement of Senator Hatch

Senator Hatch. Thank you, Mr. Chairman.

I would just hke to make a few comments regarding today's hear-
ing. First of all, as members of this committee know all too well,
the issue of health care reform and specifically employer mandates
consumed a significant amount of time at prior hearings and also
during the markup of this committee. There is no need for me to
go back and review all the arguments for or against employer man-
dates; we have been through them, and it is not going to make any
difference in changing anybody's mind. The committee has acted.
The committee spent 3 difficult weeks debating health care re-
form with considerable attention focused on the merits of the em-
ployer mandate. In the end, the committee majority retained the
employer mandate as part of its legislation and had one Republican
vote with it; the rest of us voted against it.

I opposed the employer mandate, as the distingmshed ranking
member has said, because it would impose a tremendous toll on
American jobs, on wages, and on the overall performance of our
AmericEm economy.

I understand why the President wants mandates and why the
distinguished chairman does — it is the usual easy answer, that we
just add taxes to the American people, and we can solve all the
problems. But we now find ourselves here today, nearly 6 weeks
afler the committee vote, to hear testimony on a so-called study
with questionable validity, regarding the provision of health care
benefits by Pizza Hut and McDonald's Corporations. Why are we
singling out any companies at this particular point? To me, it is
just not right.

Let me say to Mr. Huston with the Pizza Hut Corporation that
I really commend you for your appearance here today. Pizza Hut
has really been an outstanding corporate citizen throughout the
United States. It was the first major restaurant company to pro-
vide health care benefits to all of its employee, both full- and part-
time.

It is obvious that your company is being singled out for what I
believe is unwarranted treatment by our committee. I think this is
wrong, and I think it is unfair.

The debate over employer mandates is indeed a serious issue,
and there are sincere and dedicated people, not the least of whom
are members of this committee, on both sides of that issue. And it
is of paramount concern to the business community, and not just
to those in the business community, but to all Americans who are
currently without health insurance.

However, I am not sure we should treat the issue in this particu-
lar way. In my opinion, this is not the legislative process at its
best. It is not fair to the Pizza Huts of this world, and it is not fair
to those individuals who have been adversely affected by a system
which we all agree needs correcting. We have all got to work to-
gether to try to get it done.

It seems to me that today's hearing only serves to polarize the
debate, when especially at this critical hour, we need to find con-
sensus.

Now, I am the only Senatx)r on all three committees that are con-
sidering health care — this committee, which is an eminent commit-
tee in Uiis area and is certainly handling all the public health mat-
ters; the Finance Committee, which handles almost every money
matter; and of course, the Judiciary Committee, which handles the
fraud and even ERISA medical liability, and antitrust. And all of
these are important issues.

I guess wnat I want to say is that I do not think we would
change our economy for that of Germany's, as much as I respect
them. I do not think that our people are going to pay $19 for a
pizza, compared to about $13 here. And frankly, I am not sure that
any good is going to come from hearings that single out two compa-
nies, when tnere are literally thousands of companies that may feel
the same way, and for good and legitimate reasons feel the same
way.

When I look at — as the distinguished ranking minority member
has said — ^the high unemployment rates in those countries, the
growth in government jobs vis-a-vis growth in the private sector,
the stultification of economic realities in those areas, those would
be the last places I am going to turn to to try and find solutions
to our health care problems and to our economic problems in Amer-
ica.

I would prefer to look to people like these entrepreneurs, who ba-
sically create jobs and get people working, and then hopeftilly,
working not only in the initial jobs that they get with McDonald s.
but all the way up to where they can get jobs where they can afford
to have health insurance.

We have got to face the reality that there is not enough money
in the world right now to solve every problem that everybody wants
solved in this particular area; so what we have to do is do the best
we can. And I think it is going to take all of us working together,
less confrontation, and more cooperation to solve these problems.

Mr. Chairman, I appreciate having the opportunity to make
these few comments, and as always, I appreciate the debate.

The Chairman. Thank you very much, Senator Hatch.

Senator Wellstone.

Opening Statement of Senator Wellstone

Senator Wellstone. Thank you, Mr. Chairman.

Let me first of all point out for the record, before I get serious
maybe, that now the evidence is irreducible and irrefutable — sin-
gle-payer is the way to go, if you just look at that chart on the cost
of pizza in Canada.

Mr. Chairman, I think this is an extremely important hearing,
and I would like to include a full statement in the record, because
I will be brief, and let me also include in the record an editorial
from the New York Times, from today, July 22. The opening para-
graph reads: "The Pizza Hut controversy would be a small footnote
to the national debate on health care if it did not make a large
point: there is plenty of flim-flam and even hypocrisy in the argu-
ment advanced by many companies that employer mandates will
drive their costs to intolerable levels."

[The prepared statement of Senator Wellstone sind editorial fol-
lows:]

Prepared Statement of Senator Wellstone

Pizza Hut executives claim that they cannot afford to operate in
an environment in which they are required to contribute to their
employees' health benefits. The evidence presented in this hearing
will demonstrate that this is not true — that they now very success-
fully operate in other countries that require all employers to help
pay for their employees' health insurance. In fact, all multi-na-
tional and multi-state companies learn to operate in a variety of
market and regulatory environments.

Some multi-state corporations also argue that they should be ex-
empted from any State single-payer systems. They claim that hav-
ing to deal with differing health benefits contributions in different
States will make it difficult for them to operate and would create
inequities. These arguments have as little merit as the argument
that multi-national companies cannot afford to help pay for health
insurance for their American employees as they do for their em-
ployees in foreign countries.

Multi-state firms now operate successfully despite M,idely differ-
ing State laws and market conditions that affect their labor costs.
Some of the benefits Oiat employers pay for are Federal pro-
grams that are uniform across States. As Exhibit 1 shows, these in-
clude the Medicare hospital insurance tax. Social Security old age
and disability insurance taxes, and federally mandated minimum
wage.

Other benefits paid for by employers vary among the States.
Some of these are now mandated or set by the States, including
workers' compensation, unemployment insurance, and some States
have minimum wage levels set above Federal requirements.

Other benefits paid for in part or entirely by employers are vol-
untary, such as health insurance for employees and their families,
sick leave, family leave, legal holidays, and vacations. Whether a
company now provides these voluntary benefits and the cost of the
benefits vary markedly from one State to another because of dif-
ferences in the labor markets in those States and because a compa-
ny's employees may have a union contract in one State and not in
another.

To illustrate how these benefits differ, I've prepared another
chart that shows the differences among the States represented by
the members of this committee. Exhibit 2 shows the differences
among these States in the minimum wage, in the average cost of
workers compensation, and in the unemployment insurance tax as
a percentage of wages. In addition to these differences, employers
face substantially different health insurance premium costs in each
State and even in local areas within States. Inter-state differences
in health care costs will remain under all the health care reform
bills that are before the Congress.

In spite of these differences, thousands of companies currently
operate in more than one State, employing workers and making a
profit from these operations. These examples demonstrate that em-
ployers now cope — and it appears that they do so quite success-
fully—with a wide variety of differing regulations, required pay-
ments, and labor and other market conditions. These examples pro-

vide evidence that differences among States do not inhibit multi-
State firms.

The State single-payer option is an important alternative that
will enable States that choose it to provide greater choice of doctors
and o^er caregivers to all patients, increase the benefits available
and the equity of access to health services, improve the quality of
care, enhance the clinical autonomy of health caregivers, and more
effectively control their health care costs. It will provide great ben-
efits for States and their residents, as well as for multi-State em-
ployers.

Extiibtt 1. Muttl>State EmDloyers Now Successfully Oparate
with Differing Emoloyer-Paid Benefits

Benefits uniform
across states

Benefits differ among
states

Soaai Security
retirement (OAS),
mandatory

State minimum wage
(aoove federal level),
mandatory

Social Security
Qlsaoiilty insurance
(Oil, manaatory

I WorKers'

I comoensatlon.

! mandatory

Mmaican Part A (HI),
mandatory

Unemoioymem
Insurance, mandatory

Federal minimum
wage, mandatory

Haaitfi oenettts.
voluntary

Extilbit 2. Minimum Wage, Werfcera Comoensatlen. and Unemployment Insurance Rates,

Selected SUtes

State

Minimum Wage*

WorKers Comoensanon

average weeKtv insurance

premium oer Si 00 tor 44

types ot emoiovefs

1989)"

UnemoiovmertT Insurance

as % ot wages

(1992)—*

ConnecsojT

■»27

•0.B47

tgOBcai rate i

9.313

inoiana

♦ederaJ rate

3.829

Iowa

^65

6.721

Kansas

'eaeraj rate

5.502

Marviam

•eaeraj rate

•265 I

- I

Massacnusens

"eaeraj rate

•0.239

Minnesota

1 New Mamosnire

•eoerai rare

•0 603

•eoerai raw

3.583

New Menco

■eoerai rate

398

! Olio

'eoerai rare

•asis '

•o»

! =«nnsvrifania

•eoerai rate

9-005 -

■H

1 Rhoae isianc

i45

•0-357 '

• 8 l|

Soutr Carolina

■eoerai rate

5-532

' 1

Jtar

■eoerai rate

i 448 '

5 il

ver^cn'

'eoerai rate

5-861

9 II

•\ a* *^ ■'WOWW* OMM

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:mes FniTORIALS/ letters rfffOAV 'xv .:

.'.'. /«»'

Asmvi ooo 1

>aa^« LILTV1XA. Em

I ji.^kMmm'

S^e ^eUr Jfork Simts

oKva. c. orrroot
Acnnni ocia uuiacaL

josx n crtaiBi

tXM*MD H OILMAN axi^ I''- O l ■ r I i i
(ATMOMD t. OOUOX. Vf. 5| I aM r ^ « H IO

VA C3>wy ■■■■■r omi>'

JOSfB H KUUOa V^. I

Pizza Hut's Double Standard

The Pliza Hui contreversy would be i small
fooatoie to ute nauonal detxte on rte«itti care if It
did no€ rnaae a Urge point: inere is plenty of fUm-
riam and even hypocnsy in the •rgument advanced
by many companies ihai employer mandates wUl
drive Uieir costs to intolerable levels.

To demonstrate tnau me Health Care Reform
Project — a coalition supporung President Clln-
lons efforts to require employers to Help pay for
insurance — developed a TV commercial. It showed
a young man bicycling toward the nation's Capitol
to deliver a pizza. It said that Pizza Hut paid (or
health insurance for its workers in Germany and
Japan, 'but (or many worlters in America. Pizza
Hut pays no health insurance. Zera"

Pizza Hut. which does not hide its fim i iTP (or
mandates, siruclt be(ore the commercial aired on
(our Washington sutnna. lis lawver wroca a keaar
wammg that the comtjany would regard as Ubehaia
"any statement to the effect that Ptna Hut doe* not
offer liealth care coverage (or its employees m the
United States." The stations did not run the com-
mercial. The (act mat Plrta Hut is owned by
Perwieo. one o( me nation s bigtest advertiaen,
may have had someming to do with thetr deosion.
althousb officials at one station satd ifwy wvre
worried about accuracy

They slMuld not have been. The ad says Pizza
Hut does not pav (or "manv wonters." That is true.
P*zza Huts hourly employees must pay the full

costs of health insurance (or six months be(ore the
company will malie any contnbuiian — and then the
contnbuuon is only (or additional coverage, not the
basic plan.

Pizza Hut say* mandates re<)uinng the compa-
ny to cover everyone would dnve prices sky-high. A
pizza that coau SU here, the company says, costs
S19 in Germany: in Ja^ian. m Senators Nancy
Kasaeoaum and Bob Dole, both (rom Kansas. Ptzza
Huts headquaners state, warn that i( the U.S.
adooied employer mandates like ihoae in Germany
and Japan. Sll pizzas could soar to S20.

The basic arithmetic suggcsu ocherwise. Un-
der a bill produced by the Senate Labor and Human
Resources Commiaee. (or example. Ptzza Hut
would be required to pay 12 percent of a worker's
wages (or inauranoe premmina. Pizza Hut's own
figures suggest that labor accounu for 30 percent of
a pizza's cost. MiThen that figure is enlarged by 12
percent, the increase (or that til pizza should be
only 3.6 percent — or maybe 40 cents.

The Health Care Reform Proiect also said that
McOonald'v another huge (ood distnbutxm compa-
ny, provides more geoeroua health bene(1ls to em-
ployees in countries where it is required to than it
does here. It (urther noted that (or both companies.
sales in Germany and Japan have boomed.

Ptiza Hut and others IBte ii do pertecUy well m
countries where shared responsibilirv (or medical
can IS a matter o( law. Why not here'

Senator Wellstone. So it is not just a question of Pizza Hut, I
would say to my colleague from Utah, and McDonald's. Any num-
ber of different companies are making the same argument — that
they cannot operate in an economic environment where they have
to contribute their share toward covering employees and toward
contributing to universal health care coverage.

Mr. Chairman, I am particularly interested in this hearing be-
cause there is another argument that is made as well, which is
that companies are saying that if States decide, for example, to a
develop a single-payer option, they cannot operate in that environ-
ment. In fact, all multinational and multiState companies learn to
operate in a variety of market and regulatorv environments, which
I think is very much a plus for the way in wnich our business com-
munity operates.

As I said, some multiState corporations have also argued that
they should be exempted from any kind of single-payer system.
They claim that to have to deal with different kinds of health bene-
fits contributions in different States will make it difficult for them
to operate and would create inequities.

These arguments have as little merit as the argument that mul-
tinational companies cannot afford to help pay for the health insur-
ance for their American employees as they do for employees in
other countries.

I think, Mr. Chairman, the one point that I want to make todav
is that I see a parallel between these arguments, and I think both
can be challenged on the merits. Right now, if we were to take
multi-State companies that operate in States with very different
market conditions — labor market conditions, health insurance con-
ditions, liability conditions, supply costs — and look at what is uni-
form across States, we would find Social Security, OAS, Social Se-
curity disability insurance. Medicare Part A, and mandatory Fed-
eral minimum wage. What differs greatly. State by State — and I
will not take up everybody's time with the chart, but I would like
to include it in the record — is State minimum wage, workers' com-
pensation mandatory, unemployment insurance, health benefits
voluntary.

So Mr. Chairman, I am very interested in this hearing, because
I think the same argument is being made, and I simply think the
evidence does not support it. We have companies that are arguing
they cannot provide the same benefits for their employees in this
country that they provide for employees they hire in other coun-
tries, and they cannot operate in an environment that requires
them to do so— but they do well in other countries. And in addition,
you have the same companies all too often arguing that they can-
not operate in a State that would choose to develop a single-payer
system because it would be a different kind of approach— but they
operate in all kinds of different States, with all kinds of different
approaches and all kinds of different markets, right now.

So I do think it is important that we get to the bottom of this,
and I must say it is not just two companies. This argument is being
made by any number of different companies, and this hearing is
very important because it focuses in on how to finance coverage for
working people. Senator Kassebaum said, we do need to focus in

on the question of how to finance coverage, and I think this is a
key question.

Thank you, Mr. Chairman.

The Chairman. Thank you, Senator Wellstone.

If there are no further opening comments, we welcome our first
panel, which includes James and Brenda Newman, from
Whitesburg, KY. Brenda was employed as a waitress in a Pizza
Hut restaurant. Ms. Nellie Kincer is also from Whitesburg, KY.
She worked as a cook at Kentucky Fried Chicken until 1989. Ken-
tucky Fried Chicken is owned by PepsiCo. And Ms. Deborah
Accuardi is from Portland, OR, where she owns Accuardi Old Town
Pizza and pays for half of ner employees' health insurance.

I would ask Ms. Newman to be good enough to lead off, and I
want to say that we want to thank you very much for being here.
I think for all of us here, the health issue is really not about words
or bills; it is about real people, and we are trying to find out how
this issue really affects vour lives and to hear your own comments
about the importance of health care.

So Ms. Newman, we would be glad to hear from you.

STATEMENTS OF BRENDA AN D JAM ES NEWMAN,
WHITESBURG, KY; NELLIE KINCER, WHITESBURG, KY; AND
DEBORAH ACCUARDI, ACCUARDI'S OLD TOWN PIZZA, PORT-
LAND, OR

Ms. Newman. Thank you. My name is Brenda Newman, and I
am here with my husband James. We are from Whitesburg, KY,
which is in the eastern part of the State. We have both been in
Kentucky all of our lives.

We appreciate the opportunity to come before the committee
today. We believe healtn insurance is very important and feel
strongly that everyone must be covered.

I first began working at Pizza Hut in March of 1988. When I
took the job, I knew that it was not going to pay too much. I made
$2.09 an hour plus tips. Times were hard in that part of Kentucky,
and tips did not come too easy.

When I first took the job, I was not too concerned that I could
not afford health insurance, because my husband was working, and
I was covered through his policy at work. However, several months
later, my husband was laid off unexpectedly by the coal company,
and neither of us had any health insurEince.

That was a very hard time for my husband and me. We went for
over 8 months without health insurance, and both of us had to pay
for doctor bills ourselves. Thank goodness, neither of us got too
sick, but we both did have to see doctors. So we had medical bills,
as everyone does, and it was hard, but we paid them all.

However, we had real money problems, and our medical bills on
top of everything else were especially hurtful, because we always
thought my husband's job would cover us. We used up our savings
and almost lost our home. We put it up for sale, but at the last
minute, we were able to keep it.

I really wanted to get insurance, and I talked to the Pizza Hut
manager about what it would cost, but when she told me how much
it was, I said just forget it. I could not possibly pay that much on
what I was making.

Luckily, my husband did get his job back, but that only last a
little while, until his company shut down completely. Once again,
we did not have any insurance. I was worried that something
might happen, and we would get a doctor's bill that we could not
possibly pay.

I was not alone. Many of my fellow workers at Pizza Hut could
not afford coverage either. While some of them were younger and
were covered by Uieir parents, some were women whose husbands
were not working either. We talked at work about how we would
like to have insurance, but we just could not afford it.

Finally, my husband got another job which he has kept for some
time, and we are very grateful. So now we can get help with our
medical bills. But everybody should be able to get insurance so they
will not have the kinds of fears we did.

I hope we can show people that people who work very hard all
their lives can sometimes find that they do not have insurance, and
that they do not have any way to get it. I was willing to pay my
fair share of insurance, but I just could not afford to pay for it all.
Pizza Hut was able to pay for health insurance for the manager,
but it would not pay for me or other workers. And I think that is
wrong.

I have been told that Pizza Hut pays for insurance of workers in
other countries, but not for American workers. I think that is
wrong, too. We came to Washington because we hoped that we
could help other people who might get caught without insurance.

We learned that something can happen to you when you do not
expect it at all, and that if you do not have insurance, it will be
a hard road to travel.

Thank you.

The Chairman. Thank you very much.

Ms. Kincer.

Ms. Kincer. My name is Nellie Kincer, and I am from
Whitesburg, KY.

After 35 years of marriage, I was divorced in 1986. After my di-
vorce, I had to look for work to support myself I wanted to find
a job that provided health insurance, because I have a heart condi-
tion and need to take medication.

When I was covered under my husband's Blue Cross/Blue Shield
plan, I had some health problems and was able to see a specialist
in Lexington. He was an excellent doctor, and we could afford to
see him. In fact, sometimes, I think the hardest part of my divorce
was losing my Blue Cross/Blue Shield. [Laughter.]

I was unable to find a job that provided health insurance, and
I began working as a cook for Kentucky Fried Chicken. I was mak-
ing $3.35 an hour with no retirement, no paid vacation, and most
important, no health insurance.

My medication for my heart condition costs $60 a month. My
ulcer drugs cost $60 a month. Working at KFC, I was only able to
get about 35 to 36 hours a week. On this salary, I had to choose
Between my medication and buying groceries. I cnose to get grocer-
ies, so I did not get the drugs. I nave not seen a doctor, even
though I know I should.

The other workers at KFC were in the same position I was in.
One woman got insurance through her husband, but the other
women did not have insurance, and were not able to afford insur-
ance even though some of them had children. The manager of the
restaurant and his familv were covered by KFC, and he had no
worries. But we were all worried about getting sick because we
could not afford it.

In 1989, the KFC franchise closed, and I was out of work, as well
as having no health insurance at all. Now, I work in a aeli in a
food market, but I still do not have any health insurance. I weald
like to get insurance if it were offered through my job, but I just
cannot do it by myself.

I am not here to ask for a free ride. I am willing to pay my share
for health insurance. But if I tried now to buy Blue Cross/Blue
Shield insurance, it would eat up all of my money.

I am shocked and an^ that KFC and other American compa-
nies would give health msurance to workers in foreign countries,
but not take care of their own workers at home. I did not come
here from Kentucky for a free trip. I have already been to the
White House. I came because I am concerned for others who work
hard and have families and do not have any health insurance. I do
not think it is right that I have to choose between getting medica-
tion and putting food on the table, and I do not think anybody else
should have to make that choice, either.

The Chairman. Thank you very much.

Ms. Accuardi.

Ms. Accuardi. My name is Accuardi, and I run Accuardi's Old
Town Pizza in Portland, OR My father-in-law opened the res-
taurant in 1974, and my husband and I have been running the op-
eration since 1987.

We have approximately between 25 and 28 employees at any
given time. Most of them are under 25; most are part-time, except
for myself and my prep cook; and pretty much all of them are stu-
dents.

We have offered health care to our employees through Kaiser
Permanente since 1988. We are covered for medical, dental, and op-
tical insurance. The pizza parlor pays for half, as do the employees.
This takes up about 12 percent of our operating budget, and I feel
that that is the cost of doing business. If we were able, we would
pay for 100 percent. But we are a small company, and there is a
lot of competition in our market. We estimate that customers pass
probably eight other pizza parlors on the way to our business.

But they do still come, and we feel that is because we try to in-
still a sense of family both with our customers and our employees.
We try to excel in our business. We offer high-quality ingredients
and our family recipes to customers who, in some cases, have been
coming in for 20 years. And I do have to add at this point that we
only charge $8.45 for a large cheese pizza.

We also consider ourselves unique in that we do not have a very
high turnover of employees. Manv of them come to us as freshmen
in college and leave as they graduate. I do not feel this is because
of a high wage; they do start at minimum wage, which in Oregon
is $4.75 an hour, and depending on their performance, they go up
from there. I feel it is because of the fact that we are willing to

work around their school schedules, we do offer health care, and
we care about their general well-being.

My husband and I have become very close to our employees over
the years and have kept in close contact with them as they leave
and go on to other career opportunities.

Until this past year, we have had between 25 to 50 percent of
our employees using the health insurance. This year, we are at an
all-time low of only three employees being able to use the insur-
ance, or feeling that they want to. Also, this past winter was an
all-time high of our employees being out sick. We had every em-
ployee out at least 2 days last winter. I had three employees who
were out a total of 3 weeks with the flu.

I have urged employees who can qualify to sign up for the Or-
egon Health Plan, but many are on the borderline financially to be
able to qualify for that. Tiieir only other alternative is to go to
some of the free clinics that are available in Oregon. Those clinics
do not offer any preventive health care, and when the flu season
hit last year, many were not able to get in because so many other
people were already there.

It is my opinion that if compsmies were to offer full health care
coverage, productivity and consistency in the workplace would be
a benefit both to customers and employees, and therefore a finan-
cial benefit to the employers.

I also feel there is a moral issue. I do not know of many company
owners who do not work their own health coverage into their daily
budgets; they should have that same philosophy toward their em-
ployees. Any benefits I have at Accuardi's Old Town Pizza, my em-
ployees either can have or work toward. I feel that this health cov-
erage should be considered a basic right in this country, as it is in
many countries already.

Thank you.

The Chairman. Thank you very much.

I have just one question for Mr. and Mrs. Newman and Ms.
Kincer. You have had coverage, and you have lost coverage. Tell us
what it does to your mental state. We will hear a lot about the cost
of the different provisions in the legislation, and can we afford it
or not. We do not really give the attention that we should, I do not
think, about what this does to people's mindsets. What does it
mean to you, as a family, £ind what does it mean to you, Ms.
Kincer, if you know that you do have health insurance versus when
you do not have it?

Ms. Kincer. Well, it hurts to know that I do not have it, because
once you reach 62 years old, you are going downhill instead of up-
hill.

The Chairman. I do not think you are going downhill at all.
[Laughter.]

Ms. Kincer. So, you know, it really bothers you to lie down at
night and wonder, if you did get sick and had to go to the hospital,
where would the money come from. A lot of hospitals will not take
you in without so much that you pay down, maybe $500, before
they will take you in down home. If you get real sick, an emer-
gency, they will take you in — but in tne long run, where would I
get the money to pay my hospital bill after I came out?

It does worry you, and it hurts sometimes to think that you do
not have insurance and that you cannot afford it.

The Chairman. Ms. Newman.

Ms. Newman. What was the question again, please?

The Chairman. How do you feel in your own mind when you
have insurance, versus when you do not have it? What does it do
to you in terms of your anxiety level, your concern, and your wor-
ries. Is this something that is very real to you and your husband
and something that concerns you a good deal?

Ms. Newman. Well, since he has been on the job he has now, I
feel a lot more secure. I do not worry about the medical bills. When
we had no insurance at all, when he was laid off from his job, it
tears your nerves all to pieces. You cannot sleep, you cannot eat.
And knowing you have got insurance makes you sleep a lot better.

The Chairman. Mr. Newman.

Mr. Newman. I want to ask Senator Hatch why he is worried
about $19 pizzas when there are thousands of Americans who have
things like $1,600 stress tests but only make $2.09 an hour, and
they are worried about paying for that. What is more important —
a pizza or your health?

Senator Hatch. Well, if we do not have jobs, we do not have in-
surance, and the more you put pressure on the upward cost of
products, the less those products sell, the more jobs are lost, the
more unemployment, the less Grovemment

Mr. Newman. But these jobs are expanding overseas from the
same corporations.

Senator Hatch. That may be. All I can say is you have to be
careful.

Mr. Newman. Is it bad management here?

Senator Hatch. Well, I do not think they are expanding, and I
do not think it is bad management, either. In fact, one of the prob-
lems I have with this hearing is that Pizza Hut has been a model
corporate employee in a lot of ways.

Mr. Newman. They have — that is a smoke screen.

Senator Hatch. I am saying in a lot of ways. I might just bring
out one thing. Some of the Pizza Hut employees are very similar
to some of our employees in the Senate who are summer interns.
They do not get health insurance, either. And here is the almighty
U.S. Senate. Now, maybe we should do that. I do not know. We are
listening very careftilly to you, because I certainly have a lot of em-
pathy and sympathy for you. But is mandates the way to get there,
or is it better to do it through some other means; I think other
means are better. Is it better to do it with an almighty Federal
Government setting the health benefit package and determining all
these things for us, or is it better to try to encourage business to
increase and progress and create more jobs and more economic
prosperity and more opportunity and more health care? I prefer the
latter myself.

The Chairman. If we could come back to Ms. Accuardi, as I un-
derstand it, you have the same insurance program as your employ-
ees.
Ms. Accuardi. Yes. I pay half myself, personally, as well.

The Chairman. So there is no difference between you, the propri-
etors, you and your husband, and the full-time and the part-time,
in terms of the shared responsibility?

Ms. AccuARDi. That is right. It is all the same.

The Chairman. And as I understand it, you have seen a shift in
recent times, that the number of those who are taking advantage
of the coverage has actually dropped off.

Ms. AccuARDl. Yes.

The CHAmMAN. And you also pointed out there were large num-
bers who were sick over this last winter. Can you tell us if that
is correlated, in your own mind?

Ms. AccuARDi. I feel it is, yes.

The Chairman. What is the correlation.

Ms. AccUARDi. Well, the reason that our employees have chosen
not to, or in a lot of cases have dropped their health insurance, is
because of the rising cost of health insurance. It goes up for us
each year, and in the last 3 years, it has gone up about $10 a
month. A lot of our students are art students, and so they have to
decide which is more important.

This past winter, very few of my employees were able to go in
for preventive care, check-ups, or flu shots before they started get-
ting sick, £ind being at their age, they feel that they are not going
to get sick and that they have many years to go before they need
to be worrying so much about health care. And once you do start
either to get tne flu, or are around people who do have it, it is too
late to get the flu shot. So without the advice of a physician, they
did not realize until it was too late.

The Chairman. And the company is still able to make a profit.

Ms. ACCUARDI. Yes, we do.

The Chairman. No further questions.

Senator Kassebaum.

Senator Kassebaum. First, Ms. Accuardi, I do salute what you
are undertaking to do. I think it shows extraordinary caring and
good business leadership.

I think it is different when, as a small, independent business,
you have made that decision. I would argue that while I would
wish other businesses would follow the same policy that you do,
businesses differ in their capacity to do so.

I really have a problem with us mandating benefits from here,
because I think there are different circumstances and ones we do
not fully understand. But I clearly believe — what the numbers
might be, I am not sure — but there would be lost jobs, there would
be changes in the way that a large corporate entity would handle
its part-time employees, probably leaving more full-time and fewer
part-time, potentially. The marketplace and the workplace are
changing so today that I think as soon as we set up a structure
here, it could well be adversely affecting businesses.

And Ms. Kincer, just to clarify, while it is owned by PepsiCo, the
place you worked is an independent franchise, is it not?

Ms. Kincer. Yes, it is.

Senator Kassebaum. And it closed in 1992, is that right, because
it was unprofitable?

Ms. Kincer. Yes.

Senator Kassebaum. Now, it is unfortunate, and for whatever
reasons it may be have been unprofitable, a lot of people are left
without the security of having health insurance. When there was
enormous downsizing injobs, I think it was health benefits Uiat
people thought of first. That is what we are trying to find here, a
solution that is going to work without causing sucn disruption, in
the work force and in the marketplace that we could well lose jobs.
I think that would be a greater loss in some instances than trying
to find an answer to ensuring everyone has health care coverage.

Ms. ACCUARDI. If I could say something, in Oregon, the Governor
has instituted the Oregon Health Plan, which is helping a lot of
people. I have not heard — it has not gone into full enect yet and
now Oregon businesses will be helping to pay for that— but I have
not heard a lot of complaints, and I have not heard people talking
about downsizing.

I think it really is a moral issue. You say that I am unique, but
I do not feel I am. I see that my business may be on a small scale,
but there is no reason why a large corporation could not do the
same thing. If their profit margin is high, I do not really feel that
their profit margin needs to be that high. We have a very low profit
margin, but we still make a living, and a lot of our people in our
business making a living from that as well.

So I totally agree with there being a Government mandate, and
I am a businesswoman.

Senator Kassebaum. Well, everybody is watching the Oregon
Plan. As you say, it is not fully implemented, and I think it just
started 2 years ago. But there are also areas of the State of Oregon
that have been veiy hard-hit by the lumber industry downturn and
so forth. So a lot of people have lost jobs there, and they have prob-
ably lost health benefits as well.

There is not an answer that we have found that is a magic bullet
in all of this, and that is what this debate is all about.

Ms. Newman.

Ms. Newman. What I do not understand is if this lady over here,
Ms. Accuardi, can afford to have insurance on her employees, I do
not see why in the world a big corporation like Pizza Hut or
McDonald's cannot have the same thing.

Senator Kassebaum. Well, Pizza Hut of course does offer it
now — it was afler you left.

Ms. Newman. Well, the point is, they had insurance when I was
there, but I had to ask about it nwself, and my boss lady told me
to forget it because I could not afford it. She told me that I could
not afford it myself. And when she told me how much it was, I
agreed with her, and I said, "Just do not even bother getting the
papers."

Senator Kassebaum. Thank you.

Thank you, Mr. Chairman.

The Chairman. Senator Simon.

Senator SiMON. Thank you, Mr. Chairman, and I thank all of you
for your testimony.

Let me add — and I heard an expression of sympathy for your sit-
uation, Ms. Kincer — that I think we have to give you more than
sympathy. I think we have to protect you. And if Grermam' can pro-
tect its citizens, and France can protect its citizens, and Great Brit-

ain can protect its citizens, and Canada can protect its citizens, I
think we ought to be able, in this great, rich country, to protect our
citizens.

And Ms. Accuardi, if I lived in Portland, OR, I would be buying
pizza from you, let me tell you. I think what you are doing is great.
And I think you are correct — it is a moral issue. It also is good
business.

You mentioned that you have lower turnover as well. I just think
what you are doing is great.

Mr. Newman, I enjoyed your exchange with Senator Hatch. I
would like to have you as a member of the U.S. Senate, Mr. New-
man.

Ms. Kincer, if I may ask you this. I just did a little rough cal-
culating. At $3.35 an hour, which is what you were getting at Ken-
tucky Fried Chicken

Ms. Kincer. That is what the minimum wage was back then.

Senator Simon. That is correct. And it is kind of interesting that
the minimum wage has since gone up 90 cents an hour, up to
$4.25— it has gone up twice since then. What the bill that came out
of our committee says is that if you are paid the minimum wage,
and you and — how many people worked at Kentucky FVied Chicken
when you were there?

Ms. Kincer. Around 15 or 20.

Senator Simon. OK Well, I do not remember the statistics, but
for from one to six employees, you would pay one percent of salary.
That would be about 4 cents an hour. For six to 11 employees, you
would pay 2 percent of salary, or about 8V2 cents an hour.

The Chairman. It works out to 25 cents a day for a minimum
wage worker.

Senator SiMON. Twenty-five cents a day. To say that this is going
to be a disaster — it is very interesting — we are talking about some-
thing that would cost a fi-action of the increase in the minimum
wage. And we have now had 30 studies showing that — and we
heard that all of these horrible things were going to happen when
we increased the minimum wage — we now have 30 studies showing
that it did not result in those horrible things. Now, there was some
job-shifting, but there was no overall loss.

And finally, just to reiterate, you make roughly how much per
month total now, Ms. Kincer?

Ms. Kincer. I take home around $420 to $430 a month.

Senator SiMON. And how much do you have to pay for rent?

Ms. Kincer. Sixty-five dollars a month.

Senator SiMON. And you have to buy groceries, and some clothes,
and some other things, but you should be paying $60 a month for
your heart medicine?

Ms. Kincer. That is true, but I cannot afford it.

Senator Semon. So you are just not getting that heart medicine.

Ms. Kincer. That is right.

Senator SiMON. And you should be paying $60 a month for ulcer
medicine, and you CEinnot afford that.

Ms. Kjncer. You see, when I had Blue Cross and Blue Shield,
I just had to pay $5 for each prescription. So that is what hurt,
then, when I lost my insurance and could not afford it.

Senator Simon. And from the viewpoint of someone who wants
a stable work force — ^you are working at a deH now, as I recall

Ms. KiNCER. Yes.

Senator Simon [continuing]. Now, if you had a chance to work at
another deli that offered you health insurance, what would you do?

Ms. KiNCER. Now, say that again.

Senator Simon. If you had a chance to work for another deli, and
that deli offered you the same wage, but offered you health insur-
ance, too, would you take that other job?

Ms. KiNCER. I probably would take that offer, because that would
give me more security tnat I would have the insurance if I needed
to go to the doctor or had to go to the hospital.

Senator Simon. And you could get the heart medicine that you
need.

Ms. Kincer. And I could get my medicine, yes. It is a worry that
people who have insurance do not really realize. Now, I was in ICU
four or five times for my heart during the time that I had my Blue
Cross and Blue Shield. Well, if I have to do that now, I do not
know where the money would come from.

Senator SiMON. Well, I thank you. I thank you all very, very
much.

Thank you, Mr. Chairman.

Ms. Newman. Right now, I am on four different kinds of medica-
tion. If my husband lost his job now, I would be hurting. One is
for a hernia, and the other one is for high blood pressure; and they
are both real expensive. As it is right now, I only pay $5 a bottle
on mine, too. But if we lost the insurance, I would not be able to
get it.

The Chairman. Well, if I could just take 1 minute on the chair's
prerogative, it is the hardworking men and women of this country,
the backbone of this country, who are being put in this kind of fear
because of their own health needs. I think this is the real reason
why we cannot feul in terms of dealing with this issue.

Senator Hatch.

Senator Hatch. Thank you, Mr. Chairman.

Ms. Kincer, I have to say that I am dedicated to finding some
way of solving these problems. I think you should have your heart
medication and your ulcer medication. The question is how we do
it, and what is the beset way to do it.

It is not that anyone up here does not want people to be covered
or does not want people to have the health care that they need. It
is a question of just how do we do it. And frankly, I am dedicated
to trying to resolve it.

And Mr. and Mrs. Newman, we are pleased that you do have in-
surance now. I think that is a good thing for you, and we are happy
for you. You have a better job, and you have insurance. So we are
happy for you.

In the case of Ms. Accuardi, I commend vou for doing what you
are doing. Could I ask you what your health care costs per year,
or monthly, per individual?

Ms. Accuardi. It is $81 for the employee, and then it is $5 any
time you go to the hospital. We have had employees who have had
babies for $5.

Senator Hatch. So it is about $162 for employer/employee cost
per month.

Ms. AccuARDi. Yes.

Senator Hatch. And that is with Kaiser Permanente?

Ms. AccuARDi. Yes.

Senator Hatch. I see. Now, as I understand it, when Pizza Hut
offered health insurance to its part-time employees, who comprise
95 percent of their payroll, less than 10 percent signed up; 70 per-
cent said they alreaay had coverage from parents, spouses, or
schools; 10 percent said they did not need insurance; and 10 per-
cent just were not interested. So that may be part of the problem,
too. It seems to parallel a little bit what you are saying, except that
you do pay 50 percent of the cost.

Ms. ACCUARDI. I think as long as they offer 50 percent, they are
doing all they can. If the employees do not take it, then they are
still doing as much as they can.

Senator Hatch. Sure; that is right.

I do not know much about this group, the Health Care Reform
Proiect, other than that their report looks veiy political to me. One
of tneir claims is that the real story is that Pizza Hut is expanding
rapidly in Grermany and in Japan, where they pay for health insur-
ance and sell lots of pizzas at the same time.

Well, the real story is that Pizza Hut has been struggling to cre-
ate business and to grow its business in those countries, and be-
cause mandated taxes for health care, among other things, have
been one of the major contributors to the high cost of doing busi-
ness, and have certainly limited its growth.

For example, Pizza Hut has only 66 restaurants in Grermany, and
they have

Ms. ACCUARDI. I have to say, as a competitor, that they are going
into foreign countries that have restaurants that offer high-quality
agreements, and that is an issue for that kind of a company.

Senator Hatch. That may be, but the point is they have 66 in
Germany, they have 64 in Japan, and we have more Pizza Huts
than that right here in Washington, DC, all along. In the past 5
vears, it has Duilt fewer than 50 restaurants in both countries com-
bined together, compared with 1,700 new restaurants here. And
when they build those restaurants, they not only hire additional
people, but construction occurs, real property transactions occur,
and literally, millions of people across the country directly and in-
directly benefit from what happens.

But it is because of high laoor costs, which have driven up the
price of pizza in Germany, that the company has had to con-
centrate its units in high-trsiffic areas, and as I understand it, they
are selling the pizza by the slice.

Now, it may be that they should not have gone into Germany to
begin with; maybe it was a mistake. But what I am saying is that
this report is certainly misleading, and it was apparently done just
to bolster the idea that we shouldhave mandates.

Now, you agree with mandates; a lot of us disagree. And I have
to tell you I do not believe mandates are going to be part of any
health care bill that comes through the Congress, because the ma-
jority of Congress just do not want mandates. That bird just is not
going to fly, as far as I see it, and one of the reasons it will not

is because of what is happening in Germany, Japan, and other
countries where they are pricing themselves to the point where
these jobs are going.

You could go through a whole variety of reasons why using Ger-
many and Japan and other foreign nations is not really applicable
here. But to make a long story snort, I do not think there is any-
body on this committee who is not dedicated to trying to solve this
problem, but we have a wide variety of viewpoints, from Senator
Wellstone's viewpoint of single-payer, to others who do not want
Government involved at all — so from total Government involve-
ment to not very much Government involvement. And I think we
are going to have to have some Government involvement, but I
would like a lot less than what some of my colleagues on this com-
mittee would like, because I think you get the Government in-
volved as the Clinton progn^am would do, and the costs are going
to escalate so badly that it will not be just a few pennies for pizza;
it is going to be just an arm and a leg to all of us. And once that
system is laid in place, we are never going to get out of it.

So we have got to make the right choices now, and it cannot be
done on false reports, as I have read this, "Do As We Say, Not As
We Do," this special hit job here of the Health Care Reform Proiect.
That is notjieipful. You folks have been helpful here today, and we
appreciate that.

Thank you, Mr. Chairman.

The Chairman. Senator Well stone.

Senator Wellstone. Thank you, Mr. Chairman.

For the sake of brevity, I will resist the debate about Grovem-
ment, since I do not think that is quite the description of the way
single-payer works; we will forget about that. I will resist the de-
bate about other countries ana economic performance and when
they adopted universal health care coverage and how that all fits
in, and I will just say a couple of quick things.

One, I have to say to the Newmans and to Ms. Kincer that since
my wife is not here today, because her mother is very ill, I have
to tell you that she would be so proud. My wife's name is Sheila
Eisen — Harding Eisen, who lives in Whitesburg, of "Kingdom Come
Holler"

Ms. Kincer. I where it is.

Senator Wellstone [continuing]. But in any case, please say
hello to Tom and Pat Gish at the paper.

Ms. Kincer. I know them.

Senator Wellstone. And I am going to write a letter to the edi-
tor, saying you really did that community proud by being here, and
I have to tell Sheila. There are a lot of Eisens, am I correct, in that
area?

Ms. Kincer. Yes.

Senator Wellstone. In any case, I am really glad that you are
here, and I think that what you have said is very powerful and
very important.

I would just make two points or observations. One, Mr. Chair-
man, there is just some kind of irony, at least in my mind, about
what we have been hearing today. Now, all of a sudden, we have
a flip-flop — it is not the small business that cannot afford to pro-
vide some coverage; it is the large companies — McDonald's and

Pizza Hut and others cannot afford to do it. I just find that, on the
face of it, to be almost not credible. That is my first point. That
is not a question.

The second thing I want to say to Ms. Accuardi is that I really
appreciate what you have been doing. I guess Senator Simon is
right, that this all ties together. I think when employees feel like
you care about them, there is higher morale, and obviously, in your
case — I was a college teacher for 20 years — ^you have stayed in
close touch, and probably generations of students have become
friends and so on. The only thing I would say is that — we are talk-
ing about health precedent — you said that you believe your employ-
ees ought to have just as good benefits as you have.

It would be interesting to compare the CEO of Pizza Hut and his
benefits with those of his employee to see whether that principle
applies.

And I will tell you that here in the Senate, I am getting ready
to go forward with an amendment — it is coming sometime, rel-
atively soon — that says, with a vote, that whatever health care
plan we pass, people in this country have as good health care pro-
vided for them as we have in our plan. I think you are right on
the mark with that. That needs to come to the floor fairly soon.

Thank you, Mr. Chairman.

Senator Kassebaum. Mr. Chairman.

The Chairman. Yes?

Senator Kassebaum. One of the things we have debated here,
too, is what comprises a benefit package. And Ms. Newman, I was
interested that you said you could not afford what the Pizza Hut
plan was. How much was that per month; do you know?

Ms. Newman. It was around $200 a month. That is what my
manager told me.

Senator Kassebaum. Well, it is my understanding that for part-
time workers, it is $44 a month.

Ms. Newman. I was full-time, and that is what she told me. That
is all I know.

Senator Kassebaum. That is a big jump.

Ms. Newman. I never did get offered a policy. I had to ask her
about it. And that is what she told me.

Senator Kassebaum. Well, that would be something it seems to
me we ought to check out, because again, it probably is a more
minimal plan that what vou offer, Ms. Accuardi, to which employ-
ees contribute $81. Would it not have been probably just as dif-
ficult, Ms. Newman, for you to participate?

Ms. Accuardi. I want to add on that, though, that we did re-
search other plans, and we do every year, to see if there is some-
thing that is less; and while many plans do have less of a cost each
month, in most cases, the employee would have to pay 20 percent
when they go to the doctor or to the hospital. In our case, they only
have to pay $5 no matter what they do.

Senator Kassebaum. Oh, I think you have got a very good
plan

Ms. Accuardi. But I am saying that when you sav $44 a month
is low for Pizza Hut, I am curious what the rest of*^ their package
is.

Senator Kassebaum. Well, it is probably a much more minimal
package that you offer. I do not question that, but that is where
you get into some of these cost differentials, and some of your part-
time workers, as you said, would find it difficult and make the
choice that they do not want to contribute.

So these are decisions that one faces, and if we had the employer
mandate as it was proposed, 80 percent would be the employer par-
ticipation, and 20 percent the employee. And then, of course, we get
plans where there would be one basic basket of benefits which be-
comes fairly extensive, and that can become costly.

It is easy to say we wish we had an answer for everyone, but it
is not always as easy to put it into legislative Icinguage and make
it work right. That is why I think it is important for us to under-
stand what we have to decide here, as far as what should be in-
cluded in a basket of benefits — how costly will it be, and if it is a
mandate and the employer puts in 80 percent, the employee 20,
what is that cost going to be.

So I think it helps us to go through this. Maybe both sides will
better understand some of the dilemmas that we have to sort
through.

Thank you, Mr. Chairman.

The Chairman. The point is that you are paying $80, and as a
member of the U.S. Senate, I pay $101 for myself and my family,
which includes my wife smd my children. Not a bad deal.

Ms. AccUARDi. That is a very good deal. It is $200-something for
a family on our plan.

The Chairman. And my employer pays the rest, which happens
to be the taxpayers.

And the fact is, Ms. Newman, at Pizza Hut, you would have to
pay the full premium for the period of the 6 months before they
would kick in.

Ms. Newman. Right.

The Chairman. That is a wonderful deal — and you were making
minimum wage, is that correct? What were you making per hour?

Ms. Newman. Two dollars and nine cents.

The Chairman. Two dollars and nine cents an hour. And they
tell you that you have to pay in full before you can become eligible
for it. That is really a wonderful cost-sharing. They do not in Ger-
many, they do not in Japan, they do not in Europe. They treat
their workers differently over there because they are complying
with the law. And we enter will get into their expansion and what
they have done, and yet they say they have no profiU. They have
had record profits; Pizza Hut has, PepsiCo has. We are talking m
terms of billions of dollars, and then we are talking about $2.05 an
hour and sharing. This poses the issue very clearly.

Well, we will have a chance enter to get into the other issues.
I want to just thank you all very much for joining us today.

May I ask you, Mr. Newman, what is your employment now?

Mr. Newman. It is a coal company.

The Chairman. Very good. Well, we appreciate the fact that they
gave you the time off today.

Mr. Newman. They went into shock when I told them where I
was going.

The Chairman. Did you mention Kennedy, or did you mention
Senator Kassebaum? [Laughter.] Well, the Mine Workers may ap-
preriate it.

Senator Simon. Mr. Chairman, if I could just add one comment,
because I think what Ms. Accuardi has done is to cut through a lot
of this. We get so bo^ed down in all the details of this, and we
heard not from a theologian, not from a political leader, not from
a political scientist — but we heard from someone who runs a pizza
parlor in Portland, OR that this is a moral issue. You are right,
and we ought to Usten to you.

Thank you, Mr. Chairman.

The Chairman. Thank you all very much. We hope you will stay
for the rest of the hearing.

The Chairman. I want to express my thanks to Mr. Allan
Huston, the president and chief executive officer of Pizza Hut, for
his willingness to come here from Wichita to appear before the
committee this morning and defend his company's policy.

Mr. Huston and I may not agree on the issue, but I admire his
stand-up quality in coming here. I am not sure his compensation
includes additional pay for hazardous duty, but I think he deserves
it, and Senator Kassebaum thinks so, too.

We also invited Michael Quinlan, the CEO of McDonald's, to ap-
pear this morning. I regret he chose not to do so. We set a place
for him, anyway, with things he should recognize. Since the two
corporations' policies are generally the same, I guess Pizza Hut will
be in the unusual position of defending McDonald's as well, and I
give Mr. Huston credit for that as well.

We thank you very much, Mr. Huston, for coming today. Senator
Kassebaum has been speaking with us constantly about your orga-
nization, as well as have others, and we are pleased to have you
here.

STATEMENT OF ALXAN HUSTON, PRESffiENT AND CEO, PIZZA

HUT, INC, WICHITA, KS

Mr. Huston. Thank you very much. Senator. I appreciate the op-
portunity to be here. I would like to read a statement first. Sen-
ator, if I might.

The Chairman. Yes, fine.

Mr. Huston. My name is Allan Huston, and I am privileged to
be serving as Pizza Hut's president and chief executive officer for
our worldwide operations.

Pizza Hut was bom in Wichita, KS in 1958, and we continue to
headquartered in our home town. I really appreciate the oppor-
tunity to appear before the Committee on Labor and Human Re-
sources, and I sincerely hope we are all here to productively discuss
health care reform in general and mandates in particular.

Today, there are over 10,000 Pizza Huts in 87 countries world-
wide. Total employment in the Pizza Hut system exceeds 235,000
workers. In the United States, the Pizza Hut system employs
195,000 people, 95 percent of whom are part-time, younger-type
workers.

In the last 5 years, we have opened 1,700 new restaurants and
created 41,000 new jobs in this country.

Pizza Hut has the Nation's largest employment program for peo-
ple with disabilities, which is called Jobs Plus. Through this pro-
gram, we employ over 3,000 disabled people. Through these efforts,
we have been privileged with the receipt of scores of employer-of-
the-year awards.

We also operate the Nation's largest reading incentive program,
which is called BOOK IT. Children are given free pizza for reading
books. The kids love it, and this year, we will have 18 million of
them enrolled in the program. Our efforts in this area have also
led to numerous awards, including the President's 1986 Private
Sector Initiative Award and the 1989 Family Circle Leaders of
Readers Award.

Both the company and our franchises participate in community-
based educational and recreational programs all over this country,
from Little League baseball to police department basketball pro-
grams for gang members.

Through our Harvest Program, we feed the needy and help to
feed those who are victims of natural disasters like Hurricane An-
drew.

We have built our business on the fun of sharing a piping hot
pizza with friends and family. It has really come as a shock to all
of us that overnight we were somehow transformed from a pizza
baker to a target in a national political debate.

Seemingly out of nowhere, a group called the Health Care Re-
form Project launched a campaign against us including derogatory
television ads and plans to disrupt our business with pickets.

Accusations have been made about Pizza Hut that have created
an overcharged and adversarial atmosphere that is not only unfa-
miliar to us, but in the end, and I fear more importantly, extin-
guishes any meaningful dialogue.

Words like "duplicity" and "hypocrisy" have been tossed at us.
And as I said, we are from Kansas, and in Kansas those are pretty
strong words.

Now, I appreciate the time to set the record straight about Pizza
Hut's health care plans and our view of mandates, both employer
and employee. Pizza Hut was the first major restaurant company
to make health care available to all of our employees, both part-
time as well as full-time.

A majority of our employees are part-time workers, many of
whom are young people who recently joined the work force. In fact,
the average age of our employee population is 25 years old. They
typically work for us for a limited time, with a very specific goal
in mindf like paying for their education, buying a car, or some spe-
cial purchase that they would like to make.

Our health care programs are tailored to meet the unique needs
of our work force. In fact, before putting into place our health care
plan for part-time workers, we polled them and used focus groups
to find out what kind of health care they wanted and needed.

Under the plan we have put in place for our part-time workers,
they pay the cost of their health insurance for the first 6 months
of their employment, after which we contribute to the plan to sup-
plement their benefits. The average cost for a single employee to
participate is approximately $11 a week.

Now, health care is not the only benefit that we provide for our
part-time workers. For instance, we also provide a student loan
service, child care discounts, a discount shopping network, a retire-
ment plan, and paid vacations. And finally, if they stay with us for
1 year and accumulate 1,500 hours, they participate in the PepsiCo
stock option program, which is a program that is unique in all
American industry.

Now, the recent debate has become confusing to all of us. I have
even heard that Pizza Hut opposes health care reform. That is un-
true. We support reforms that will enhance competition, such as
voluntary purchasing alliances and other reforms that will contain
costs, such as tort reform and the abolishment of unnecessary pa-
perwork.

I also believe Congress needs to address the issues of portability
and exemptions of preexisting conditions. From a businessman s
perspective, it makes sense to address these fundamental changes
to enhamce the world's best health care system without risking un-
intended consequences of more radical changes.

I think mandates, both employer and employee, are wrong for
America. My opinion is based on experience. I have seen the effects
of mandates on Pizza Hut's business in international markets. My
view is anchored on actual experience in a number of foreign mar-
kets. From what I have seen of the mandates in Europe and else-
where, they contribute to the descending economic spiral of higher
prices and, ultimately, higher unemployment.

Now, of course, mandated health care alone is not solely respon-
sible for the higher prices £ind increased unemployment, but it is
most certainly a contributing factor. And although I have real ques-
tions about the efficiency of the mandate-driven health care sys-
tems in countries like Japan and Grermany, I will leave that discus-
sion to others.

In markets with burdensome social costs. Pizza Hut has been un-
able to develop the kind of business that generates the new jobs
and opportunities that we have enjoyed here in the United States.
Despite the burdensome costs of Germany and Japan, have we
been successful? Contrary to some of the misleading information
published by the Health Care Reform Project, the answer is no.
Our operation in Germany, with only 65 restaurants, despite in-
creased revenues, has been unprofitable in 10 of the last 11 years.

Our franchisee in Japan has yet to make a return on investment,
even though Pizza Huts in Japan actually average over $1 million
in sales per year.

Our experience is that the high cost of mandates contributes to
higher prices, lower profits, unemployment, and eventually stifles
investment. Germany is an excellent example of what I would call
stifled investment. With 85 million Germans, we still, afler 11
years, operate only 65 restaurcmts. If we were as penetrated in
Germany as we are here in the United States, we would have
about 2,500 restaurants, employing some 50,000 people.

With records like that overseas, why would we believe mEuidates
would succeed here in the United States?

Let us look at how mandates might affect Pizza Hut in the Unit-
ed States. Some people say we can simply raise prices to cover the

increased cost of mandated health care. Unfortunately, our experi-
ence demonstrates that it is not quite that easy.

In a recent article on the effect of mandates, the authors pointed
out that purchased meals have a high elasticity of demand, which
means that for each percentage point of increase in price, consum-
ers will decrease their purchase of meals away from home by some
2.3 percent. Therefore, a price increase of 5 percent would result
in an 11.5 percent decrease in consumer traffic in our restaurants.

Let us t£uce a look at an actual example of Pizza Hut elasticity.
I brought this particular chart which shows the last time we took
a price increase, several years ago. We saw an equivalent traffic
decrease. As you can see, our traffic was running about eight-
tenths positive on a year over year basis, and as we increased our
prices-— basically, we took almost a one percent price increase — ^you
can see how our traffic dipped by that same one percent. So in this
particular case, the price elasticity of demand was almost one-for-
one; we took a one percent price increase, we saw a one percent
traffic decrease. So we netted out on the negative side of that par-
ticular equation.

What it means to us is that less traffic means less sales, and de-
clining sales invariably lead to fewer jobs.

Now, a sjmilar myth is that we can somehow magically absorb
the cost increase. Some people claim that the 1991 minimum wage
increases had no effect on our business. That was not true for us.
In fact, it led to a staffing decrease that was equivalent to the loss
of 16,500 jobs.

I would like to point to this little chart to demonstrate that.
What we have done is prior to the increase in minimum wage
which occurred in 1990 and 1991 in two stages, we actually had an
equivalent number of people per unit of about 28.3 people. That
equated to 482 crew hours per week per restaurant. Now, in 1994,
we are actually running the equivalent of 25 people per unit, and
that is 426 crew hours. That is a decrease of some 54 hours, or an
equivalent of 3.3 people. At times, at our 5,000 company-owned res-
taurants, we actually saw an equivalent decrease of some 16,500

jobs. ,

With increased costs due to mandates, we would be left with a
rather unpleasant choice — either raise prices, which would lead to
a fall-off in sales and eventually lost joDs, or eliminate jobs at the
start. Neither choice is palatable to us.

At Pizza Hut, as well as any other business, cost structures are
the linchpin of our success. Nothing is more certain to destroy a
viable business than runaway cost escalations. The cost of Presi-
dent Clinton's plan worries me. Predicted and actual costs some-
times do not match up.

For instance, Medicare in 1966 was predicted to cost just $12 bil-
lion in 1990, and we all know that the actual cost is around $107
billion. And with the viability of our health system at risk, I am
really concerned that the cost of mandates, like the cost of Medi-
care, could be seriously underestimated.

In closing, I am proud that Pizza Hut in the last 5 years has de-
veloped 1,700 new restaurants here in the United States and cre-
ated 41,000 new jobs. Frankly, until last Friday, I thought we were
a good corporate citizen, serving our community not only with the

world's favorite pizza, but with a variety of civic-minded programs
that I referenced earlier.

Perhaps most surprising to us was the fact that we were sub-
jected to attack Eibout health care by a group we do not know, in
an area where we have been an industry leader. We have been un-
fairly singled out for criticism for one reason and for one reason
only: We disagpree with certain pressure groups on the mandate
issue.

It is time that we really all turn our attention to those issues,
and as Senator Kassebaum so aptly put, we think it is time to seek
solutions rather than villains.

Thank you very much.

The Chairman. Thank you.

Senator Kassebaum. Mr. Chairman, if I may just comment, I
think President Clinton would hate to see that hamburger and
fries go to waste. [Laughter.]

The Chairman. He is not the only one. [Laughter.] Vicky would
not let me have those.

Thank you very much, Mr. Huston. We will follow 12-minute
rounds, and I will ask staff to keep track of the time.

Without spending a great deal of time on the financial situation
of Pizza Hut, the fact of the matter is that profits since 1987 have
gone up some 370 percent, and as I understand, even in Germany,
with a mandate, from 1987 to 1989, the number of restaurants in-
creased fi^om 14 to 46, and is projected to be 80 this year; revenues
exceed $39 million in 1991, a 38 percent increase from 1989; the
number of employees increased by 24 percent between 1992 and
1993.

I think any objective review of the expansion of Pizza Hut, cer-
tainly in Germany, and I think the numbers are reasonably similar
in Japan, would reflect that Pizza Hut is still in an expansive mode
in both of those situations.

Pizza Hut plans expansion in Japan from their current 16 store
to 150 in the next 5 years.

I want to cover just three areas. I know there are a good deal
of questions about mandates

Mr. Huston. Senator, could I comment about that?

The Chairman. Yes.

Mr. Huston. I think the thing to note is that revenues do not
equal profits; and while we have continued to invest in both Ger-
many and our franchisee continues to invest in Japan, it is clear
that unless we turn around the profit situation, that expansion will
not continue, and the creation of jobs will clearly not continue.

So I think it is very important that we all really reflect upon the
difference between revenues and profits, because profits are very
important for businesses. The profits have to get a reasonable re-
turn for the invested capital that you put in, because if you do not
get a return for the invested capital, you do not continue to invest.

The Chairman. Well, you are the businessman, and I understand
what you are saying, but when you have that kind of an expansion
in terms of investment in Germany and Japan over the period of
the next years, it is difficult not to assume that you are expecting
to have a significant financial advantage for your own company.

But let me get to the main question that I think we would all
like to talk about, and that is the Pizza Hut ad. As you are aware,
your spokesman seemed to base the allegation of libel on confusion
about whether Pizza Hut made health insurance available, or
whether Pizza Hut paid for health insurance for many of its work-
ers.

I read the ad, and it is very clear, and I quote: "For many work-
ers in America, Pizza Hut pays no health insurance." This is a true
statement, is it not?

Mr. Huston. Yes, that is true. But Senator, if you would look at
it from our perspective, when we were first made aware of this —
and we were not made aware of it by anybody else but by a station
that called us up and said someone is attempting to put this par-
ticular ad in — at that particular time, the transcript that was read
to us said that we offer no insurance to any Pizza Hut employee.
And obviously, that is an incorrect statement, and that is what we
took offense do.

The Chairman. Well, we will have someone else who can com-
ment on it, but I was under no impression — I know there have
been spokesmen who have represented that, but I did not under-
stand tnat to be the situation.

You have, therefore, the script that is before you in terms of the
Pizza Hut ad. Do you find that there is anything libelous in that?

Mr. Huston. I do not know that I have

The Chairman. Well, let me read it. It says: "You see, Pizza Hut
pays health insurance for their workers in Japan and Germany" —
we know that to be so— "but for many workers in America, Pizza
Hut pays no insurance." Is that so?

Mr. Huston. That is correct.

The Chairman. "Pizza Hut makes $370 million in profits while
stiffing American workers. Now they are lobbying Congress to de-
feat the health insurance at work." Is that so?

Mr. Huston. No, that is not so. We are not lobbying

The Chairman. Do you think that is libelous?

Mr. Huston. You asked whether it was factual or not. We are
not lobbying to defeat health insurance or health care at work. We
provide health care at work, so I would not characterize that par-
ticular — if the ad said that we were against mandates, then I
would characterize that as an accurate statement.

The Chairman. Well, do you think that that is a libelous state-
ment?

Mr. Huston. I did not say that that was libelous.

The Chairman. Well, you represent your company, and you have
lawyers. Are you saying that it is — do you think it is? You can say,
"I do not think it is libelous now." I do not think there is any rea-
son why you cannot say that. I am just asking you whether you
think that that is libelous. You have a good law firm and good law-
yers; do you think that that is a libelous statement?

Mr. Huston. I would say that if it said we were against man-
dates, it would be a much more accurate statement.

The Chjrman. Well, I am not asking you that. I am asking you
about thij -epresentation, because your company has hired lawyers
who sent letters around that effectively threatened libel to various
television stations that ran this ad. And we can run the ad; maybe

that would be better, which I am glad to do. I was just trying to
run through the four or five lines of the ad.

Mr. Huston. Senator, I do have a statement about this if you
would allow me to read it, and maybe it will clarify some of the
issues that you are raising.

The Chairman. OK, fine.

Mr. Huston. I think you have to look at this picture from our

Perspective, or at least, I would appreciate that. We were sitting
ack in Wichita, KS, probably working on a new dough system or
a new topping, when we got word, a call — we heard that some
group calling itself the Health Care Reform Project had created a
derogatory and untrue advertisement about our company, and an
extensive plan to picket our restaurants and disrupt our business.

It looked like our reputation was being unfairly maligned, and I
am sure, as the committee can appreciate, we took prudent steps
to protect ourselves. I asked our counsel te review the situation,
and we eventually got the name of the commercial's creator. We
wrote these people, asking them to be truthful about our company,
and even supplied them with information. In fact, in the last letter
from the group, they thanked us for the information.

Now, in the July 21st— this was yesterday— 1994 Washington
Post article, two of the station managers gave their reasons for
turning down the ad. WJLA general manager John Sawhill, who
rejected the advertisement before receiving a copy of our letter to
the Health Care Reform Project, SEiid the ad was, and I quote,
"more of an attack on Pizza Hut, in my judgment, than dealing
with the issue of health care reform. Where the appeal is purely
emotion, we tend to reject those."

Similarly, WRC general manager Alan Horlick said, "We do not
make our time available when the principal thing going on is that
one organization is attacking another."

In other words, the ad is, as we feared, a little bit mean-spirited.

Now, if asking someone to be correct about what he says and
then supplying him with the information to ensure its correctness
is intimidation, I think at least we have a semantic differentiation
here.

I have all copies of the correspondence, and I would be happy to
read those to the committee if you would so desire, or I can give
you copies of all the correspondence between us, the law firm, and
the Health Care Reform Project, which I think would probably clar-
ify all of these issues for you, and you will see that there really was
not any intimidation there at all.

The Chairman. Well, I want to move on to another subject.
There is no question that your attorneys at one of the maior law
firms here wrote to those television stations and effectively indi-
cated to them that if they ran those ads, which we will see right
now, they would be subject to libel.

I would just like vou to look at this ad and indicate what part
of it you believe is libelous.

[Videotape shown.]

The Chairman. Having telked to your attorneys and seeing that
ad, do you think it is libelous?

Mr. Huston. We had our attorneys send to the Health Care Re-
form Project a letter, saying that they should ensure that what

they ran was not libelous. We were under the impression that their
ad said, and I quote, that "Pizza Hut provides no health insurance
to any Pizza Hut worker." That was untrue.

The Chairman. Well, now that you have seen this

Mr. Huston. This is fine, this is fine. As I said, Senator, I do dis-
agree with the fact that I do not think it is semantically correct to
say that we are ag£iinst, and we are lobbying Congress against
healUi care in the workplace.

The Chairman. Well, it is in the context of either mandates or
no mandates.

Mr. Huston. Well, then, why don't they say that?

The Chairman. Because there is not a person up here who does
not understand it, or has not read the newspaper and does not
know that the question is that you provide health insurance over-
seas through mandates, and you do not provide here because you
are opposed to mandates. That is not a great jump in logic.

Mr. Huston. Well, Senator, with all due respect, I would cer-
tainly think that the Health Care Reform Project produced that ad-
vertisement clearly not for you, but for the general public.

The Chairman. OK You have an advertising budget of what per
year — $100 milhon?

Mr. Huston. We spend, the total of all marketing and advertis-
ing, probably over $300 million.

The Chairman. And you do not think you could have handled
that advertisement by indicating what the real position is? I mean,
you thought' that you ought to come down threatening libel rather
than trying to deal with it, even within your own budget?

Mr. Huston. No; I think we were protecting Health Care Reform
Project to make sure they did not do anything libelous. I think
warning them ahead of time and giving tnem all the information
allowed them to make the correct decision, and we have no problem
with them airing this ad.

The Chairman. So it is fine, as I understand you to say, now.

Let me turn to the impact of health care policy on prices. Pizza
Hut suggests that the higher prices for pizza in Germany could be
attributed to employer mandates for health care. As you know,
Canada has the single-payer system, which goes well beyond the
bill passed by the committee. If mandated health care were the sole
explanation for prices, you would expect pizza in Canada to be
more expensive.

According to an informal telephone survey, pizza in Canada is
cheaper than pizza in the United States. The chart shows the price
of a cheese pizza at the Pizza Hut restaurant in Arlington, VA is
$11.09; in Atlanta, $11.65; in New York, $12.65; and in Canada, it
is $8.65 in Toronto, $8.74 in Quebec and Montreal; and $9.65 m
Ottawa.

So that if universal health care and these mandates drive up
pizza prices, why is pizza in the Canadian restaurants so much
cheaper?

Mr. Huston. Well, Senator, with all due respect — and I do not
know who gathered this particular data — this is not what our
menu prices are. As a matter of fact, for a large pizza

The Chairman. We can give you the numbers and the exact loca-
tions. I can give you the phone numbers; we called last night.

Mr. Huston. Fine. I cannot understand-

The Chairman. And these are converted into U.S. dollars.

Mr. Huston [continuing]. I cannot understand why that would
be the case. I can tell you what our menu prices are. Our menu
prices for a large pizza are about $16.99 Canadian, which at the
current exchange rate would be about $12.99 or so.

The other thing is that I am sure your staff did not know that
there are different size pizzas. A large is not a large.

The Chairman. That is even more interesting. [Laughter.]

Mr. Huston. Oh, not at all, not at all, because

The Chairman. When is a large a large? Do you tell the public
about this as well?

Mr. Huston. Oh, absolutely.

The Chairman. When do you tell them?

Mr. Huston. In our advertising.

The Chairman. Do you tell them a large really is not a large up
in Canada

Mr. Huston. If you— no-

Senator Coats. Why don't you let him explain, Mr. Chairman?
I think he has got an answer.

The Chairman. OK

Mr. Huston. Yes, Mr. Chairman. All we really do is we call it
a large, and we also say the size of it; it is 14 inches, it is 15
inches, it is 13 inches. All mediums are not the same. As a matter
of fact, in Germany, the size pizza we have for a medium is 10.5
inches versus a 12-inch pizza here in the U.S.

Therefore, when you are trying to compare pizza prices and cost
structures and things like that, you really have to understand the
total — the difference in size of pizzas, as well as the cost. And at
times, we run specials, and we could have had a very aggressive
special at that particular time that you called. But a comparison
of menu prices would fundamentally have £in increase — just as an
example, a medium pizza here would run about $11.75. A medium
cheese pizza basically is $11.75 U.S. in Canada; whereas here, it
would be in the $7.40, $7.50 range on our menu.

I think the other thing, too, that is very confusing

The Chairman. I am going to ask my staff to go out and call
those again.

Mr. Huston, [continuing.] I think the other thing that is very
confusing is that, quite frankly, the cheese pizza mix is probably
an inappropriate comparison, because about 3 percent of the total
mix is actually cheese pizzas. Most people buy pizzas with toppings
on them, and as you increase the toppings, the prices escalate, ob-
viously.

So this is a simple business, but these are the little nuances that
you have to be aware of when you are trying to compare prices.

The Chairman. Well, I will accept the point you make that a va-
riety of different factors go into the cost, unlike the statement
made by Pizza Hut that with mandates, the increased costs would
go right up through the roof through your own advertisement. You
are making the point that there is a variety of different factors be-
sides just the health care costs. And you can advertise that any
kind of mandate would increase the cost of any of these pizzas up

to $19, or whatever it was, but that just is not accurate, for the
reasons that you State.
Mr. Huston. Senator

The Chairman. My time is up

Mr. Huston [continuing]. Senator, if I could just clarify that par-
ticular point, I think the advertisement that you are alluding to
was a full-page ad that we ran in the Wichita Eagle. In that par-
ticular advertisement, we said that the cost for a pizza in Grermany
was $19, and the cost for a pizza in Japan was $25. We never at
any time said that the pizza in the United States would reach that
particular point.

The Chairman. You never estimated what the cost would be if
we had mandated health care?

Mr. Huston. All we said was that the costs would be higher. We
did not say

The Chairman. All right. Given the fact that you testified before
the Ways and Means Committee that labor costs are 30 percent
and that there is a 12 percent cap— and this does not even include
the minimum wage places; at the top, it is 12 percent — how much
would that increase? According to the Joint Economic Committee,
it is 40 cents per pizza. Does that sound about right?

Mr. Huston. No, it does not, and if I could explain, if you just
took a very simplistic view and said 30 percent of your cost is in
fact labor, and 12 percent is what the cap would be on health care,
you would end up with about a 3.6 percent increase. And I think
they multiply that times an $11 pizza, and that is where they come
up with about 40 cents.

That is a rather simplistic view, and it really does not reflect
what actually happens in the marketplace. What really happens is
this. For every dollar increase that we actually take in price, not
a dollar comes through; about 95 cents of that dollar comes
through. The reason for that is that we have cooperative advertis-
ing agreements that are based upon a percentage of sales; some of
our rent agreements are actually on a percentage rent basis for
each one. So therefore, if you increase your price, you show that in
your sales, but it actually costs you money as you go forward.

So therefore, you get about 95 cents out of the dollar out of that.
So you take the 3.6, and you divide it by .95, and you come up with
around 4 percent.

Now, if we just take what I would characterize as a rather con-
servative price elasticity ratio— and as I have stated before, our ac-
tual price elasticity ratio is about 1-to-l in that particular example
that I gave— but if you take a rather conservative price elasticity
ratio of l-to-.75, that would mean that we would actually have
about a 10.5 percent increase, because we would up our prices by
4 percent, but we would lose 3 percent traffic. Then I would have
to take another 3 percent pricing action, and I would lose 2 percent
traffic, and I have to ratcnet myself up. The net effect is that the
cost increase, or the price increase, is going to be somewhere be-
tween 10 to 11 percent. Now, the effect of that on an $11 pizza is
$1.10; it is not 40 cents.

The Chairman. Well, I appreciate your explEination. The Joint
Economic Committee staff does not agree with you, but I think we
will let that go for now.

Briefly, because my time is just about up, as I understand from
your quote, company surveys show that some 70 percent of the
hourly work force already have health insurance coverage from an-
other source. Why should you freeload on others who are providing
insurance either through their families or their spouse? Why
should Pizza Hut freeload and let others pay for your employees'
health care costs as you transfer the costs to other employers?

Mr. Huston. No. 1, the total percentage of our employees who
actually have health care coverage is over 80 percent. As a matter
of fact, it is very similar to what we would have in the rest of the
United States. So quite frankly, we are not cost-shifling. We are
not any better or any worse than the average for the U.S. industry.

Now, if you are asking why do we allow, or why don't we pay for
people who are spouses

Tne Chairman. Well, do you think it is fair— iust as a matter of
basic fairness, that some other company pays for coverage for 70
percent of your employees? Is that fair that somebody else is pay-
ing for people who work for you? Just getting away from all the ra-
tios and all the rest, as a matter of fundamental fairness, do you
think that cost-shifting is fair?

Mr. Huston. Yes, I do. If I could explain.

The Chairman. All right.

Mr. Huston. Quite frankly, a lot of these companies have al-
ready made covenants with their employees. As a matter of fact,
when they negotiated with their employees, in terms of bargaining
for their benefits, they obligated themselves to pay for the em-
ployee, his spouse, and his cnildren. To come back afterwards be-
cause their costs are escalating and say that, I want to break that
particular covenant, and I now want to you lay costs back onto the
spouse and back onto the children when they work outside, I do not
think that that is quite right.

The reason is this. If we were required to pick up that particular
cost, the net effect would be that we would have to increase prices.
By increasing prices, our traffic drops off. And in this particular
case — let us just use the case that I had at a 10 or 11 percent in-
crease, and I have an 8 or 9 percent traffic decrease, or number of
guests decrease — ^literally, that is almost 20,000 jobs that would be
in jeopardy, 20,000 jobs.

'The Chairman. The only thing, Mr. Huston — isn't somebody else
raising their costs? Why should somebody else have to raise their
costs so you do not have to raise yours? What is fair about that?

Mr. Huston. The market is already in equilibrium.

The Chairman. Because someone is concerned about his wife and
his children, and Einother company is willing to take care of that
employee whose spouse works for you, you tnink you ought to get
a free ride, in the United States of America; you think that the
other company ou^ht to pick up the tab and that you have no re-
sponsibility to do it. And you are not up here in front of the Con-
gress of the United States saying, "Look, I represent Pizza Hut,
and I am prepared to deal with my employees. We are prepared to
treat them right. We do not want to freeload. We made $370 mil-
lion last year, and we are proud of it, but we have sufficient respect
for our employees that we want to have the same kind of relation-
ship with tnem that Ms. Accuardi has with hers."

You are saying to us, "We will let somebody else, some other em-
ployer, pick up the health care cost, whatever it might be for our
employees."

Mr. Huston. Well, Senator, to me, the real issue is what do we
tell the employee when his son or his daughter is in fact laid off,
and that employee then goes back on his health insurance plan be-
cause he has lost his job. I do not know how to rationalize that.

Quite frankly, I think this particular issue is probably not ad-
dressing the real issue that you all have and that we have. By
changing jobs around and saying who is going to pay for it, we do
not increase the total number of people in the United States who
actually have health insurance. I think that is much more the fun-
damental issue that we should be addressing, £md not talking
about cost-shifling.

The cost-shifling thing basically gets no more people covered
under any kind of health care coverage, and I think that is really
the much more critical issue that we should be addressing.

The Chairman. Well, I will yield, but as I understand you, the
ad is okay, and vou think it is fair that others — what is your health
insurance? Could I just ask vou that, in conclusion; what do you
pay for yours? Personally, what do you pay, and what does the
company pay?

Mr. Huston. I am trying to think. I pay 100 percent of it, and
my health insurance runs about $3,600 a year, or $2,800, some-
thing in that neighborhood — I cannot tell you.

The Chairman. Between $2,800 and $3,600— you cannot tell me?

Mr. Huston. Well, I am trying to think, because actually I get
as part

Senator Coats. It is less than ours in Congress.

Mr. Huston. Pardon?

Senator Coats. It is less than ours in Congress.

The Chairman. It sure is

Senator Coats. The Government picks up 75 percent of ours.

The Chairman. That is right.

Senator Coats. A great deal; it costs them about $6,000 a year.
A good plan.

The Chairman. Yes; the employer pays. It is a shared

Senator Coats. The taxpayer pays; the taxpayer pays — not the
employer. It is the taxpayer.

The Chairman. That is right. It is shared. And I do not hear you
saying that vou want to renounce yours, Senator, because you are
so concerned, about it. I hope those who are sufficiently concerned
about it will at least have the dignity not to accept it if they are
so concerned about it.

Senator Coats. Well, Senator, this issue on cost-shifling is an in-
teresting issue

The Chairman. If I could just say — and then I will yield

Senator Kassebaum. It is my turn.

Senator Coats. How long does each member have? You have
gone 22 minutes.

The Chairman. I just want to get the answer on what he pays.
If he could just answer that, and then we will move on.

Senator CoATS. Well, it seems like we are not letting him an-
swer.

The Chairman. OK

Senator Coats. He is trying to answer, but he keeps getting in-
terrupted.

Mr. Huston. Senator, I can tell you how our system works. We
are actually paid in pre-tax dollars, £md as part of my salary I ^et
a certain amount that I can then apply to benefits. The benefits in-
clude health care insurance, they include life insurance, accidental
insurance, dental insurance, vision insurance, all of that. So that
f\indamentallv, I pay out of my own salary, in pre-tax dollars, for
those particular benefits.

Now, the total that I get, I would characterize as part of my sal-
ary, is around $3,300. If I do not use that, that money comes to
me, and it is taxed. If I use over it, then I have to take out of my
other funds, basically, and I pay the incremental cost associated
with doing that.

The Chairman. Senator Kassebaum.

Senator Kassebaum. Mr. Chairman, just to follow on a bit, be-
cause I do not quite understand your arguments on the cost-shift-
ing. That is the way every compsmy in America is operating right
now.

In Wichita, a number of the employees who work for Pizza Hut
probably have family that works at Boeing. Now, if I am following
your argument, which I find hard to follow, you would say that
Boeing picks up an unfair burden, is that right, that Pizza Hut
should share?

The Chairman. I think we ought to have a fair playing field and
that employers ought to pay U>t those people who are working
there, and work out a deal for the members of those families. That
is what I think. I do not think you should have the cost-shifting.
Fortunately, we have got it; I am not for yielding that; I am for
making the playing field level. But 2 are against tne idea that you
have major companies and corporations subsidizing other compa-
nies. Yesterday we heard from 120 companies and corporations
that are competing internationally with good programs. They are
basically subsidizing their competitors. You have a $40 billion a
year cross-subsidy from those companies that are providing good
health care to those that are not. And that, I think is unfair

Senator Kassebaum. Mr. Chairman, I did not mean to give you
back your time.

The Chairman. OK Well, you know how I get on this.

Senator Kassebaum. I know, I know. [Laughter.] But 30 percent
of one's premium today goes to cover cost-shifting for subsidies for
uncompensated care. When people go to the hospital today, they
are not turned away if they do not nave insurance, and that cost
is transferred on; so there is a lot of cost-shifling going on. That
is very true. But it is the way we have done American business,
and it actually is factored in even in all of our health care plans
and how we portion this out.

Senator Coats. Would my colleague yield just on that point on
cost-shifling, because we had a hearing before this committee a few
months ago, and we were discussing the President's plan, and we
had a representative from Ford Motor Company testify that most
large companies in America, who are under union contracts, are
paying about 20 percent of payroll for health care. In the Presi-

dent's pl£in, they would go down to 7.9 percent. In questioning the
representative from Ford, he finally admitted that Ford would save
about $1 billion a year under the President's plan.

So cost-shifting works both ways. Every company, I believe, that
is a member of the Health Care Reform Project, stands to very sub-
stantially cost-shift costs that they are ow paying onto somebody
else's shoulders. Now, a lot of Members of Congress have spouses
who work for major corporations, but they take advantage of the
members' plans.

So I think this cost-shifting affects us just as much as the
charges the chairman is making about the gentleman from Pizza
Hut. I think maybe we ought to look at ourselves before we start
making accusations about the witness.

Senator Kassebaum. Mr. Huston, I wanted to ask you one ques-
tion, because we were talking about Kentucky Fried Chicken with
Ms. Kincer, and Ms. Newman was talking about the Whitesburg
Pizza Hut. Is that an independent franchise, or is that owned by
you?

Mr. Huston. Yes, it is an independent franchise.

Senator Kassebaum. So they would make their own benefit pol-
icy decision?

Mr. Huston. Yes, they would. We just bought that particular
franchise back, so therefore, if she were working at that particular
Pizza Hut, she would have an opportunity to buy into our part-time
employee benefits or health care benefits program, at $11 a week
for a single. '

Senator Kassebaum. Well, I think it is important, because there
is a difference here between saying Pizza Hut is doing this, when
it may be an individual franchisee decision that was made as far
as how they handled benefits; is that correct?

Mr. Huston. That is correct.

Senator Kassebaum. I would like you to explain a little bit how
you came to the health plan that you did. Am I correct in saying
it would be $44 a month employee contribution?

Mr. Huston. That is correct, Senator.

Senator Kassebaum. And when did you start looking at what you
felt should be offered for part-time employees, and how did you go
about sampling what employees thought?

Mr. Huston. About a year and a naif ago, we began to look at
this particular issue. We recognized that we had a very unique
work force. Most of our work force is very young. The average age
is 25. The number of months that they actually work with us is
about 7. We have about 135 percent turnover rate, which means
the average employee is with us about 7 or 8 months. And obvi-
ously, you have a lot of people who turn over, and then you have
people who are relatively stable.

So, because we had a very unique work force, we did not just go
out and say here is the program we want to do; we actually went
out and had focus groups with our employees in numerous loca-
tions, to really find out what their needs were, and we then devel-
oped this particular program in response to their needs.

After we got the input first, we then tailored the program, and
we went back into individual focus groups after that to make sure
we had hit the mark, and we made a couple of changes at that par-

ticular point in time. And we continue to look at it today. I mean,
this is a dynamic process where, obviously, the landscape changes,
and we need to keep abreast of what our people need, within the
realm of affordability, because the thing that we cannot do is we
cannot take our costs out of line and become fundamentally non-
competitive. If we put our people in that position where we are
noncompetitive, we will not sell pizza, and we will not have jobs.
So it is a very fine line that you have to work in that particular
regard. But anyway, that was the process that we used.

Senator Kassebaum. Are all the other national and international
pizza operators offering some type of part-time insurance now; do
you know — without getting into names?

Mr. Huston. Actually, we have not expanded this thing outside
the U.S. at this point in time. Obviously, in those countries where
we have mandated health care benefits-- —

Senator Kassebaum. No, not Pizza Hut; I am speaking of other
pizza manufacturers that are national or international in oper-
ation.

Mr. Huston. I do not believe that any other major pizza com-
pany offers this kind of program.

Senator Kassebaum. For part-time.

Mr. Huston. For part-time. There are very few, I think, as a
matter of fact, that offer this kind of health care coverage for their
part-time workers. I think Wendy's is the only other one that I am
aware of

Senator Kassebaum. How many — and maybe you said this in
your statement; I do not remember — how many of your workers are
participating in Pizza Hut plans?

Mr. Huston. About 10 percent of our total part-timers, which
would be about 12,000 people. Seventy percent are in fact covered
by some other means, either through their husband or their par-
ents or school, or something like that. So a little over 80 percent
we actually have covered, and the remainder have said they do not
want the service, or they just do not want to covered.

Senator Kassebaum. Yes; they feel that that would be more than
they would want to take out of their monthly paycheck.

Mr. Huston. Yes; they just do not want to pay for it, or they do
not think they have the need. You know, in some instances, people
do not think they have the need.

Actually, we have another program that is an accident program,
and a lot of our people actually sign up for the accident program
because as individuals, they are very young, and they have this
feeling, I guess, that they are almost immortal. I did at that age.
But what could happen to them, obviously, is they could have an
accident. So in that particular case, they are able to buy this acci-
dent insurance at about $3.50 a week, and that seems to meet their
particular needs. So if they were hurt in an accident or something
like that, they would obviously have health insurance or health
coverage for that.

Senator Kassebaum. Let me just ask about the accuracy of the
Health Care Reform Project report. Did they ever contact you to
ask questions about what you do, how your health care plans work?

Mr. Huston. They never contacted me personally, and of my
staff, I do not know of anyone in the executive ranks who was con-
tacted by the Health Care Reform Project.

Senator Kassebaum. As has been talked about, of course, they
claim that you have had rapid expansion in Crermany and Japan,
and you have just outlined that that indeed is not the case.

Mr. Huston. I would not call it "rapid." As a matter of fact, in
Poland this year, we will develop about 54 restaurants. That is
what I would call "rapid."

Senator Kassebaum. In Poland?

Mr. Huston. In Poland, right. Twenty-four restaurants in a 3- or
4-year time frame is not rapid.

The Chairman. Do they have health insurance over there?

Mr. Huston. No, as a matter of fact, they do not.

The Chairman. I am surprised.

Senator Coats. They had it at one time, Mr. Chairman. [Laugh-
ter.]

Senator Kassebaum. They thought better of it.

Senator Coats. It did not work.

Senator Kassebaum. The Project also claims that operations in
Germany and Japan have been tremendously successful, and em-
ployment is on the rise within the company in these countries; and
you have pointed out that that is indeed not the case. So they must
not have really tried to accurately assess the situation.

Mr. Huston. Well, our franchisee there has not been able to get
a reasonable return on its investment on a per-unit basis. This
business is really based on each individual unit. Each one of these
units is a little independent business, and you have to get a return
for it. As I said before, they average about $1 million in store sales,
but their cost structure is so high that they cannot get a reasonable
return on that particular investment.

Now, I am sure where the Health Care Reform Project got that
particular information was the press release we had when we
signed the franchise agreement. Obviously, their development
agreement says they are going to develop 150 units over the next
5 years. Believe me, if they do not get a reasonable return, they
will not develop 150 units over the next 5 years.

They are working on it, and we continue to work with them. We
still think that, obviously, a place like Japan, with 130 million peo-
ple, is a great market, and we should be able to crack the code on
making it a viable business. So we continue to invest, and they con-
tinue to invest in that particular regard.

Senator Kassebaum. Thank you, Mr. Huston.

I will yield back any extra time I have to Senator Coats, because
he was not here for opening statements, Mr. Chfiirman.

The Chairman. OK Senator Simon.

Senator Simon. Thank you, Mr. Chairman.

First of all, I want to join in commending you for being here.
There had to be a little discussion among your executives whether
it would be wise to come here

Mr. Huston. Yes.

Senator SiMON [continuing]. And I appreciate the fact that you
have come and entered the lion's den, so to speak.

A couple of comments. One is that when you talk about the price
of pizza in Japan and Germany and the United States, the price
of food, of course, in those countries is much, much higher than it
is in the United States.

Mr. Huston. It is high, yes.

Senator Simon. So that those kinds of comparisons are not veiy
meaningful.

Second, you mentioned about Germany — Germany's cost for
health care is 8 percent of their national income. Our is 14 percent
of our national income. If you did not have the mandate in Japan
and Germany, would you drop health care protection for your em-
ployees there?

Mr. Huston. I think we would do what we needed to do to be
competitive in the marketplace. It is really the marketplace that
determines what pay scales and benefits are. From our perspective,
we obviously have to offer a competitive wage and benefit package.
We want to get the best workers, so we would provide something
that would be a little bit more competitive, but not so outrageous
relative to the market that we set our people up for failure. If we
have a higher cost structure than anyone else, we cannot compete;
and if we cannot compete, then mndamentally, we have just
doomed them to failure because the business will fail, and they will
be unemployed.

Senator Simon. So your answer is that you might drop health in-
surance.

Mr. Huston. It would depend upon what the market is. Senator.
That is how we really maVe the determination of what the pay
rates are and what the benefit levels are.

Senator Semon, To what extent do you consider the welfare of
your employees along with the marketplace?

Mr. Huston. Oh, we consider that all the time. You know, in the
restaurant industry, we are in the hospitality industry. Clearly, our
vitality and our reason for being — we nave to give our patrons and
our customers a reason to return. If we have employees who are
unhappy and upset and angry, they are going to treat our guests
in that way, and that clearly is not an inducement for future busi-
ness.

So it is very important that we keep abreast of what our employ-
ees want, and that is the reason why we even developed this par-
ticular health care program, and we tailored it to meet their par-
ticular needs. We think we are doing that. Obviously, I am sure we
will not meet everyone's needs, but we think we are meeting the
majority needs of our employees, and we think that is very impor-
tant, and it is good business for us. We have to have happy people.

Senator Simon. You were here when Ms. Accuardi testified.

Mr. Huston. Yes.

Senator SiMON. Did that cause any second thoughts for you at
all, any kind of reflection on your part?

Mr. Huston. Well, I think Ms. Accuardi — quite frankly, our pro-
gram is less expensive. I am not sure what her particular benefit
levels are, especially for the employee. The employee would pay
less for our health care.

We think we have tailored our health care for the needs of our
employees. They have told us that it meets their particular needs,

the ones who take it. So that no, I really do not have any second
thoughts. If something in our employee discussions would indicate
that we were not meeting the needs of our employees, then clearly,
that would be a reason for me to reassess.

Senator Simon, You have purchased the Whitesburg, KY Pizza
Hut franchise.

Mr. Huston. Yes, right.

Senator Simon. Do you provide the manager of that Pizza Hut
there with health insurance?

Mr. Huston. Our salaried employees have health insurance, and
they pay for it basically just like I do. in terms of a companv-owned
restaurant. A portion of their pay, tney can apply to health care,
and if they use all of it — for life insurance and dental and vision
coverage — and if they use it all up, they do not pay anything; if
they use more, they pay more; and if they do not use all of the sal-
ary that is set aside for that, then they get the salary back, and
they pay taxes on it.

Senator SiMON. And because this is deductible, and it is not
counted as income, unless you get money back

Mr. Huston. Unless you get the money back; you pay it out of
pre-tax dollars.

Senator SiMON. So that basically, you have a taxpayer-subsidized
health insurance, you personally, and the manager at Whitesburg
does?

Mr. Huston. Well, I think it is what the law allows.

Senator SiMON. I understand, I understand. I am not saying it
is illegal.

Mr. Huston. I would not say it is subsidized. As a matter of fact,
I would say that maybe you ought to consider doing this for every-
body.

Senator Simon. Well, that is what we really want to do, is do this
for everybody and make sure that every American is covered.

Mr. HUSTON. And one of the way you could do that, obviously,
is doing it with pre-tax dollars.

Senator SiMON. And the very interesting thing is that that will
not cover everybody, and we are going to leave a lot of people out.
And some of us are interested in seeing that all Americans are cov-
ered, just like Grermany sees that all Germans are covered, and
other countries see that everyone in their country is covered.

I would like to follow through a little on the question asked by
the chairman and that Senator Kassebaum talked about. In fact.
Senator Kassebaum, Boeing picks up part of the tab for the em-
ployees at Pizza Hut. I think everyone acknowledges that. And
then, it is not only Boeing that picks up part of the tab; it is also-
let us just take Ms. Newman. When she was not covered and really
desperate and almost lost her home, if she had had a serious prob-
lem, she would have been on Medicaid. All of us taxpayers would
have picked up the tab. And that causes some problems in the
minds of some of us, that maybe we ought to work out a fair sys-
tem so that Pizza Hut, you pay for your employees, and vou may
have to pay a little more — we have to pay a little more for pizza.

And incidentally, if I may digress here — if you would put up the
othrr chart, on the minimum wage — nationally, there was not a
loss In Pizza Hut, the increase in the minimum wage did result

in a loss. Did you sell fewer pizzas when you had this loss of jobs
there?

Mr. Huston. No; we sold more.

Senator Simon. So that you increased productivity.

Mr. Huston. We increased productivity, right.

Senator Simon. OK. And that is one of the things we can do in
our country is increase productivity, and you increase revenue also
in the process; right?

Mr. Huston. We are always about that.

Senator SiMON. OK If we were to start with a fresh slate, and
we were to create a system where we would say employees can vol-
untarily pay for their employees, and then if you do not, you do not
have to if you do not want to; but if you voluntarily pay for your
employees, you also have to help pick up the tab for those who do
not pay for their employees — I think you would agree that that is
a pretty ridiculous system, wouldn't you?

Mr. Huston. Senator, I think you made one assumption there
that is probably not realistic, and that is the fact that you started
from scratch; you started all over again. The fact of the matter is
that those employees of other companies have already bargained,
and they know they have those benefits for themselves and their
spouses and their children.

And the fact of the matter is that if, by us picking up that par-
ticular cost, it would cause us to raise our prices and therefore
have a slack in demand, and then have to lay that individual off,
that individual is going to be right back on that company's health
plan.

So I am in a real quandary about how you rationalize that kind
of a situation.

Senator SiMON. Well, the system that I described is obviously the
system that we have; and the system that we have permits Pizza
Hut to say to Boeing, Tou pick up a good chunk of the tab for my
employees." Many of us believe that that is unfair, particularly
when you have so many people falling through the cracks, like the
woman over here who cannot pay $60 a month for heart medicine
that she needs.

I think that somehow in this rich country, we ought to be able
to do it. And my guess is that just as the minimum wage did not
decrease the sales of your pizza nor your total revenue, if we see
to it that she gets $60 a month for her heart medicine, that is not
going to hurt Pizza Hut, either, and it is going to enrich this Na-
tion.

Does it bother you at all that we are the only Western industri-
alized Nation that does not provide health insurance coverage for
all of our citizens?

Mr. Huston. I cannot comment on that in terms of — I have
never really thought whether it bothers me. All I know is that we
have the best health care system in the world, and I can attest to
that

Senator SlMON. If you can afford it. If you can afford it.

The Chairman. If you can afford it.

Senator SiMON. She cannot afford it.

Mr. Huston. Well, the question is can you afford it, and what
can you afford. I think that is the real issue that is before all of
us is just how much can you afford.

I can tell you this, that if Ms. Kincer worked at Pizza Hut today,
then she would have an opportunity to buy into our sinele-payer —
or single-person plan. There was nothing Freudian in Uiat at all.

Senator Wellstone. You are doing well. [Laughter.]

Mr. Huston. But she would have an opportunity to pay in $11
a week, and she would get 70 percent of her prescriptions cov-
ered — which is not a bad dieal, I do not think.

Senator Simon. All right. You are an above-average man in abil-
ity, and you said you had not really thought much about the fact
that other countries cover

Mr. Huston. Well, I think-

Senator SiMON [continuing]. Let me finish. And I am simply ask-
ing that vou do a little reflection. You started off bv saying we
ought to have meaningful dialogue. I think we should. We do not
want to hurt Pizza Hut. We want American business to thrive. But
I think there has to be some reflection on the part of leaders like
you that this country has to do better and that we have to cover
all of our citizens, and anything short of that is short-changing this
country.

Now, I think creative people like you ought to be part of molding
this package so that it nelps Pizza Hut and so that it helps this
Nation.

Thank you, Mr. Chairman.

The Chairman. Thank you very much.

Senator Coats.

Senator Coats. Well, Mr. Chairman, I was going to ask our wit-
ness, Mr. Huston, a series of questions to aflow nim to give the
other side of the story, but he has very ably done that.

For the record, obviously, there is disagreement about what our
system provides for people and what it does not, £ind jobs that it
is able to create and benefits that it is able to provide. But I think
I will confine my remarks to the process here, rather than reiterate
some of the facts, which I Uiink have already been put on the table.

Senator Simon s£ud he thinks we need a meaningful dialogue
and reflection, but this hearing this morning has been anything but
that. It is the typical hearing which puts on the first panel sincere,
well-meaning individuals who tell individual stories, but by the
time we get to the facts, the press is gone, the photographers have
gotten the pictures that they want.

I think it is demeaning to the committee to set out a "Big Mac,"
fries and a Coke, with an empty chair, for McDonald's. That is not
meaningful dialogue. That is not reflection. That is not a way to
solve the problems of the individuals who testified on the first
panel, to seek meaningful health care reform. That is designed for
political purposes — good visuals — you noticed all the photographers
left as soon as thev got their pictures. The cameras are gone. C-
SPAN is still here, but they agreed to cover the whole hearing.

The fact is that McDonald's wanted to testify. They were notified
less than a week prior to this hearing that they would be at the
inauisitor's table. They made the same decision that Pizza Hut did.
I aoubt that Pizza Hut would make the same decision again, al-

though I am glad you made the decision to come here, because if
you had not, &ere would have been a pizza sitting where you are
now sitting

Mr. Huston. I hope it would have been a Pizza Hut pizza.

Senator Coats [continuing^. And you would not have been able
to get your side of the story m the record.

The letter that went to McDonald's was mailed on July 15th.
What we know about the Grovemment-run mail system now is that
it is fortunate that it got to McDonald's at all

The Chairman. We can have them back at another time.

Senator Coats. Well, the fact is, Mr. ChairmEin, they offered to
come. With less than a week's notice, the CEO said he could not
rearrange his schedule to be here, but he said, "I would like to send
Mr. Stanley Stein, who is the senior vice president in charge of
human resources for McDonald's to appear on behalf of McDon-
ald's." This is his letter back to you, dated July 20th.

He said, "Mr. Stein is head of human resources worldwide and
the best-qualified person in McDonald's to discuss the issues raised
by the Health Care Reform Project report, as well as related is-
sues."

This committee did not allow Mr. Stein to appear, despite the
offer, because maybe we would not have been able to have the vis-
ual. Mr. Huston, this is not a hearing. We are not trying to get
facts. This is all into politics now. This is all for show. We know
what the picture is going to be in the Washington Post tomorrow.
We know what the clip is going to be on TV tonight. It is not going
to be this letter; McDonald's is not going to be able to present its
case as they requested to do; it is going to be the visual of the
McDonald's items, and there will be some interesting clips from
some of the members of the committee.

So this is just for show. I am glad you came to put it in the
record, and it will be in the record. Members of the Health Care
Reform Project all have a vested interest in the President's bill;
that is why they signed up. Ford Motor Company — it is right here
in the committee hearing report — makes $1 billion because, for
whatever reason, they negotiated health care for their employees,
and now they cannot compete with other companies in the world
that do not have the same health care costs. That is what they tes-
tified to.

We have to compete, so the President's plan bails us out, $1 bil-
lion a year — just one of the companies that is part of the Health
Care Reform Project. I imagine every company in here, if you go
through it, stands to cost-shift their health care costs onto some
other sector. Ford's will go to General Mills. They testified here,
and they onlv pay 4.7 percent of payroll. Under the President's
plan, they will move up to 7.9, so they will pick up Ford's. So there
is a cost-shifl going on all over the place here. But we are not en-
gaged in meaningml dialogue as to how to deal with this; we are
simply engaged in making our political points, and we have entered
that season now.

I am not sure how much free air time the President is getting
to push his plan, but I do not begrudge vou at all for taking a little
bit of time to exercise your First Amendment rights in stating that
as a leader — that is what I find so ironic — as a leader in the res-

taurant field in terms of trying to reach out to provide health care
to your employees, understancung that you also would like to keep
them employed, and therefore, you need to make a profit, that you
do not just suddenly raise vour prices $3 per pizza, provide health
care for a lot of your employees, a lot of them part-time, a lot of
them kids working in the summer after school, on Saturdays, and
not have it affect the number of people you can employ. But we are
not interested in Uiose facts. We are not interested in what it takes
to make American business competitive, to make it work, because
we are all Government employees, and we do not have to make a

Krofit. We do not understand what it takes to make a profit. We
ave never had to meet a payroll. So the frame of reference here
is well, why can't you do it, why can't you just be more competi-
tive? Why don't you care about your employees, instead of exploit-
ing them?

There appears to be no comprehension that in order for you to
take care of your employees, you have got to make a orofit or you
are out of business, and those employees are out of work.

So the only reason I stayed around was to make this little speel,
but I think this is just all for show, and I have had enough of it
today, but I appreciate your coming and hope you will again, but
I hope we can give you a fairer hearing next time.

The Chairman. Senator Wellstone.

Senator Wellstone. Thank you, Mr. Chairman.

Let me try to ask a couple of policy questions. I had to make a
transition back, because I was thinking about the $3 per pizza —
these figures get thrown around a lot — and also the whole issue we
were going to have some discussion about, elasticity, and how all
of this would affect jobs.

But let me ask just three questions, Mr. Huston, and one of them
is more personal, but given what my colleague fi-om Indiana had
to say, I want to make it really clear that it is actually to try to
make a policy point, and I will try to do it in a way that you will
feel is respectful.

First of all, one thing that is confusing me — and you might be
able to help me on this — ^is this whole issue that Senator Simon
asked you about. What would you do in Germany if you were in
a different system — would you or would you not require coverage?
You said it sort of depended upon the market and what you would
need to do to compete.

This came up with the Senator from Kansas. If every company
had to pay — every company — wouldn't that then level the playing
field in terms of the market? I would think that some companies
would no longer be at a disadvantage. I have been trying to follow
the logic of this, if you see where I am heading, and it would seem
to me that that would be one of the pluses. You would not then be
able to say that you can't do this because it would put you at a
competitive disadvantage vis-a-vis other business in our country in
the private sector, because everybody would be contributing some

share.

So wouldn't that level things out market-wise?

Mr. Huston. Not really, Senator. The thing that we miss here
is that there is one other entity, and that is called the consumer
And while the competitive playing field might be equal, if we all

have to raise our prices fundamental of the elasticity of demand
would dictate that we would have fewer people coming to our res-
taurants; as we increase our prices, basically, our customers start
to make decisions.

Their alternative is that instead of coming to a restaurant, they
can prepare the food at home and eat it at nome. And that is the
reason why we have a very particular dilemma. They always have
a choice, they always have a choice, and we have to rememhJer that,
and that is tne reason whv we have to keep our prices competitive.

Senator Wellstone. All right. Again, my background is in politi-
cal economy, which does not make me any expert, but it does seem
to me that — and I am not saying you are wrong — I am just saying
that there are all sorts of counter-arguments that could be made.
I mean, there are a lot of people that, given what a lot of middle-
income people pay for coverage right now in terms of percentage
of income for health coverage, and given the explosion of the cost
cannot purchase coverage. It might be that as we build some sanity
into this system in msiing sure people can sdTord it, that people
might be able to buy more.

You have one set of assumptions; I might have another set of as-
sumptions. In other words, given the fact that you deliver a very
good product, a lot of people who say, look, in terms of our family,
we can only go once every month, maybe can go once every 2
weeks. It just depends on how you look at it, I think. OK.

Second question. I want to understand your plan. Six months
first, before there is any coverage. Is that correct?

Mr. Huston. No. They pay mto the plan virtually immediately,
and then, as they pay in for 6 months, there is additional coverage
that kicks in after the 6-month time frame that we pay for.

Senator WELLSTONE. But what do they get for the first 6
months? Are they covered?

Mr. Huston. Yes, they are covered. A typical plan is the deduct-
ible is $100 per person, $200 per family; 70 percent of eligible ex-
penses are covered; the maximum payout is $14,000 a year. After
6 months, the coverage increases to 100 percent of eligible ex-
penses, and there is a $100,000 lifetime maximum, and the com-
pany pays for the additional layer of coverage. Prescriptions are
covered at 70 percent.

Senator Wellstone. Yes, but you do not pay anything for the
first 6 months — that is what I am trying to get at.

Mr. Huston. No, no. The employee pays for the first 6 months,
and then, as they pay through that, as they get to the 6-month
threshold, we increase the coverage.

Senator Wellstone. And then, after 6 months, you contribute.

Mr. Huston. We contribute. We increase the coverage, and we
pay for that increased coverage.

Senator WELLSTONE. What percentage of your employees, do you
know — this is not a trick question; it is an honest-to-goodness ques-
tion — what percentage of your employee stay more than 6 months?
What is your turnover?

Mr. Huston. Our turnover rate is about 135 percent, but it is
very polar. I think, as I remember the statistics, about 50 percent
of our employees are less than 1 year, and so 50 percent would be
greater than a year.

Senator Wellstone. And do you know the 6-inonth? That is sort
of interesting to me, since you do not pay anything until after that.

Mr. Huston. This does not auite give it to us in terms of the per-
centage of population, but I did have something here.

Senator Wellstone. If you could provide me with a figure. I am
not trying to — this is not like at this moment, all eyes are on you,
and you are on the spot

Mr. Huston. Yes. I have got it here somewhere.

Senator Wellstone. I would just Uke to get the information.

Mr. Huston. Right. I have got it in here somewhere.

Senator Wellstone. OK

Mr. Huston. But I would characterize it as very polarized, quite
frankly. We have a lot of turn in the initial stages of a person's em-
ployment, and as they get through a 6-month threshold, then they
stay longer.

Senator Wellstone. I would just be interested. You see why I
asked the question.

Mr. Huston. Certainly, and I would be happy to give you that
information.

Senator Wellstone. This is my last question, and to my mind,
Mr. Chairman, this is the one that — just as a sort of forewarning —
it is personal, but it is not a personal attack. It is to try to deal
with this whole issue of it being affordable. I mean, you used the
word — and I took this down earlier, and it has been said before —
but that the' insurance is available. And of course, the obvious point
is that Mercedes are available to everyone, too, but some people
can buy them and some people cannot.

I want to get to this issue of aflfordability. Let me try this exam-
ple out. Even if Ms. Newman worked 40 hours a week and earned
$4.25 per hour, she would earn $170 a week. Her health insurance
premium would be $11 per week; correct?

Mr. Huston. Yes.

Senator Wellstone. OK. And that would be about 7 percent of
her income. Mr. Chairman, I think we pay on the average about
3 percent of our income, as I understand it, in terms of what we
contribute.

Now, most fast food restaurant workers are part-time, and in
fact, you said that about 95 percent of your employees are

Mr. Huston. That is right.

Senator Wellstone [continuing]. So I am giving the benefit of
her working full-time.

Now, my question for you — and it is to make a point — what per-
centage of your earnings are your tax-deductible insurance pre-
mium? I do this for a reason, because it has to do with what is af-
fordable. What percent of your overall earnings go into this pre-
mium, which is a tax-deductible premium, indeed?

Mr. Huston. Probably a percent, something less than a percent.

Senator Wellstone. OK. Now

The Chairman. Wait a minute

Senator Wellstone. What was the answer?

Mr. Huston. I said something less than one percent.

The Chairman. It has to be more; if you are goin^ to take it as
income, you must be up at a 35, 38 percent rate, aren t you?
Mr. Huston. Oh, I certainly I am.

The Chairman. Well, if you take it, then you would be paying
that kind of an income.

Mr. Huston. Senator, I think the question was for the coverage
that I get

Senator Wellstone. I want to know what percent of the pre-
mium that he pays is of his overall earnings.

Mr. Huston. Earnings, and I just said it is a little less than one
percent. And I think clearly, not all jobs have the same rate of pay
or the same rate of benefits, and really, the market determines
what that is. And obviously, the market for CEOs is the market for
CEOs, and the market for people who work in our restaurants is
the market for people who work in our restaurants. There are dif-
ferent pay scales, and there are different benefits levels for those
things as a percentage of your total salary. And obviously, as your
salary goes up, the basic cost stays relative the same, and the per-
centage drops.

And quite frankly, you say you obviously make a lot more than
$4.25 an hour

Senator Wellstone. That is correct.

Mr. Huston [continuing]. And that is the reason why you are at
3 percent and she is at 7.

Senator Wellstone. And that is the reason why I want to
change the way we finance and deliver and health care, to make
sure everybody has the same opportunity for themselves and their
loved ones. So— this is the first time I have had a cross word to
say to you — ^your example does not work, because I want to make
sure that everybody has the same opportunity for themselves and
their children. You do not, because you have just told me it is the
market, and "I make this amount of money" — I have not asked you
how much you make, and therefore, it is this percent, and other
people, they just make that, and therefore it is another percent. I
would just say to vou that is easy for you to say; correct?

Mr. Huston. Well, it is not easy — I mean

Senator WELLSTONE. I did not mean to be this way, but I
just

Mr. Huston [continuing]. It is a fundamental fact. I cannot
argue the fact.

Senator WELLSTONE. It is indeed. It is indeed a fundamental fact;
I agree. It is a fundamental fact, and we can either sort of just let
it go there; it is a fundamental fact. And therefore, all you people
who do not have any insurance — it is a fact. And all you p)eople,
like my mother and father who had Parkinson's, and you cannot
afford long-term care, £ind it is just going to put you under — it is
a fact. And all you people with disabilities who would like to live
at home, with aignity, but cannot afford to now — it is a fact. And
all you children who do not have decent health care coverage — it
is a fact. Yes, we can say that.

Mr. Huston. Senator, I guess what I was referring to was the
fact that I pay one percent, you pay 3 percent, she pays 7. That
is a fact. The rest of your statement, I cannot necessarily agree
with.

Senator Kassebaum. Mr. Chairman, wouldn't it be the same for
those us and what we put in, and what the secretaries and assist-
ants on staff do? It is different here, too.

Senator Wellstone. Yes. That is what we want to change. That
is precisely the point, I would say to the Senator from Kansas. At
some point in time, we have to get to the reality of this, that it is
an issue of whether it is going to be affordable for people.

The Chairman. Mr. Huston, just briefly — and I am sorry that
Senator Coats had to leave; it was Senator Wellstone's time for
questioning— but I just want to backtrack and say that we did in-
vite McDonald's, and they chose not to come. It is always nice to
have the vice president for human resources, but we are interested
in the policymakers, the CEOs, so that we can have a chance to
talk and inquire.

What is important here is that you are the policymaker, and I
admire the fact that you did come. You deserve credit. This has
been an adversarial proceeding in terms of some of the members
because we view these matters somewhat differently. But you de-
serve credit, and Pizza Hut ought to get credit because they have
a leader like you who is willing to defend a position. We may differ
with you and I may think yours is an indefensible position, but
nonetheless you were willing to appear, and I appreciate that.

Second, as you understand — and we will hear later from the
Health Care Reform Project— the basic issue that they were looking
at were companies that are doing business here and doing business
overseas.and how they were treating their employees. I basically
believe it was random — maybe it was not, but that was my under-
standing. I think you could have done it for any American com-
pany, because they have got to comply with the laws overseas, and
they are complying here at home. Many of those who are doing
business overseas comply with the laws overseas and do not have
mandates here. I mean, it is not a big mystery why you are here.
I think you could take a good number of HEAL corporations, or any
international corporation, and find that they provide health insur-
ance for workers overseas, but they do not do it here. And that is
the basic issue.

You would not be here, quite frankly, unless the company made
the decision to have your lawyers write to various television sta-
tions to basically intimidate. Because it was the threat of libel
which many of us have a difficulty with. If you had not effectively
intimidated television stations with those letters, you would not be
here today.

So quite frankly, we ought to put this into some perspective, with
all due respect to my colleague from Indiana. There is the issue
about companies overseas and how they treat their workers over-
seas and how they treat their workers here at home.

Second, I think people react and respond in this country at any
time to the threat of intimidation on questions of information about
a discussion and a debate. You can say that you believe that it
could have been more accurately portrayed. I think Harry and Lou-
ise could have been more accurately portrayed, too.

Senator Kassebaum. That is for sure.

The Chairman. We can go around with that. But nonetheless the
threat of intimidation is the point; that really is something that
American people, at a time when we are coming to a debate and
discussion on this, just will effectively not tolerate.

Let me just make a final point. I understand that the counsel for
economic affairs at the Polish Embassy, has indicated you will be
paying for health care over there, too. But I will leave that for an-
other time.

Second, on the Canadian situation, your Pizza Hut at 5731 Lee
Highway, Arling^n, charges $11.09 for a 15-inch cheese pizza, 12
slices. And your Pizza Hut at 87 George Street — Canadian, it is
$13.21. Translated under Wall Street Journal 3 days ago and the
currency rating, that is $9.56. The information for the others is
similar to that.

So these are points for debate.

Mr. Huston. Senator, did he order? The least you could have
done was order a pizza. [Laughter.] We could have used the busi-
ness.

The Chairman. We are going to check your delivery time. If you
do not get it here in half an hour, do we get it free? [Laughter.]

In any event, I take serious issue with some of the policy ques-
tions, but I want to thank you for coming. Quite frankly, I think,
rather thcin do Pizza Hut any kind of damage, I think you have
done very well by the company in representing it. We have dif-
ferences. That is what this business is about. But I respect you for
coming, and we will have time for the others to respond, but we
wanted to hear from the policymakers, someone who is able to
make policy decisions as you are in your company. Others who
were in a policy position — ^not just in a benefits position, but in a
policy position — were not made available to us, and I regret that
fact.

Senator Kassebaum.

Senator Kassebaum. Mr. Chairman, I would just like to say how
very proud we are in Kansas of Pizza Hut. It was started by two
brothers in Wichita, KS some years ago, I think, in their home.

Mr. Huston. In 1958.

Senator Wellstone. In 1958. It has grown into an international
company.

And I would say in response to Senator Simon that Pizza Hut
does care. In Mr. Huston's statement, he told us about various
things that Pizza Hut has been engaged in in their communities.
More importantly Pizza Hut has recognized the importance of try-
ing to put forward a health care plan that could be utilized by part-
time workers now.

So it is not a question of not caring. It is very much a question
of wanting to try to do what can be done to help benefit employees
and still remain a viable business, which will enable them to do
some of the things that can have a positive benefit in the commu-
nities in which they operate.

So we are very proud of what Pizza Hut has represented in Kan-
sas, and I am very pleased they chose to testify here today.

Mr. Huston. Thank you. Senator.

The Chairman. Thank you very much.

We will now go to our next panel, which includes Jonathan
Gruber, assistant professor of economics at MIT, and faculty re-
search fellow at the National Bureau of Economic Research; David
Henderson, John Olin Visiting Professor at Washington University;

William Fisher, of the National Restaurant Association; and Robert
Chlopak, of Chlopak. Leonard, Schechter, and Associates.

We will start with Mr. Gruber, and we will ask for 5 minutes
from each of you and then come back for some questions. I think
we are going to have some votes coming up. I think you have a
pretty good idea of the issues which the committee is interested in,
plus anv other comments that you would like to make. We will in-
clude all of vour statements in the record in their entirety, and we
will leave tne record open until Monday, the first of the week, so
there can be additional questions submitted.

We will start with Mr. Gruber.

STATEMENTS OF JONATHAN GRUBER, ASSISTANT PROFESSOR
OF ECONOMICS, MIT, AND FACULTY RESEARCH FELLOW, NA-
TIONAL BUREAU OF ECONOMIC RESEARCH, WASHINGTON,
DC; DAVID R. HENDERSON, JOHN M. OLIN VISITING PROFES-
SOR, WASHINGTON UNIVERSITY, ST. LOUIS, MO; WILLIAM P.
FISHER, EXECUTIVE VICE PRESIDENT, NATIONAL RES-
TAURANT ASSOCIATION, WASHINGTON, DC; AND ROBERT
CHLOPAK, CHLOPAK, LEONARD, SCHECHTER, AND ASSOCI-
ATES, WASHINGTON, DC

Mr. Gruber. Thank you. I would like to thank the committee for
allowing me to be here.

I am an assistant professor of economics at MIT. I think the es-
sential feature of most proposals to reform the health care system
is the mandated employer provision of health insurance. This pro-
vision has attracted much criticism on the grounds that forcing em-
ployers to ofTer insurance to their previously uninsured employees
will cause massive disemployment.

This criticism has been levied most stridently by the service m-
dustries, such as fast good restaurants, and the purpose of my tes-
timony is to argue that this criticism is misplaced and that all of
the compelling economic evidence suggests tnat the job loss from
an employer mandate, if any, is likely to be minimal.

Now, the logic behind the disemployment claims for an employer
mandate, for firms which do not currently offer health insuraiice,
is that these firms will see their cost of compensation rise, and as
a result, they will lay off a large number of workers. The key Ques-
tion then becomes, will the cost of compensation really rise at these
firms. My answer is that it will not, because these increased costs
of health insurance will be shifted to workers' wages.

If the total cost of compensation in the firm does not rise, then
there will be no need for the firm to lay off workers, and there will
be little job loss from an employer mandate.

My answer is supported by two studies which I have done, look
ing at the past experience of the United States with employer man-
dates of this variety. In one study which I co-authored with Alan
Krueger of Princeton University, we looked at the effect of large in-
creases in the cost of workers' compensation insurance, the oldest
mandated benefit in the United States on wages and employment.
These cost increases were much larger, or at least of the same
magnitude, than the proposed cost of health insurance under, for
example, this committee's plan. They exceeded 10 percent of payroll
for some industries in some States.

Yet we found that all of these cost increases, or almost all of
them, were passed on to workers' wages, so that there was little
net rise in the cost of compensating workers, and as a result — and
I think most importantly for this hearing — we found no significant
effect on employment from these greater than 10 percent increases
in workers' compensation costs over a decade period.

In a similar study, I looked at the effect of increased costs of pro-
viding health insurance to women of childbearing age when the
Federal Grovemment and State Grovemments mandated that em-
ployers provide that health insurance in their health insurance
packages. These laws represented a sizeable increase in the costs
of employing women of childbearing age. Yet once again, I found
that this cost was shifted to their wages and that there was no ef-
fect on the emplovment of this group.

So I think both of these studies provide evidence that previous
similar U.S. mandates did not do anything to reduce employment
in the U.S. economy.

The second point I want to address is that despite these econ-
omy-wide findings, there is still reason to worry that there will be
especially large disemplovment effects in low-wage industries such
as fast food restaurants, because these industries pay the minimum
wage. If you pay the minimum wage, then it is impossible to pay
your workers less when the Grovemment forces you to provide
health insurance, and that leads to the fear that has been ex-
pressed that these firms will have to lay off their workers.

I think there are three reasons to suspect that this is not an im-
portant problem. First of all, only 30 percent of the full-time unin-
sured workers at fast food restaurants earn the minimum wage.
Most uninsured workers earn substantially above the minimum
wage, so there is no problem with the minimum wage getting in
the way of shifting to wages, and no reason for the firms to lay
these workers off.

Second, even for those workers at the minimum wage, the in-
creased cost of health insurance is likely to be quite small. This is
because all the employer mandate plans that have been proposed
include subsidies to reduce the cost of this insurance to workers.
Under this committee's plan, I estimate that the average cost in-
crease for a minimum wage worker, given these subsidies of dif-
ferent sizes, will be less than 33 cents per hour.

Third, recent evidence suggests that minimum wage increases of
a much larger magnitude than this do nothing to reduce employ-
ment at these very kind of fast food industries. Perhaps the most
compelling evidence comes from a study by David Card and Alan
Krueger of Princeton University, who found that when New Jersey
raised its minimum wage by 80 cents in April 1992, there was no
fall in employment in the fast food industry.

This study is important, because it focused explicitly on the kind
of industry that we are discussing today, which is fast food. And
the minimum wage increase of 80 cents was more than twice as
large as the increase that we will see from this committee's plan.

So the evidence suggests that even for low-wage industries, large
increases in cost will not lead to job loss.

Finally, let me conclude by nothing that there are several other
studies which have thrown out enormous figures for the number of

jobs that will be lost from these kinds of employer mandates. I
think these studies all make one common mistake, and that mis-
take is they assume that the cost of employer compensation will
rise for many workers when the mandate is put into place.

As I have tried to emphasize, the cost of compensation will not
rise overall, so there will be no reason for firms to lay off their
workers. And when you take these studies and make that more re-
alistic assumption, in fact, the job loss estimates are much less
than one-quarter of the job loss estimates that have been thrown
around.

So in closing, the msiin point I want to emphasize is that the
fears of large-scale disemployment effects are really misplaced. Pre-
vious economic research consistently shows that increases in the
cost of mandated employer benefits do not result in large job losses
either for the work force as a whole or explicitly for low-wage in-
dustries such as fast food restaurants.

The Chairman. Thank you very much.

[The prepared statement of Mr. Gruber follows:]

Prepared Statement of Jonathan Gruber

A central feature of most proposals to reform the health care system is mandated
employer provision of health insurance. This provision has attracted much criticism,
on the grounds that forcing employers to ofier insurance to their previously unin-
sured employees will cause massive disemployment. This criticism has been levied
most stridently by the service industries, such as fast food restaurants. The purpose
of this testimony is to argue that this criticism is misplaced: all of the compellicg
economic evidence suggests that the job loss from an employer mandate, if any, is
likely to be minimal.

General Employment Effects of an Employer Mandate

The logic behind the oisemployment claims is that firms which do not currently
offer health insurance, but which will be mandated to do so, will see their costs of
compensation rise, and will as a result lay ofT a large number of woricers. The key
point is that, for these firms, the extent to which the costs of this health insurance
can be shifted to their workers' wages. If full shifting takes place, then the total
cost of compensation to the firm will not rise, and there will be need for the Arm
to lay ofT workers. If it does not, then compensation costs will rise, and there will
be layoffs.

Both economic theory and past empirical evidence suggests that, in fact, there will
be little job loss in the medium-long run because there will be no net rise in the
cost of compensation. In one study which I ooauthored with Alan Krueger of Prince-
ton University, we looked at the efTect of large increases in the costs of workers com-
pensation, the oldest mandated benefit in the United States, on wages and employ-
ment. These cost increases larger than the proposed cost of health msurance under
most employer mandate plans; they exceeded 10 percent of pavroU for some indus-
tries in some States. Yet we found that over 85 percent oi tne cost increase was
passed onto workers wages, so that there was little net rise in the cost of employing
workers due to workers compensation. As a result, we found no significant effect on
employment of increased workers compensation costs.

In another study, I looked at the effect of increased coat of health insurance for
women, through State and Federal provisions which mandated the comprehensive
coverage of cMldbirth expenditures in the 1970s. This represented a sizeable in-
crease in the cost of employing women of diild-bearing age. Yet, once again, I found
that this cost was fuUy shifted to their wages, with no efTect on their total labor
supply.

To summarize, we now have evidence from two "case studies" of the experience
of the United States with previous employer mandates. Both of these studies pro-
vide compelling evidence that employer mandates will result in little job loss for the
overall U.S. economy.

A related piece of evidence comes from an examination of the effects of imple-
menting National Health Insurance in Canada. While financed out of general reve-
nues, rather then by an employer mandate, the Canadian case nevertheless illus-
trates the potential efTects of tne government mandating universal insurance cov-
erage. In a recent study with Maria Hanratty of Princeton University, I found that

the implementation of National Health Insurance actually led to increases in em-

filoyment in Canada in the late 19608 and early 19708. This suggests that the bene-
its of universal coverage for the economy, such as through remicing fears of *^ob-
lock", can potentially outweigh any employment costs from fmancing this coverage.

Specific Employment Effects in 'Low Wage" Service Industriee

Despite these economv-wide findings, there is reason to suspect that there will be
especially large disempfoyment efliects in "^ow wage' service industries. This is be-
cause many workers in these industries earn the minim um wage. If a worker is
earning the minimum wage, then the costs of health insurance, by defmition, cannot
be ahiiled to their wages. Thus, there will be a rise in the cost of employing mini-
mum wage labor with an employer mandate, and the potential for disemployment.

There are three reasons to suspect that this is not an important problem. First
of all, only 30 percent of uninsured workers in the restaurant industry are earning
the minimum wage. So for the majority of workers in this industry, the above evi-
dence will apply, and there will be no reason to fear disemployment effects.

Second, even for those workers at the minimum wage, the increase in the costs
of compensation are likely to be small. This is because all of the employer mandate
plans that have been proposed this far include large subsidies for small and low
wage firms. The Clinton plam features subsidies which were a function of average
firm payroll and firm size. This committee's plan uses instead subsidies which are
a function of the individual worker's wage, as well as firm size. I should note in
passing that this is a major improvement over the structure of the subsidies in the
Clinton plan. This is because by subsidizing firm payroll, the Clinton plan intro-
duced incentives for firms to change their structure, splitting into small low or high
wage fu-ms. By subsidizing individual wages instead, this committee's plan achieves
the goal of redistributing to lower wage workers in a more efficient manner.

Under this committee s plan, the most that an employer will pay for health insur-
ance is 12 percent of an individual's wage. For smaller firms, this rise will be much
lower, with only a 1 oercent increase in compensation costs for firms below 5 em-
ployees. This means tnat for minimum wage workers, the costs of compensation will
rise by at most 51 cents per hour, for most minimum wage workers, the cost rise
will be much less, as 76 percent of uninsured minimum wage workers work in firms
below 100 employees. Due to the subsidies for smaller firms, I estimate that the av-
erage cost increase for uninsured minimum wage workers under this committee's
plan will be only 33 cents per hour.

Third, recent evidence suggests that minimum wage increases which are of a
similar (or larger) magnitude nave no effect on employment, even in service indus-
tries. A large number of recent studies have shown that increases in the minim um
wage in the 1980s and 1990s did not cause any fall in employment. Perhaps the
most compelling fmding comes from a study by David Card and Alan Krueger of
Princeton University, who found that when New Jersey raised its minimum wage
by 80 cents in April, 1992, there was no fall in employment in the fast food industry.
This minimum wage increase is much larger than the cost increase for any mini-
mum wage employee under this committee's plan.

This study is important because if focused explicitly on the fast food industry jobs
which are supposedly most "at risk" from the Clinton plan. Furthermore, it con-
firmed earlier findings from a similar study by Krueger and Lawrence Katz of fast
food restaurants in Texsis when the Federal minimum wage increased. So the evi-
dence suggests that even for the low wage industries such as the fast food industry,
large increases in the cost of employing low wage labor does not lead to layoffs.
Thus, a similar rise in the cost of such labor under a mandate should have little
disemployment effect.

Previous Studies

I should note that several other studies have stated that there will be very large
job losses from an employer mandate. These studies all make one common mistake:
they assume that the cost of employer comp>ensation will rise for many workers
when the mandate is put into place. As I have tried to emphasize, all of the previous
available evidence suggests that this is a poor assumption. If one assumes instead
that the cost will be sniAed to wages for workers above the minim um wage, the job
loss is less than one-quarter as large as that found by these studies.

Furthermore, these studies make two additional mistakes. First, in their job loss
estimates the studies consider both full and part time jobs. In fact, many of the jobs
lost will be part time. Second, they assume that there will be no job gains from the
lowered cost of health insurance to the majority of firms that do now provide insur-
ance coverage. Such lowered costs will arise in the short run through subsidies and
reduced administrative costs of insurance through pooling, and (potentially) in the
long run through lower health care costs. In fact, over 1 million nunimum and near

minimum wage workers now work in firms that ofTer health InsuraDce; these work>
ers wall benefit from the proposed reforms to the health insurance system.

Once again, I think that these lower costs will be reflected in increased wages at
firms that already ofTered insurance coverage. But it is wrong to assume, as those
studies do, that increased cost of insurance at some firms will lead to job losses,
while reduced costs of insurance at others will not lead to job gains. The appropriate
solution to this problem is to say that there will not be important job losses or gains
in either case.

In closing, the main point that I want to emphasize is that the fears of large scale
disemployment resulting from an employer mandate are misplaced. Previous eco-
nomic research consistently shows that increases in mandated employer costs sim-
ply do not result in large job losses, either for the workforce taken as a whole, or
for minimum wage workers more specifically.

The Chairman. Mr. Henderson.

Mr. Henderson. Thank you, Mr. Chairman.

I request that my full written statement be included in the
record as if read.

The Chairman. It will be so included.

Mr. Henderson. Thank you.

A Government mandate that employers pay for their employees'
health insurance will have three main effects. First, workers*
wages will fall, as my colleague has just pointed out. Second, some
workers will lose their jobs. And third, the volume of goods and
services produced will fall, causing prices to rise.

The main people who pay for employer-provided mandates are
employees. And if you notice, there is no difference between us on
that. They pay either by having their wsiges cut, or to the extent
wages are not cut, by being thrown out of work.

Why are we so sure that mandates reduce wages and destroy
jobs? Because when a benefit is mandated, someone has to pay for
it. If the benefit was already provided, not much effect. But if the
employer had not been providing health insurance, the mandate
will have an effect.

The fact that the employer pays for the mandated benefit does
not magically make the employee more productive. With productiv-
ity unchanged, the costly benefit now becomes part of the pay pack-
age, and otner components of the package must change. One of the
main components is pay.

How much will it fall? His colleague Alan Krueger, whom he ref-
erenced, found that for every dollar of mandated cost increases in
one program, pay fell by 83 cents. That is in the ball park of most
estimates. Thus the cost of the mandate is almost entirely put on
the backs of workers.

This finding is not controversial. Economists, whether or not they
believe in mandates, do not kid themselves that employers pay for
them. David Cutler, who defended employer mandates at the an-
nual meetings of the American Economic Association, and who at
the time was the senior health economist with President Clinton's
Council of Economic Advisers, agrees. He agrees that workers will
have their pay cut.

The Congressional Budget Office in its studies on mandates also
agrees, and the Clinton administration itself agrees that employees
pay almost the whole cost of employer mandates.

A mandate for employer-provided health care causes a larger
percentage drop in pay for those with low pay. Someone earning

$12,000 a year, for example, would be robbed of 14 percent of his
income.

Let me correct one widely-held misconception that came up ear-
lier this morning. What matters is not whether the worker works
in a small firm or a large firm. They key is the workei^s wages.
Employees in small firms that pay high wages and provide health
insurance are not much affected, but employees in large firms that
pay low wages and do not provide insurance are hurt.

Now we come to the second effect of mandates. To the extent
that pay and other components of the pay package do not fall, em-
ployment will. The mandate will destroy jobs. It will especially de-
stroy jobs of low-wage workers whose wages cannot fall below the
minimum wage. By one estimate, the Clinton plan would destroy
about 800,000 low-wage jobs, and that is with the Clinton subsidies
taken account of.

What about the overall impact on jobs? According to the O'Neill
study, the Clinton plan, with subsidies totally $40 billion a vear to
cushion the impact, would still destroy 500,000 to 900,000 jobs. The
O'Neills estimate that without those subsidies, the Clinton plan
would destroy over 2 million jobs.

One of the most optimistic studies, done by Krueger, finds that
the Clinton mandate, with the cushioning subsidies, would still de-
stroy 200,000 to 500.000 jobs. So the low end of the O'Neill esti-
mate coincides with the high end of the Krueger estimate, and they
are supposed to be on opposite sides of this. Not bad for an imper-
fect science.

Interestingly, the President's own chief economist, Laura Tyson,
said last October that the CHnton health plan could destroy
600,000 job. Dr. Tyson dismissed the importance of these lost jobs
by saying, "Plus or minus half a percentage point of total employ-
ment is basicallv a rounding error." It is small comfort to tJie po-
tentially half million people thrown out of work to be told that they
are a rounding error.

Finally, I want to comment on a recent report by the lobby called
the Health Care Reform Project. Their report points out that Pizza
Hut and McDonald's oppose mandated health insurance in the
United States and also comply with similar laws in Europe. The re-
port claims that the companies are practicing a double standard.
The report is sneeringly titled, "Do As We Say, Not As We Do." But
there is nothing hypocritical whatsoever about those two compa-
nies' reported actions. Because governments require health insur-
ance in Europe, Pizza Hut and McDonald's comply.

Pizza Hut and McDonald's would be hypocritical only if they ad-
vocated employer mandates in Europe. My guess is they do not. An
accurate title for the report would have been, "Do As We Say, Not
As We Are Forced to Do."

Personally, I am glad that the Health Care Reform Proiect raised
the example of European workers. There is a lesson to be learned
from Europe, but it is the exact opposite of the one the report
draws. Between 1970 and 1990, U.S. Governments were much
more modest than their European counterparts in imposing man-
dates on employers. The result — real labor costs in the United
States rose by only about 10 percent, while the number of jobs
soared by 52 percent. During those same 20 years, governments in

the European Community have added many mandates on employ-
ers. The result — the ratio was reversed. While real labor costs m
Europe rose by 60 percent, employment rose by only 10 percent.

Europe as a whole has failed to create any net new jobs in the
private sector over ^e past 20 years. The only job growth was in
CJovemment bureaucracies. This should not be surprising. Basic ec-
onomics says that when you raise the cost of doing something, peo-
ple do less of it. That is true of hiring, also. That is what makes
the European example so stunningly mappropriate for those who
want to ciefend employer-mandatecT health insurance. If a memdate
is imposed, then to the extent wages do not fall, employment will.

Many of the people who advocate employer mandates believe
themselves to be truly humanitarian. It is humanitarian to spend
your own money to provide health care for poor people. But there
is nothing humanitarian at all about forcing poor people to spend
their money on health insurance when they have other more press-
ing concerns such as groceries and rent.

Thank you.

[The prepared statement of Mr. Henderson follows:]

Prepared Statement of David R. HE^a)ERsoN >, Ph.D.

Mr. Chairman and members of the committee, I am currently the John M. Olin
Visiting Professor at the Center for the Study of American Business, Washington
University, in Si. Louis. I am on leave from the Naval Postgraduate School in Mon-
terey, CA, where I am an associate professor of economics. Previous to that, I was
senior economist for healthpolicy with the President's Council of Eiconomic Advis-
ers. I am also the editor of The Fortune Encyclopedia of Economics. "

I have been asked to testify on the effect of mandating that employers provide
health insurance for their employees, the analysis of the effects of employer man-
dates is straightforward Economics 101. A government mandate that employers pay
for their employees' health insurance will have three main effects. First, workers'
wages will fall. Second, some workers will lose their jobs. Third, the volume of goods
and services produced by workers falls, causing prices of these goods and services
to rise. If that is all that economics could tell us, that would be a lot. It du^ctly
contradicts the myth that the main people who pay for employer-funded mandates
are employers. Certainly, owners of fuTns lose because mandates act as a tax on
capital formation. But the main people who pay for employer-provided mandates are
employees. They pay either by having their wages cut or, to the extent wages are
not cut, by being Uirown out of worit. . o mv

Why are economists so sure that mandates reduce wages and destroy jobs? The
reason is that when a health care benefit is mandated, someone has to pay for it.
If the benefit was already provided, the mandate has no effect unless the govern-
ment mandates something aifferent from what was being provided.

But, had the employer not been providing the benefit, then the mandate will have
an effect. The fact that the employer pays for the mandated benefit does not magi-
cally make the employee more productive. With the employee's productivity un-
changed, and with the costly mandated benefit now beingpart of the employee s pay
package, other components of the package must change. These other components in-
clude pay, vacation time, and other amenities on the mb. The main impact of a man-
date is lUcelv to be a reduction in pay. (In practice, that often means foregone wage
increases.) How much of a reduction? For every one dollar of cost for mandated
health insurance, according to Princeton University economist Alan Krueger, em-
ployees lose about 83 cenU in pay.^ This is in the ballpark of most estimates, in
a separate study of the workers compensation progrsun, Jonathan Gruber and Alan
Krueger found that for every $1 spent by employers, 80 to 100 cents comes out of

>The vnewB expressed in this testimony are my own and do not necessarily represent those
of the Center for the Study of Amencan Business or the Naval Postgraduate School.

•David R. Henderson, ed.. The Fortune Encyclopedia of Economics, New York: Warner Books,
1993

•See Alan B. Krueger. "Observations on Employment- Based Government Mandate*, With Par-
Ucular Reference to Health Insurance." Princeton L mversity. Economics Department,
unpublished rre . October 15, 1993, p. 22.

woricere' wages.* Thus, the cost of the mandate is almost entirely put on the backs
of workers. This fmding is not controversial. E^oonomists, whether or not they be-
lieve in employer mandates, do not kid themselves that employers pay for them.
David M. Cutler, who defended employer mandates at the aimual meetings of the
American Economic Association, ana who was until recently a senior economist with
President Clinton's Council of Economic Advisers, agrees with this finding. In his
words, *^ost of these cost changes are likely to show up as changes in wages"" The
Congressional Budget OfTice, in its studies of mandates, and the Clinton administra-
tion itself, agree that employees pay almost all the cost of employer-provided man-
dates.

The reduction in employees' pay depends on the cost of the mandate, not on the
employee's income before the mandate. So, if the mandate costs, say, $2,500 and the
employer is required to pay 80 percent of that, or $2,000, then, by Krueger's esti-
mate, the employee's pay would fall by 83 percent of $2,000, or about $1,660. On
top of that, of course, the mandate will force the worker to pay $400 in after-tax
income for his or her share of the cost. Now, $1,660 a year is not a large sum for
someone earning $60,000 a year. That person's pay would fall by only 2.8 percent.
Bt ironically that person is very likely to have employer- provided health insurance
anyway, even before the mandate. The main detrimental impact is on the low-wage
worker, who is less likely to have health insurance before the mandate, and lor
whom $1,660 is a large diunk of income. Fr a worker earning $12,000 a year, for
example, the mandate would strip him of 14 percent of his income. For a worker
earning only $10,000 per year, the mandate would strip him of almost 17 percent
of his income.

Let me correct one widely held misconception. The key here is not whether the
employee works in a small firm or a large firm. The key is the employee's wages.
Employees in small firms that pay high ages and provide health insurance are not
much affected. But employees in large firms that pay low wages and do not provide
health insurance are aifected.

Now we come to the second effect of mandates. To the extent that pay and other
components of the pay package do not fall, employment will. The mandate will de-
stroy jobs. After the mandate is imposed, employers and employees need to agree,
explicitly or implicitly, to a pay cut. Otherwise, it will not be worthwhile for the em-
ployer to keep some employees. To the extent pay is not cut, employees will lose
their jobs. Economists do not have a good idea of whether pay wiU adjust in 2
months or 2 years, but, whatever time that adjustment takes, during that time a
laree number of jobs will be lost.

Economists June O'Neill and Dave OT^eill, both at the Center for the Study of
Business and Government at Baruch College, have done a caref\al study of this
issue.* They point out that, in 1993, 19.9 miOion workers who were uninsured were
making less tnan $6.50 an hour. Their average income was $6,172 because, on aver-
age, they were working part-time. By assuming that workers whose pay wets below
$6.50 an hour would not have their pay cut at all, they estimate that about 781.000
low-wage workers would lose their jobw because of the originally proposed Clinton
mandate.

What about the overall impact on jobs? As you might expect, because economics
is an imperfect science, the estimates vaiy. But two things emerge clearly from the
studies of job loss. First, almost all the studies find a iob loss, ^cond, most of the
studies find a substantial job loss. According to the O'Neill study, the original Clin-
ton plan, with subsidies totalling $40 billion a year to cushion the impact, would
destroy about 500,000 to 900,000 jobs. The OT^eills estimate that without these
large subsidies, the Clinton plan would destroy about 2.1 million jobs.

One of the most optimistic studies, done by Krueger, finds that the Clinton man-
date, with the cushioning subsidies, would destroy about 200,000 to 500,000 jobs.
So the low end of the O'Neill estimate coincides with the high and of the Krueger
estimate. That's not bad for an imperfect science.

Interestingly, the President's own chief economist, Laura Tyson, said last October
that the Clinton Health Plan could destroy as many as 600,000 jobs. Dr. Tyson dis-
missed the importance of these jobs destroyed by saying: "Plus or minus half a per-

* Jonathan Gniber and Alan Krueger, The Incidence oT Mandated Em pi oyer- Provided Insur-
ance: Leaeons from Workers' CompenBabon Insurance,* in David Bardfonl, ed., Tax Policy and
the Economv. vol 5, Cambndge, MA: MIT Ptbbs, 1991.

"David M Cutler, 'A Guide to Health Care Reform," Harvard Univergity. unpublished ms.,
February 1994.

"See June E CXNeill and Dave M. OTMeill, The Employment and Distributional EfTecU of
Mandated Benefits." Washington. DC. American Enterprise Institute, 1994.

centage point of total employment is basically a rounding error.""' It is small comfort
to the potentially half-million people who could be thrown out of work to be told
that they are a rounding error.

I would like to comment on the recent report by a lobby called the Health Care
Reform Project. Their report points out that PeposiCo's Pizza Hut subsidiary and
McDonald's have both opposed employer mandates in Europe. The report claims
that the companies are practicing a "double standard" and sneeringly title their re-
port, "Do As We Say, Not As We Do." But there is nothing hypocritical whatsoever
about these two companies' reported actions. Because Bovemments require em-
ployer-provided health insurance in Europe, Pizza Hut and McDonald's comply with

the mandate. , . , , , , ,

Pizza Hut and McDonald's would be hypocritical only if they advocated employer
mandates in Europe but not in the United Sutes. If they had their druthers, they
would probably abolish employer mandates in Europe as well as avoiding them
here. If the law required truth in lobbying, the Health Care Reform Project would
be found guilty. An accurate title for its report would be "Do As We Say, Not As

We Are Forced to Do." „ ,. , t^ . . ^ u

But personally, I'm glad that the Health Care Reform Project raised the example
of European workers. There is a lesson to be learned from Europe, but it is the exact
opposite of the one the report draws. Between 1970 and 1990, VS. Governments—
at the Federal and Slate levels — were much more modest than their European coun-
terparts in imposing mandates on employers. The result: real labor costs in the
United States rose by only about 10 percent while the number of jobs soared by 52
percent, during those same 20 years, governments in the European Communitv
have added many mandates on employers.* The result: the ratio was reversed.
While real labor costs in the EC rose by 60 percent, employment rose only 10 per-
cent. Indeed, Europe as a whole has failed to create any net new jobs in the private
sector over the past 20 years; the only job growth was in government bureauc-
racies. • ■ ^-u ^
This should not be surprising. Basic economics says that when you raise the cost
of doing something, people do fess of it. This is true whether the activity is driving,
flying, or hiring. That's what makes the European example so stunningly inappro-
priate for those who want to defend employer-mandated health insurance. If a man-
date is imposed, then, to the extent that wages do not fall in response to the man-
date, employment will. i » u
Many of the people who advocate employer mandates believe themselves to be
truly humaniUrian. It is humanitarian to spend you own money to provide health
care for poor people. But there is nothing humanitarian at all about forcing poor
people to spend their own nooney on health insurance when they have other more
pressing concerns.

The Chairman. Dr. Fisher. ^^ r:,- -,

Mr. Fisher. Good afternoon, Mr. Chairman. I am Bill Fisher. 1
am the executive vice president of the National Restaurant Asso-
ciation. We are a full-service trade association, representing 25,000
member companies that operate over 150,000 establishments
throughout the country. And I speak for all of them when I say
that 3ie treatment received by two of our members — Pizza Hut,
who was here in person, and McDonald's, who was invited, but was
refused entry by one of their vice presidents — this past week is
really an affront to our entire industry. . .

The Chairman. Well, are you defending their position in intimi-
dating television stations from running that ad, which the presi-
dent of Pizza Hut said was all right?

Mr. FiSHER. I do not know what went on behind there; 1 have
not seen the letter.

The Chairman. Well, that is the issue, that is the issue.

^Se« Rick Wartzman and Hilary Stout. -White House Aide Saye Health Reform May Cauae
So»T>e Job LoB8 in Early Yeare." Wall Street Journal, October 7, 1993. Market -

•For more on this, aee David R. Henderaon. The Europeaniradon of the U.S. Labor Market,
The Public Interest. Number 113, Fall 1993 __ . ^ , ,,^. . .i. i^ ™o^»» -

•See Peter Gumbel, ' Western Europe Find* That It's Pnang lUelf Out of the Job market.
Wall Street Journal. December 9, 1993, p. Al.

Mr. Fisher. No. I think that the issue here is that the Health
Care Reform Project chose to target two companies that are very
reputable companies in this industry and have done a lot for their
employees, and unfortunately, the whole debate is now descending
to the corporately personal. It really is corporate character assas-
sination.

Now, I am not defending them, because I cannot, because I do
not know what went on behind it— —

The Chairman. Well, you just did; you were defending them.

Mr. Fisher. I am saving it is an affront to our entire industry.

The Chairman. Well, does your industry support intimidating
advertising on television what even the president and CEO of Pizza
Hut has said was fine?

Mr. Fisher. Our industry was, of course, presenting our story in
terms of what we believe is the case with health care. Now, we op-
pose health care mandates, and we understand that you are on the
other side of it. But we think that there is a level at which we can
do that that has the intellectual high ground, and we are thinking
that that has now been breached by the Health Care Reform
Project, which came forward with this particular ad.

The Chairman. You do not think it was breached when they in-
timidated the television stations fi"om running that ad? You do not
think that that was the breach?

Mr. Fisher. You are assuming that the television stations were
intimidated. I do not know

The Chairman. Well, did you read the letters?

Mr. Fisher. Yes, sure.

The Chairman. And they all chose not to run that; and you do
not call that intimidation?

Mr. Fisher. What was the reason that they chose not to run it?
As I read one of the statements from one of the gentlemen rep-
resenting the stations, he said, we do not want to get this into a
personal attack of one group against the other. It may not have
been the intimidation of libel; I do not know. I do not know what
was in the ad, so I am unable to speak to that.

The Chairman. Well, that is part of the reason that this whole
issue has come up, quJLe frankly. But let us go ahead.

Mr. Fisher. OK. I want to make another point, if I may, a couple
of other points, if I may, in my 5 minutes.

The Chairman. We will give you a little extra time.

Mr. Fisher. Thank you.

The conditions that do exist in Germany are really different from
what exists in the United States. A comparable pizza would be $19
in Germany, at $11, as you see in the charts, and the gentleman
before me alluded to that. I think you. Senator, or someone, men-
tioned that it was only 8 p)ercent of the gross domestic product of
Germany was spent for health care, and in this country, it is 14
percent. But what he did not say was that the payroll tax is 13.4
percent in Germany for that particular social program, and when
that started back in 1950, that was at 6 percent. What has hap-
pened in Germany is that it has progressively increased now to a
level of 13.4 percent. And I think this is what has our industry and
indeed, a lot of small businesses, very concerned, that once a per-

centage were to be in place, it would consistently move upward and
therefore, drive a lot of our companies out of business.

Germany has an income tax bracket of nearly 60 percent; ours
is 39.6 percent, if you take the 10 percent surtax on 36 percent.
The menu prices are about 39 percent higher. The business growth
in Germany has been stagnant, and the

The Chairman. Dr. Fisher, I apologize, but I have 3 more min-
utes to get to the vote. I expect Senator Kassebaum to come in and
she will continue the hearing, and I will get back in a few mo-
ments.

So we will recess for a few minutes.

[Recess.]

Senator Kassebaum [presiding]. The meeting will please come to
order. Senator Kennedy said I could chair if I would be nice. He
will be back from voting in just a minute, but, Dr. Fisher, am I
right, we are in the middle of your testimony?

Mr. Fisher. Yes, but I would be pleased to start at the very be-
ginning for your benefit, Senator.

Senator Kassebaum. No, no. Please go ahead.

Mr. Fisher. I was saying — and I had only 5 minutes, although
Senator Kennedy gpranted me a little bit of an extension — that we
think it is really somewhat deplorable for the Health Care Reform
Project to try to compare what occurs in Germany with the cost of
pizza here, Decause the conditions are really different, and that
was made cl-ear, I think, in several areas as well.

I will use the rest of my time, actually, to pick up on some things
that I think you heard, and I know the other members. Senator
Coats and Senator Simon, may have come in at different times. But
one of the statements, as I understood it, that was made by Debo-
rah Accuardi this morning was that she spends 12 percent of her
operating budget on health care. Did you hear that as well?

Senator Kassebaum. Yes.

Mr. Fisher. And she pays 50 percent of the health care. Now,
the numbers that I would run are that if she were paying 100 per-
cent, she would have 24 percent of her operating budget that would
be going for health care. Under the President's plan, he wants em-
ployers to pick up 80 percent of the health care. So that Nvould be
20 percent of her operating budget were that plan to be in effect
that would slam against her operating statement.

Now, with the food service industry, where you have a multiplic-
ity of different kinds of restaurants, with different profit margins,
and they average out afler tax at 3 or 4 percent, if you slam 20
percent of the costs against that, you are going to sink a lot of busi-
ness. So if you put that kind of a cost percentage against a busi-
ness such as that, you are really going to have great unemploy-
ment, and you are going to have a lot of people go out of business.

Again, let me give you some other numbers, and we can always
look at individual cases. I have heard 6 cents per pizza, and I have
heard 40 cents per pizza, and so on. But if the cost of single cov-
erage per employee might be $1,700 per year, and if

The Chairman. I do not know where you get that figure.

Mr. Fisher. OK. Well, give me a figure.

The Chairman. It is basically, I think, rounded out at $2,000 for
an adult and $1,000 for an individual.

Mr. Fisher. One thousand for an individual, okay.

The Chairman. One thousand for a child, one person.

Mr. Fisher. All right. Let me use $1,000, because I think the
numbers are pretty easy to follow in this regard. If the cost were
$1,000, and I had to absorb $1,000 on my income statement, and
I have a 2 percent profit margin, my capitalization of that is that
I have to generate $50,000 in additional revenue to cover that
$1,000 at a 2 percent profit margin.

Now, do you want to take me to a 4 percent profit margin? That
is fine. I still have to generate another $25,000 in revenue. Now,
for eating out, people use their disposable income. And there al-
ways is an alternative — we do not like to admit it very often, but
there really is — they can eat at home. We prefer that they do not
do that. But you are going to price some people out of the market —
you saw the cost ratios that the previous speaker gave us, that
there is an elasticity of demand. So we would simply say that when
people say it is only going to be 40 cents per pizza, or it is going
to be 6 cents per pizza, or it is going to be 5 cents per hamburger,
whatever that might be, you have got to look at the aggregate
numbers.

And by the way, one of the things that scares our industry great-
ly is that that is the amount for openers, that the cost of healUi
care could continue to go up and up. I have never seen, and maybe
you can enlighten me on this, but I have never seen a Government
social program that went down in spending, either in absolute
terms or in percentage terms.

So as we look to the future, the companies will survive, sure, but
we will be cutting employment, and that is not what we think is
in our industry's best interest.

I will yield to somebody else who wants to ask me some ques-
tions.

[The prepared statement of Mr. Fisher follows:]

Prepared Statement of William P. Fisher

I am Bill Fisher, executive vice president of the National Restaurant Association,
a full-service trade association representing 25,000 naember companies that operate
150,000 establishments across the Nation. I 8p>eak for all of them when I say that
the treatment received by two of our members, Pizza Hut and McDonald's last week
was an affront to the entire food service industry.

An attack was made on these two companies oecause they have stated their oppo-
sition to legislation that would cripple our business. That attack amounts to cor-
porate character assassination, and tiiat is not the way public debate should be con-
ducted in a democratic country.

Because of the views expressed by these two companies, proponents of the Presi-
dent's health care proposals are encouraging operatives everywhere to picket their
units presumably ui an attempt to alienate tneir customers. Full-page advertise-
ments are also being run that bring allegations against these companies.

And what about these allegations? They are at best half-truthJs that obscure the
reality. American corporations that operate in European countries abide by the laws
of those countries. If there are mandates that require employers to pay for health
insurance in those countries, they comply. That is the case with Pizza Hut's oper-
ations in Germany. That is the half-truth that has been used to malign the com-
pany.

What is the other half of the story? A pizza costing $11 in this country costs $19
in Germany. Labor costs contribute significantly to this higher price.

— Germany's health care system requires a payroll tax of more than 13.4 per-
cent — higher than the 7.9 percent cap promised under the Clinton health care pian.
When Germany's system of mandated employer benefits began in 1950, payroll
taxes of just 6 percent were set.

— In Germany the top income tax bracket is nearly 60 percent, in the United
States, it is 39.6 percent.

— Menu prices are 39 percent higher in Germany than they are for comparable
items at home.

— Business growth is stagnant in Germany. Last year, economic growth actually
declined 1J2 percent. Indeed, according to the Organization for Economic Coopera-
tion and Development, the 12 countries of the EC have not experienced a net addi-
tion to private sector employment in 20 years. The only job growth has come in gov-
ernment bureaucracies.

At a time when Germans are considering the need to reform their appro£u:h to
health care, the administration has made proposals that seem modeled on the Ger-
man system. . », rv

It is interesting that when the allegations brought against Pizza Hut and McDon-
ald's are examined in their actual context, a strong argument against the Clinton
health care proposal emerges. The President's plan and legislation modeled on it are
likely to inflate consumer prices across the Nation.

The restaurant industry, like many businesses in this country, has been a long-
standing proponent for fundamental, free-market reforms that would make health
care more affordable, not less. The National Restaurant Association has lobbied ex-
tensively for such measures as allowing small businesses to join toother in pur-
chasing pools; allowing businesses to take a 100 percent tax deduction for health
insurance; eliminating pre-existing exclusions; reforming malpractice laws; eliminat-
ing costly State-mancfcted health benefits; and developing a computerized, standard-
ized claims system. V 1 •

The association has consistently opposed an employer mandate — the alinchpm of
the Clinton plan — ^because it would artificially raise the cost of labor beyond a viable
level for most employers in the low profit margin, labor-intensive restaurant indus-
try.

In the end, an employer mandate is a tax on workers, pure and simple — and U.S.
woriiers will end up paying with their jobs.

The Chairman. Just before we hear from Mr. Chlopak, there is
another area as well, and that is the difference between the CEOs
in PepsiCo and McDonald's, and how their salaries have gone right
up through the roof, and what has happened in terms of the res-
taurant workers. That is pretty interesting. You know, there is al-
ways enough money in there to raise the salaries of the CEOs, but
there is not much in there to take care of the restaurant workers.
There have been dramatic increases in the period of the last 5 to
7 years, and they are always talking about how any little nickel or
dime or quarter or 50 cents, in terms of trying to help men and
women in this country who want to work not have to be in poverty.
That is something that has been basically supported by both Re-
publicans and Democrats, quite frankly, over a long period of time,
and that is the minimum wage law.

And what we have seen happen is that restaurant workers, the
workers at the bottom rung of the ladder, have iust been locked in
there, while the CEOs' salaries have gone right up through the
roof So there are other alternative ways of trying to squeeze this
thing down.

Mr. Fisher. Senator, I would address that. The last time I
looked, this really was a semi free enterprise system. And people
take different positions, and they rise according to their ability.
And if the marketplace can afford to pay somebody at a certain
level, then I think tnat that is what that individual commands.

The Chairman. Well, I think that is right^the law of the jungle
is the law of the jungle, but I did not think that should be the case
in a society that is a caring society and cares about its fellow
human beings. You have stated your philosophy, and I stand by
mine.

The Chairman. Mr. Chlopak.

Mr. Chlopak. Thank you.

Mr. Chairman. Senator Kassebaum, I am the president of
Chlopak, Leonard, Schechter, and Associates, a small public policy
and communications consulting business here in Washington.

In August of 1993, we were retained by the Health Care Reform
Project, a nonprofit coalition of organizations representing health
providers, consumers, older Americans, children, union workers,
and many businesses.

Let me explain why we did this report. About 7 months ago, a
PepsiCo executive, David Scherb, told the House Ways and Means
Committee that an employer mandate would cause the loss of "tens
of thousands of job opportunities at its restaurants." In that same
testimony, he also said that an employer mandate could wipe out
more than half of PepsiCo's restaurant profits.

Recently, PepsiCo and McDonald's, through a coalition called the
Health Care Equity Action League, also released a study that said
the employer manaate would result in over $27 billion in lost com-
pensation — $27 billion.

We thought these predictions sounded a bit extreme, yet they
were having an adverse impact on the debate, firom our point of
view, so we decided to take a look at the public record and look at
how Pizza Hut and McDonald's were performing under shared re-
sponsibility requirements in other countries.

What we found is that both Pizza Hut and McDonald's are not
only surviving, but are actually thriving in overseas markets,
where they are reguired by law to pay for health insurance. Both
companies entered these foreign markets voluntarily, knowing
health coverage was required. "Today, both companies are selling
pizzas and burgers to Japanese and EuropeEin consumers. They are
opening new restaurants, they are adding jobs, and increasing rev-
enues in these countries.

They are not downsizing, as they have left the impression with
the Congress, because they have to pay to help cover their employ-
ees. It is just the opposite — they are growing.

Let me give you some numbers. Japan is such a strong market
for Pizza Hut that the company in 1992 publicly stated its inten-
tion to boost the total number of Pizza Huts there 3V2 fold within
5 years. And since the time of that statement, when there were 33
stores in Japan, based on public records, we now understand, less
than 2 years later, there are 65 stores in Japan.

Likewise, in Germany, Pizza Hut's revenues climbed 38 percent
over 2 years; employment grew 23 percent from 1992 to 1993.
McDonald's experience abroad is equally positive.

Now, it has been alleged today that these are not major markets
for these companies. I would just like to point out that there are
1,100 KFC restaurants in Japan, also owned by PepsiCo, and that
in McDonald's own public filings, they indicate that Grermany is
one of its six largest markets.

Mr. Chairman, I will not read all of the details in our report, but
I would reauest that the text of the report be entered in the record
for those wno would like to examine it.

The Chairman. It will be so included.

[Due to the high cost of printing, the report referred to is re-
tained in the files of the committee

Mr. Chlopak. The United States is the home market for both
companies, yet Pizza Hut does not pay to cover many of its hourly
restaurant workers in this country. I think we have established
that today.

We do not know the exact number or percentage of restaurant
workers for whom Pizza Hut makes an insurance contribution, but
we can be sure it is tiny. The companv said in its House testimony
that, based on a survey it conducted, only 14 percent of its res-
taurant employees take the insurance — and that is because they
have to pav 100 percent of it — and, because of qualification require-
ments and turnover, the number for whom the company contrib-
utes is undoubtedly smaller still.

McDonald's does not pay for its hourly or part-time workers at

all.

Now, Pizza Hut and its legal counsel responded to our report and
to the 32nd ad you have seen today, first by accusing us of libel.
I would just like to make clear, Mr. Chairman, that Clay Small,
who is the general counsel of Pizza Hut, called me on the telephone
on July 12th. The first letter we received firom Pizza Hut was on
July 13th. So this was the day before the letter was prepared.

In that phone conversation, he said that he understood that we
were running an ad that was false and misleading and potentially
libelous. I asked him what he understood the ad to say. He said
that he understood the ad to say that we were claiming they did
not offer insurance.

I told him that our claim was different than that, that it was
that Pizza Hut did not pay for health insurance for many of their
workers.

Nonetheless, 24 hours later, we got a letter from Pizza Hut, al-
leging that we were potentially libelling them by saving that our
ad claimed that they did not offer insurance, which is different
than what I told Mr. Small on the telephone.

A copy of that letter, as we now know, went to all of the local
television stations. The intimidation strategy succeeded in keeping
the ad off the air, but to this day. Pizza Hut has yet to prove that
the ad or the report on which it is based is false, as the company
has charged. And I think we now have the admission that the ad
is essentially f£iir.

Pizza Hut has also accused us of unfair attacks. But I would
point out that our study was a response to the active lobbying, tes-
timony, and other political activities of PepsiCo and McDonald's,
both of which sit on the steering committee of HEAL. These compa-
nies raised their own profiles in this legislative debate, and there-
fore, as members of this committee are well aware of and used to,
we think it is entirely appropriate for us to compare their rhetoric
here in Washington with the reality of their performance in the
United States and around the rest of the world.

Finally, in recent days, the company has run an ad that the em-
ployer mandate would raise the price of an $11 American pizza to
$19 or $25, which is what the company charges in Germany and
Japan. I think it might also be useful to enter this ad in the record,
because it does clearly suggest that the price of U.S. pizza will go
up. The headline is "Sure, Pizza Hut is Mandated to Pay for Health
in Germany, where an $11 Pizza Costs $19."

I think that is a pretty clear implication that the price will go
up.

Our calculation, which the New York Times has validated today
is that the cost is probably more likely to be 40 cents per pizza.
And I would also aad that while Mr. Huston in his testimony ques-
tioned the calculation, precisely the same calculation appears in
Mr. Scherb's testimony, the VP for compensation at PepsiCo, which
he gave before the Ways and Means Committee.

Mr. Chairman, I tnink consumers would gladly pay 40 cents
more for pizza in return for universal health care, whicn would in
turn stop cost-shifting, which bv the way transfers $11 billion to
manufacturers every year, and lower health spending at the same
time for millions of middle-income families. As Pizza Hut and
McDonald's have proven, shared responsibility works, and if these
companies can pay for good health coverage for their foreign work-
ers and still earn a good profit and expand, there is no reason to
believe they could not or should not do the same for their American
workers.

In closing, I believe the sensitivity in this debate to small busi-
ness is appropriate. As a small business owner myself, I know how
hard it is to build a successful enterprise. But please do not lose
sight of the fact that large businesses like Pizza Hut and McDon-
ald's, which have over 1,000 employees, employ over 20 percent of
the working uninsured in this country. That is nearly 7 million
American workers and their families.

There is no rationale, none whatsoever, for letting Pizza Hut and
other large businesses continue to shift their health care costs to
the rest of us.

Thank you. I would be happy to answer any questions.

[The prepared statement oi Mr. Chlopak follows:]

Prepared Statement of Robert Chlopak

Mr. Chairman and members of the committee, my name is Bob Chlopak and I
am president of Chlopak, Leonard, Schechter and Associates, inc. It is a pleasure
to appear before you today.

CL£, as it is known, is a small public affairs communications consulting business.
In August 1993, CLS was retained by the Health Care Reform Project, a non-profit
coalition comprised of organizations and businesses representing health providers,
consumers, older Americans, children, union workers and, of course, business. Our
job has been to provide the Project with strategic advice and assist them with adver-
tising, media relations and other communications services relative to the health care
reform debate. The Project has become the major pro-reform coalition with 45 orga-
nizational members representing around 65 million Americans. For the record, both
CLS and the Project pay for health insurance insurance for our employees.

Today, I'd like to maxe three brief points. First, I will explain why we conducted
the study on Pizza Hut and McDonald's. Second, I will summarize the major find-
ings of the report. Third, I'd like to respond to critiques of the report.

About 7 months ago a PepsiCo executive, David H. Scherb, told the House Ways
and Means Committee that the employer mandate would cause the loss of *tens of
thousands" of job opportunities at its restaurants. In the same testimony Mr. Scherb
said the mandate would wipe out more than half of their restaurant profits if
PepsiCo took no other action.

A little more than 3 months ago, PepsiCo and McDonald's, through a coalition
called the Health Care Eiquity Action League, HEAL, released a study that said the
employer mandate (in the Clinton plan) would result in over $27 bUlion in lost com-
pensation.

So, we decided to take a look at these claims. We wanted to examine how these
companies were performing under shared responsibly recpjirements in other coun-
tries at the very same time they were making a strong case against legislation pend-
ing in Congress. Our study was a response to the aggressive lobbying and political

activities of PepsiCo and McDonald's. These companies raised their own profiles in
this debate; we didn't single them out. If there are victims in this debate, they are
people like Rosie Rodriguez, a Queens, N.Y. Pizza Hut worker who told the New
YorK Times she has to oioose between paving her rent and going to the doctor, not
multi-billion businesses like Pizza Hut and McDonald's.

What we found aA«r 3 months of research, is that both Pizza Hut and McDonald's
are not only surviving, but are actually thriving in overseas markets where they are
required by law to pay for health insurance. Both companies voluntarilv entered
these foreign markets knowing heal^ coverage was manaated, and today both com-
panies are selling millions of pizzas and burgers to Japanese and European consum-
ers. They're opening new restaurants, adding iobs and increasing revenues in these
countries. They are in absolutely no danger of filing Chapter 11 or even downsizing
because they must help pay to cover their employees.

More specifically. Pizza Hut which earned »37 million last year, is retniired to pay
50 percent of the health care premiums for its German employees and 50 percent
for its Japanese employees who work at least 30 hours pjer week. Company officials
in Japan told us most do work at least three quarter time. Still, business is boom-
ing. Japan is such a strong market for Pizza Hut that the company, in 1992, pub-
licly stated its intention to Doost the total number of Pizza Huts there 3V<i fold with-
in 5 years. Likewise in Germany, Pizza Hut's revenue climbed 38 percent over 2
years ago. Its German employment also grew substantially, rising 23 percent from
1992 to 1993.

Mr. Chairman, our report includes a lot more data and Fd like to request that
it be inserted in the record.

McDonald's experience abroad is equally positive. In the past year, the number
of McDonald's restaurants rose 14 percent in Germany, 18 percent in the Nether-
lands and 8 percent in Japan. Germany, in fact, is one of the company's six largest
markets. It had 27,000 employees there in 1992 and revenues of nearly $1 bilUon.

The United States is obviously the biggest market for both companies. Yet Pizza
Hut does not pay to cover many of its hourly restaurant workers in this country.
Pizza Hut does make a bare bones group policy available, but employees must pay
the full cost. Only after 6 months of continuous coverage and 100 percent payment
by employees, and only if employees continue to pay 100 percent of basic coverage,
will Pizza Hut make a small contribution to raise coverage limits. We dont know
the exact number or percentage of restaurant workers for whom Pizza Hut makes
an insurance contribution, but we can be sure it is small. Mr. Sdierb indicated in
his testimony that only 14 percent of these employees take the insurance. With
turnover of 150 percent each year, many fewer will qualify for contributions from
the company.

McDonald's does not cover its hourly or part-time workers, period.

Let me turn now to Pizza Hut's major criticism of our study included in their ad
which ran in the Monday. July 18, WidiiU Eagle. Pizza Hut says pizza whidi now
costs $11 in the United SUtes, will go up to $19 or $25 as the company now diarges
in Germany and Japan, respectively, if Congress enacts an employer mandate. But
according to the company's own data, these nuge price increases just don't add up.
Scherb testified that labor costs account for roughly 30 percent of sales at its res-
taurants. "Thus, under the Senate Labor Committee bill which caps health expendi-
tures for low wage businesses at 12 percent. Pizza Hut would need only a 3.6 per-
cent (30 percent of 12 percent) increase in the cost of pizza to cover its health insur-
ance costs, that's an increase of just 40 cents per pizza, assuming all of the costs
are passed on to consumers.

Mr. Chairman, we have a brief paper rebutting other false diarge made about our
report that I would like to insert in tne record.

Let me conclude with one final thought. There is appropriate sensitivity in the
health care debate to small businesses. As a small busmessman, I know first hand
how hard it is to build a successful enterprise. But please do not lose sight of the
fact that large businesses like Pizza Hut and McDonald's (over 1,000 employees) em-
ploy over 20 percent of the working uninsured — that's nearly 7 million American
workers and their families. There is no rationale for letting Pizza Hut and other
large businesses continue to shift iU health care costs to the rest of us, particularly
since Pizza Hut could easily afford to cover its American workers, just like it covers
its workers in Crermany and Japan.

Thank you. I'd be happy to answer any questions from the committee.

The Chairman. Thank you very much. I do not have any ques-
tions.

Senator Kassebaum.

Senator Kassebaum. I have a couple that I would like to ask, Mr.
Chairman. I did not hear Mr. Henderson, but Mr. Gruber, I was
interested because if I understood correctly, you were saying that
there would be a shift if indeed there is, of course, an increased
cost of doing business. That is a given. Now, we could argue it is
a benefit, and it should be done, or we can argue that it should not,
but it is a cost, an additional cost. And you said it would be shifted
to wages. Was I correct in hearing you say that, Mr. Gruber?

Mr. Gruber. Yes.

Senator Kassebaum. And then, Mr. Henderson, from what I
know of your testimony, which I have read, you would agree with
that?

Mr. Henderson. Yes, I do. In fact, one of the thmgs I want to

Eoint out is that Jonathan Gruber and I were talking during the
reak, and we agree on a lot of this. We agree that the main people
who pay for an employer mandate are employees.

Mr. Gruber. If I can amend that, I think we definitely are in
agreement on that, but I think there are really four other things
to think about when you draw that conclusion.

First of all, yes, I think we are in agreement that the cost of this
plan would largely be borne through wage falls, but you have to re-
member that the subsidies that are in these plans will really miti-
gate the wage falls that are necessary. I tha. snppiemeai to MetHctze
or odier poUcT'. Is this poscibiy a st^yplemesni pUa?

The Chairman. The committee will stand in recess. Thank you.
[Whereupon, at 1:30 p.m., the committee was adjourned.]