Was Herman Cain Right About Health Care?

A couple new developments on the Herman Cain front. First, Dave Weigel of Slate has posted his own profile of Cain, for which he went and read Cain's motivational/leadership books. It's good stuff. (The profile, that is--I can't vouch for the books.)

Second, a number of people have written in about Cain's videotaped showdown with Bill Clinton over health care in 1994--they want to know who was right. Good question. The short answer is, I don't know. But Cain's industrious press secretary, Ellen Carmichael, has, with no small effort, gotten hold of Cain's written response to Clinton, which was published in the Wall Street Journal at the time and provided a numerical basis for what Cain was arguing. I'll post the whole thing below. One reason it's difficult to judge who was right is that, as some of you may have heard, the Clinton White House long ago ceased to be. So I'm not sure how to get the other side. If any Clinton vets care to weigh in, I'd be eager to publish their response. Meanwhile, Cain's letter is after the jump:

"I Can't Afford Your Health Plan, Mr. Clinton"

By: Herman Cain
April 15, 1994
Appearing in: The Wall Street JournalUSA Today (among others)

Last week, President Clinton got into a sparring match with Herman Cain, president and CEO of Godfather's Pizza, over the impact on business and jobs on the Clinton health care plan's employer mandate. "Why wouldn't you be able to raise the price of pizza 2%?" the president asked at one point. "I'm a satisfied customer. I'd keep buying from you." On Tuesday, Mr. Cain sent the following letter to the president. The table is based on one that accompanied the letter

Dear Mr. President,

            During your April 7, 1994 town hall telecast from Kansas City, you asked me to send you my calculations of the impact on our business of your health care proposal. I am happy to do so in this letter.

            As a reminder, the Godfather's Pizza system has 525 restaurants with over 10,000 employees. Two-thirds of these restaurants are owned and operated by franchisees of our company, whose operating financials are almost identical to our corporate-owned operations of 141 restaurants. Therefore, in order to be as specific as possible in our calculations, I will focus on just our corporate-owned operations with 3,418 employees.

            Under your proposed health care plan, the cost to cover all 3,418 employees would be nearly $2.2 million annually. This amount of $2.2 million is a $1.7 million increase in our insurance, which is approximately 3 ½ times our prior-year insurance premiums to cover an 80% employer portion for all participating full-time employees.

            You mentioned during the telecast that restaurants with approximately 30% labor need only increase prices 2.5%. This price appears to be arrived at by taking 7.9% times 30%. Quite frankly, we cannot just look at a percent of a percent, but instead we must look at the actual dollars involved. A $1.7 million increase would directly decrease "bottom line" profit. In order to produce the same "bottom line" as we are generating today, a 16% to 20% in "top line" sales would be required due to variable costs such as labor, food costs, operating expenses, marketing and taxes. Thus, it is incorrect to assume we can just add $1.7 million to the "top line" and expect it to flow directly to the "bottom line."

Presented by

Joshua Green is a former senior editor at The Atlantic.

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