GHQ: Health Assurance
By Suzanne Vita Palazzo
Through a special arrangement, what follows is an excerpt of a current article from Grocery Headquarters magazine, presented here for discussion.
Although the rising cost of health care affects every business, the woes caused by high premiums and rising deductibles have hit the supermarket industry particularly hard. Operating on razor thin margins, grocery retailers are faced with numerous financial hurdles that put them at a competitive disadvantage when it comes to offering affordable benefits, including a preponderance of part time employees, low wages and high turnover rates.
Grocers are cognizant of the value of offering benefits as a way to attract and retain qualified workers. While health benefits are a key incentive, a large majority of retailers are passing premium increases directly to employees. According to The Food Retailing Industry Speaks 2008 report issued by the Food Marketing Institute, 81.8 percent of supermarket operators increased employee contributions toward plan premiums in 2007, while 36.4 percent and 35.2 percent opted to raise deductibles and co-pays, respectively.
“There’s been a national trend across all industries for companies to take a route where they’re decreasing the level of benefits through increasing the co-pays, deductibles and co-insurance levels and then asking employees to pay more,” said lan Wang, senior vice president for Emeryville, Calif.-based AFIS Benefits and Insurance Services. “Over the past few years, employees have basically been paying more for less coverage than they were 10 years ago.”
Industry insiders point out that while these tactics may seem like the first phase of a solution, they actually do little more than shift the brunt of the cost. Furthermore, requiring workers to foot more of the health care bill also has the potential to backfire, as employees may delay or fail to receive medical attention to avoid higher co-payments or they may opt out of the plan.
“Some of the strategies that one would think would save money might cost money. In particular that includes the strategies that involve raising the co-payments for employees,” said Irene Fraser, Ph.D., director of the Center for Delivery, Organization, and Markets for the Rockville, Md.-based Agency for Healthcare Research and Quality (AHRQ). “What happens when you increase co-pays is that employees reduce their consumption of very needed services such as preventative care and medications for chronic illnesses, and then the long-term costs actually go up.”
Discussion Questions: How should retailers be managing rising health care costs? To what degree should employees be absorbing these increased costs?
No easy fix and no simple plan will ever enable businesses or the consuming public to return to what we all once enjoyed. The issue is much more complex than what is listed in the discussion above.
Many employers have provided health care coverage for their workforce almost at their own (and, ultimately, ours too) detriment. How many people who visit the doctor for whatever ails them really know how much a simple visit costs? The answer is certainly a very low percentage, most likely less than 5 to 7 percent.
Co-pays have only generated the general blase feeling towards the real cost. Then couple this with the rising costs of health care in general and you have the current time bomb we are watching tick off the seconds till…?
Liability insurance rates are beginning to put doctors out of business. Hospitals are charging outrageous rates for a simple aspirin because of all the typical issues any business faces: payroll, insurance, liabilities, building construction and maintenance, equipment and on and on.
Now with drugstores installing their own clinics, we are seeing the beginning of commoditization of healthcare. I am not for the government to be involved in this either. Taxes will go up, just like business costs and doctor and hospital rates too.
The money doesn’t just appear. It comes from each and every working taxpayer. And from each and every business.
Health care has no easy answers, because it is so expensive. Aldi’s format, as suggested above, does not fit very well with most conventional stores. This is a crisis. In addition to the rising mandates from the government, i.e. minimum wage, country of origin labeling, mandated seven days sick pay per year, along with a host of other huge cost increases.
With the big box stores everywhere, we have to keep prices in line, and live with less on the bottom line, just to survive.
I wish there was a magic bullet to solve this, but there will be a fallout with more store closings, until the remaining few can stand out and survive.
There are certain terms that just roll off the tongue too easily. “Razor thin gross margins” is one of them. With all respect to the writer, do we have any evidence at all that margins are getting thinner?
RSR’s data seems to indicate that gross margins are mostly improving across all retail segments (except of course, for the smallest retailers). That means that ALL costs, including transportation, packaging, and health care are being absorbed by consumers. I don’t see supermarket bottom lines growing “more anemic” (another phrase that rolls off the tongue) either. That means health care benefits costs, which I heartily agree are growing more obscene by the day, are being passed along to employees.
I think we’d be better served finding a way to cut these ever rising costs in a real way than to debate who should pay for them. One of my business partners’ parents recently spent a night under observation in the hospital. The cost? Over $8000. Who is getting that money? The doctors sure aren’t getting the lion’s share. Hospitals are not overwhelmingly profitable. So where’s the money going? Our health care is not improving in the US. In fact that’s yet another phrase that rolls off the tongue far too easily, “The best health care system in the world.” Have we checked lately?
Sorry for the rant, but sometimes we go 180 degrees in the wrong direction.
They should support national single-payer health insurance.
As the introductory article suggests, the current system includes perverse incentives for a race to the bottom.
And as it doesn’t mention, the current system features very high cost for mediocre results.
The health insurance issue goes much deeper than supermarkets. It’s disappointing to me that neither of the presidential candidates appear to be addressing this issue, only generally, and not with much focus. However, until they do, employers need to do the best they can to offer affordable plans so that employees can work without worry.
Employees always absorb all the costs. Health insurance, whether it be a 100% coverage or some cheap, high deductible/low maximum policy, is part of the overall compensation package for an employee. Employees think the company is paying for it but in reality, if there was no health insurance, the employee could simply be paid an extra $10,000 to $15,000 a year or so in some cases.
Retailers need to dance on a fine line between the health care costs and the psychology of their employees. Employees like to see themselves getting a pay raise but in order to do that, employers must cut back on benefits. If employers were to keep up those 100% coverage plans, wages could drop below minimum wage. One way to manage costs is to have fewer employees. Aldi has done a great job of running stores on 6-7 employees and they are able to provide benefits to part-timers. Publix, Trader Joe’s, and Whole Foods have tried a different business model by operating high sales per square foot stores. The simple answer is either cut labor to the bone or wise up and start selling more groceries.
Wellness programs have been shown to cut overall health care costs in the long run. Unfortunately, many retailers are loath to look beyond the next quarter or year, particularly in a poor economy. If workers are healthier they will miss fewer days of work and be more productive. They will also have fewer work-related illnesses, which should lower workman’s comp costs. Health care is becoming a bigger and bigger issue in America. No matter who pays the bill, the country needs to fix its health care system.