Some Retailers Cut Hours and Benefits, Others See Opportunity With Obamacare
Through a special arrangement, presented here for discussion is a summary of a current article from the Retail TouchPoints website.
Website issues aside, while much of the publicity regarding Obamacare has centered around companies cutting back hours and reducing health care benefits for employees, there has been a wide range of responses among retailers as they scramble to meet the requirements of the Affordable Care Act (ACA).
Some, such as Walmart, announced that they would move a number of part-time employees to full-time status and offer benefits. Others, including Forever 21, reacted by cutting hours to bring more workers to part-time status where they would not have benefits.
Trader Joe’s and Home Depot are among the retailers planning to use the public exchanges for health care coverage for their part-time workers.
Still others, such as pharmacy retailers CVS, Duane Reade and Walgreens, view the ACA as an opportunity to increase customer interactions and provide additional services.
While retail has garnered much of the media spotlight, some experts do not expect the ACA to impact retailers to a greater extent compared to other business segments.
"In the end, the economics are such that all employers will want out of health insurance; they just haven’t found a way," said Gene Detroyer, an independent consultant.
David Livingston, principal of DJL Research, outlined a few key concerns for retailers when it comes to the ACA:
- Will it be cheaper to just give employees a subsidy and have them buy insurance on their own?
- Will morale be affected by employees having to find doctors that take Obamacare or having to pay more to keep their current doctors?
- Is Obamacare going to be a distraction?
Mr. Livingston said some retailers may see their health care strategy impact their ability to attract key workers, but he doesn’t expect a huge talent drain.
"Retailers will always pay good wages and benefits for top talent. Those with the ‘warm body’ part-time labor model will still be hiring part timers with minimal hours."
While retailers will experiment to find the right mix of part- and full-time workers, Ryan Mathews, founder and CEO of Black Monk Consulting, doesn’t expect a huge shift.
"I think the whole ‘all employers will fire all full time workers’ rhetoric is just anecdotal right wing knee jerkism at its worst," Mr. Mathews said. "To date I haven’t seen any objective research to indicate a radical restructuring of the workforce is occurring or will occur in the future. What is happening is that some retailers are creating options that never existed before. But when Walmart — the largest retailer in the world — goes on the record saying they don’t think implementation will be a problem, I think that renders the whole ‘this will destroy retail’ discussion relatively moot."
Discussion Questions
Are you more or less optimistic about the implications of the Affordable Care Act (ACA) on retail today versus six months ago? What do you think the net effect will be on retailers’ and part- and full-time store associates? What advice would you give retailers?
As in financial markets, when major change takes place within industries, people deal well with “good news” and they deal well with “bad news.” They seldom know what action to take with “uncertain news.” Thus, people hunker down. It’s human behavior.
The Affordable Care Act (or Obama Care if you prefer), has raised that specter of uncertainty. There is little reason to be either more optimistic or more pessimistic about the ACA today than there was 6 months ago. The polls point to people being more pessimistic.
Retailers will act out of their best interests. On average, we’ll see about the same number of full time and part time employees in the mix. Retailers should run their businesses as they see fit. It will be essential that they communicate, communicate, communicate on the direction they are taking. Keeping trust and confidence within their systems will be critical.
This will be a difficult period for organizations that have large employee bases. There will continue to be a great deal of finger pointing from the White House to Congress to the Bureaucrats that created or are responsible for implementing the ACA. Few are going to be exempt from the wave of those fingers – insurance companies, health care providers, pharmaceutical firms, retailers, investors, and consumers themselves.
I am less optimistic and I wasn’t hopeful to begin with. Why? Our clients tend to be smaller retailers. In order to be free from the ACA penalties they need to meet a criteria the includes having a percentage of their eligible employees want to participate in insurance and making sure the employees’ portion of the insurance cost do not exceed a percentage of their wages.
In one recent case the employer was paying up to 68% of the insurance. The result was a more than $1,600 per employee over the cost of just paying the penalty. Even with that subsidy, the majority of employees elected not to take insurance because it cost too much. This in turn means fewer insurers are interested in providing plans, which in turn means less competition which results in higher insurance costs.
I expect this will eventually mean more and more retailers will opt not to provide insurance. The net impact on retail employees’ satisfaction will depend on whether the high initial cost being reported by the press on policies offered on the exchanges is reduced sufficiently through the subsidies that ACA provides.
After all the hysteria subsides, we’re all going to find that the assumption we had before – that having health insurance is a good thing – was right all along. The ACA story is going to have a happy ending.
In the media will hear about the 29ers and 49ers – people who had their hours cut to 29 or small businesses that can’t expand and must keep their business with less than 50 employees. A sad reality, but most likely a small percentage. I think those situations will become overblown for the sake of entertainment.
My advice would be for employees that are non-essential, provide a subsidy and have them purchase their own insurance. For the rainmakers, businesses will need to provide more than just health insurance, they will need to make sure their best employees and their families have the option of getting unrestricted access to the healthcare. It’s hard to tell how its going to shake out. There have been delays in implementing ACA and businesses are locking into plans that take affect before January 1.
This is a moving target and we will continue to see new and creative ways for businesses to find loopholes to take advantage of. Some politicians are telling us not to worry, they will make ACA go away. I’m not counting on that happening.
Zero optimism.
There is a chasm between what any given retailer may say publicly at this point and how they will actually behave when their hands are forced.
How wide that chasm will be is yet to be determined.
Obama Care (or any other intrusive government mandated regulation) is not going to create jobs in retailing or positively impact the industry. The extent of the damage it will create is a question that will be quantitatively answered by economists in 5 to 10 years.
It’s difficult to be more optimistic about ACA right now, given the web site difficulties on the consumer side. That said, in the end, retailers must provide the appropriate level of staffing and customer service to meet the needs of the shoppers. Retailers that cut too many corners in order to save on healthcare costs may regret the short-term decision that may negatively impact longer-term customer service and employee satisfaction.
Business in general will view the ACA and its requirements as an opportunity to gradually exit the role of health insurance provider for most, if not all employees. Whether this will turn out to be a good thing, bending the health care cost curve and providing more affordable access for more people, remains to be seen.
Retailers will drive this change at a higher rate than some other businesses, only because of the nature of their work force. They will be joined by quick service restaurants, landscaping and janitorial services, and anyone else who employs primarily variable labor.
I can see only two “certainties” in the ACA. The first is that access to the broad network of health care services the insured have enjoyed up until now will go down – or the cost of that access will go up dramatically in the form of concierge medicine. The second is that the cost of providing universal health care for everyone in the U.S. has now shifted from an unofficial “higher cost for those who can pay” to an official “tax” (also known as a wealth transfer). At least, that’s how Chief Justice Roberts sees it.
Neither less or more optimistic. The upside is clarity so that decisions can be made.
Few retailers can absorb additional costs. Even fewer will admit to the obvious decisions they’ll make necessitated by ACA.
In the end, it won’t turn out well for employees.
As I was quoted in the article, “In the end, the economics are such that all employers will want out of health insurance; they just haven’t found a way.”
As long as labor is such an integral part of retail, it is to the benefit of both the companies and the workers to get out of company sponsored plans. When a company gets out of purchasing health insurance and gives or shares the savings with their employees…
1. People get to choose the healthcare options that best meets their needs, not have some employer choose it for them.
2. Health insurance companies have to compete to get their participants, whether on price or services and if the participants don’t like it they can change.
3. Companies don’t have to pay for an expense that is not core to their business.
There was an article in the NY Times last week how one employer is doing just that.
Net, net, the faster employers drop company sponsored health insurance, the better off both the companies and the employees will be.
Anyone who owns a business as I do will not be more optimistic for next year. The government, outside of the military, can not manage a lemonade stand,without regulating it out of business, and we are supposed to believe that our health care coverage will get better and cheaper?
These are difficult times for store owners, as we are facing ever increasing costs of doing business, without the luxury of growth, so hold on to your safety deposit boxes, as it is going to get very interesting for us in the trenches.
Add into the mix consumers who are unwilling to part with their dollars, unless they get it for half off, and it is the perfect storm for a jolly happy 2014. Hang in there fellow retailers, and Merry Christmas.
The sticker shock and higher deductibles that are hitting Americans and retail consumers with respect to the out of pocket costs of their new ACA policies (the ones who have even been able to sign up yet) should scare retailers mightily. Bottom line: American families are going to have a lot less disposable income to spend in stores and online over the immediate future. There have been a few stories written about this, but it is a major and under reported issue in my opinion.
Be careful not to interpret Walmart’s apparent embracement of the AKA as either an endorsement of the plan or its ultimate impact on retail in general. Walmart is in a unique situation when it comes to employee insurance as they have been under the critical eye of many in the industry of not providing good or excellent benefits to their employees.
With that said, the prospect of many of their competitors feeling compelled to dump their employees into the exchanges (with subsidies in hand), Walmart could find themselves in a better, (not worse) position in terms of the competitive package they offer both full time and part time employees vis-a-vis their competitors.
But let’s face facts. The AKA is so complicated, so mismanaged, and its future, so uncertain, it is truly anyone’s guess whether it will be a boon, a disaster, or a non-event over the next few years. Based upon its dubious launch, my guess is the worst is yet to come in terms of dropped policies, confused and disgruntled policy holders and insurance companies raising rates to cover the uncertainty and the new mandated services.
For retailers, that means at the very best the AKA will be a distraction they did not need and at the worst, the AKA could create a ripple effect through the retailer’s P&L that will effect not only employee morale, but also customer service levels and ultimately the price they charge at the shelf.
The ACA will implode in 2014 for reasons that are just now emerging. Not enough Millennials will sign up and too many doctors and hospitals will not participate. It will be an unhappy ending for retail and everybody else.
I am less optimistic that Obamacare will have anything but negative impact on retailers and this will really be seen late next year.
Let’s look at the impact Obamacare is having today. A majority of new jobs are part time, not full time due to the added cost. Five million more people are without health insurance since when enrollment started. Next year it is projected that 80 million will lose their health insurance as employers drop it as a benefit. Millions have lost their Medicare supplement insurance as major companies drop this benefit for retires. Cost will not be coming down any time soon until there is tort reform and getting fraud out of government-run programs.
It is now accepted that tax dollars will be paid to the insurance companies due the policy mix not being what they expected. Large retailers will adjust their policies and provide for their employees. Small retailers will either drop their policy or pay employees a fixed fee to offset the cost. What will fall through the cracks is the deductibles which few households can pay.
When it is all said and done, there will be more not fewer Americans that do not have any health insurance.