Trader Joe’s Dropping Health Coverage for PT Workers

Frequently praised for extending healthcare coverage to many of its part-time employees at a reasonable price, Trader Joe’s last week told workers who log less than 30 hours a week that they will need to find insurance on the Obamacare exchanges next year.

In the memo to staff dated Aug. 30, Dan Bane, Trader Joe’s CEO, said the affected part-time workers would instead get an annual $500 payment to help them buy insurance elsewhere, according to Bloomberg News. The company estimated that more than 70 percent of those affected would pay less for comparable health insurance on the exchanges.

"Depending on income earned outside of Trader Joe’s, we believe that with the $500 from Trader Joe’s and the tax credits available under the ACA, many crew members should be able to obtain healthcare coverage at very little, if any, net cost," Mr. Bane wrote in the memo.

Starting in 2015, the Affordable Care Act law will require employers with a workforce of 50 or greater to offer health coverage to workers who average 30 or more hours a week. Employers who don’t comply will face fines.

Other companies are starting to cut health insurance benefits or reduce hours for part-timers to 29 hours in anticipation of the legislation.

Despite Trader Joe’s claims that most part-timers in the end would pay even less, labor activists saw the move as a tactic to cut corporate overhead.

One anonymous part-timer at Trader Joe’s, who said she pays $35 a paycheck or $70 per month, for a plan that covers 80 percent of medical costs, has a $500 deductible and includes prescription drug coverage, told The Huffington Post that the coverage was "one of the best parts about the job," and was anxious over finding an affordable alternative.

Sources at Trader Joe’s, who spoke on the condition of anonymity, told RetailWire that portraying Trader Joe’s as cutting employees’ hours to get them under 30 hours a week is inaccurate. Two managers with the company said they were actually trying to get workers to commit on an on-going basis to more hours as the popularity of the chain increases.

Many retailers do offer part-time employees healthcare coverage, but largely at exorbitant rates.

Among those known for generous packages, Whole Foods has no plans to change its health benefits, a spokesperson told Bloomberg News. The grocer provides coverage for those working more than 20 hours a week, although those working fewer than 30 hours weekly pay their own premiums.

Starbucks, which covers part-timers who work 20 hours a week or more, doesn’t plan any changes either. In late August, Starbucks CEO Howard Schultz told Reuters his company "won’t use the new law as an excuse to cut benefits or lower benefits for its workers."

BrainTrust

Discussion Questions

How important is healthcare coverage as a tool for recruiting and retaining part-time workers in retail? Will retailers offering company-sponsored coverage for employees working fewer than 30 hours a week gain an advantage over those who direct part-timers to health exchanges instead?

Poll

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Paula Rosenblum
Paula Rosenblum
10 years ago

You ask an interesting question. The bigger question is “Are retailers willing to create an environment that would actually improve employee retention?” I’ve come to the conclusion that for the most part, that answer is no.

So many retailers have built their models on presuming they don’t pay fringe benefits to most in-store employees. I’m not sure they’re willing to change.

I imagine Europeans and Canadians shake their heads at this. After all, for better or worse, a single payer system eliminates the issue.

But I did also want to say one other thing – so far it appears that the health care exchanges really ARE less expensive than group health insurance. I’m not quite sure why, but I suspect that this will become a self-fulfilling prophecy, as insurance companies seek to recoup their exchange costs from their corporate customers. And that’s just unfortunate.

So Trader Joe’s is likely right in its quick assessment, whatever its motivation.

David Livingston
David Livingston
10 years ago

Good healthcare coverage has always been a carrot on a stick. However, now the government is encouraging business to opt out of providing healthcare and put people on the exchanges. Obviously that doesn’t sit well with a lot of employees.

No doubt though, offering healthcare to part-timers is a great recruiting tool, intended to attract smarter and harder working people who are a bit quicker on their feet compared to the typical retail worker. Healthcare insurance has always been a part of a total compensation package and employers will always find a way to retain those worthy of their wage.

Ryan Mathews
Ryan Mathews
10 years ago

It’s critical, and even more important once the ACA fully rolls out.

People will have a legal obligation to have healthcare coverage (which is why the ACA is a health insurance reform act, not a healthcare law). If they aren’t covered by their employer, they will be obliged to pay for their own coverage.

If the theory behind the model is correct, that self-funded coverage should be affordable in the exchanges. If it turns out to be wrong, it’s going to be very difficult to hire part time workers.

Of course some companies will attempt to manipulate the ACA to their own advantage. Some will also stay the course and some – perhaps like Trader Joe’s – will attempt to thread the needle in ways that are good for both employees and employers.

Bob Phibbs
Bob Phibbs
10 years ago

As I wrote in my post “5 Reasons Part Time Employees Could Undermine Your Store,” a lower amount of hours worked means the job is of much less importance. The key to this story to me was that managers were trying to get employees to commit to 30 hours a week.

Where much is expected, much is given. Where less is expected, much less is given. I don’t have a problem with this.

Mel Kleiman
Mel Kleiman
10 years ago

Healthcare has been a very important part of the equation for many hourly workers when it came to making a decision on where they wanted to work. If – and that is a big if – Obamacare works, it will have a major effect on recruiting front-line workers. This will give companies who have not provided healthcare a better chance to compete in the marketplace.

Gene Hoffman
Gene Hoffman
10 years ago

Any law that has has produced exemptions and confused so many part-time workers and retailers as to what is the best course for them to follow raises concerns over the puzzling law’s existence.

Everybody either needs or wants healthcare coverage. Thus healthcare coverage can be a valuable tool in recruiting and maintaining part-time workers.

Offering some healthcare coverage to part-time workers working less than thirty hours raises a related, overriding question: Are we not hearing part-time workers who say, “What I really need is a full-time job”?

W. Frank Dell II, CMC
W. Frank Dell II, CMC
10 years ago

Health insurance is a very important consideration to anyone who works or is looking for a job. At this time, no one knows or understands Obamacare and it will be years before we do.

Since the Great Recession, employment growth has been not only slow, but it’s also 75% part-time jobs. As the majority of workers move to part time, health insurance will become an even greater issue. The approach companies like IBM and GE are taking is to drop retired employees from their insurance and give them a fixed amount to pay for exchange insurance. Many companies are reducing hours to 29 per week so as not to pay ever increasing insurance premiums. The likely net effect of all this will be more people without health insurance than we have currently.

It makes sense for companies to drop employees from coverage if by giving them a cash payment, they may get cheaper insurance. For this to be effective the companies must invest in helping employees through the signup process, which is very complex. Leaving them on their own will not be a good idea.

As more and more companies take this approach, it will become the norm which employees accept. The companies that do not follow this path will have an advantage recruiting and retaining employees as they do today.

Cathy Hotka
Cathy Hotka
10 years ago

What Paula said.

Gene Detroyer
Gene Detroyer
10 years ago

A week or so ago UPS announced that it was dropping spousal coverage from their healthcare benefits. In their statement, they “blamed” Obamacare. I had to smile at the wording. Heck, this is the opportunity every company large and small has been looking for. From a business point of view, healthcare in the U.S. has been an albatross.

And Obamacare has turned some politics on its head as unions have started to realize what employers are doing (one wonders why they didn’t figure this out from day 1?) and employers are actually starting to encourage and help uncovered employees sign up (re:Rite Aid).

The next bomb that will drop on employer provided healthcare will be when the 2013 W-2’s are issued. Companies are required to report what their contribution to each employee’s health insurance is. Employees will realize that they may be better off with the money in their pocket and the ability to secure their own coverage.

Within the next 5 years employer sponsored healthcare will not be an issue. The $2,000 per employee penalty, which has already been postponed a year, will never go into effect and companies will encourage workers to go to the exchanges. The issue will not be about attracting workers, but staying competitive with those companies that do not have the health insurance expense.

Tony Orlando
Tony Orlando
10 years ago

This is a very difficult issue for retailers today, and the main reason these benefits are being cut is the bottom line. The reality is, we as retailers cannot afford to provide insurance for part time workers, and if we could, we would.

I know some on this panel thinks it is horrible how we do this, but healthcare will eat up most if not all the profits, and that is the absolute truth.

Supermarkets have the lowest margins in the business, and trying to find ways to survive are at stake, now more than ever. I don’t know any store owner who in their hearts are looking for ways to stick it to their employees. As a matter of fact, we are more aware than ever about doing the right thing, but can not afford this monstrosity called Obamacare.

I offer benefits to full timers, and the costs are going up way beyond inflation. It is a struggle every year to stay ahead of the curve. Dental care, and eye care are no longer in my plan, and the co-pay has gone up just to keep costs down. Anyone out there who currently pays these benefits to their employees, God Bless you, but the future of many retailers is going to be tough trying to provide everything mandated by our government, and still turn a profit.

Just my two cents worth today, and this story is unfolding as we speak, so enjoy the ride everybody, it’s going to be interesting.

John Boccuzzi, Jr.
John Boccuzzi, Jr.
10 years ago

I was just discussing this with a friend today during our daily morning run. I was praising Trader Joe’s for offering healthcare benefits. I explained that Trader Joe’s was using these benefits and other extras to attract the strongest workers in the industry to their chain.

No question health benefits was a great recruitment tool. I would say Trader Joe’s still has enough extras to keep them competitive in recruiting the best workers moving forward.

Ed Rosenbaum
Ed Rosenbaum
10 years ago

Paula said almost everything I would want to say. One addition: retailers are not known for employee retention or improvements to morale. This is not going to change anything so let’s not make Trader Joe’s the culprit.

Craig Sundstrom
Craig Sundstrom
10 years ago

The traditional answer here is that it doesn’t – or at least shouldn’t – matter much. “Part-time” generally meant younger/older workers, or spouses of people with full-time jobs, all of whom were, presumably, covered under (someone else’s) family coverage. I’m not sure that’s necessarily true anymore (if indeed it ever was). But why should healthcare be treated differently than other types of benefits…or compensation in general? The question shouldn’t be “is a job with coverage better than another?” (Identical but for the the coverage.) Obviously it is. The question should be “how much is coverage worth in the total mix of benefits the job provides?”

Mark Burr
Mark Burr
10 years ago

This is simply the result of Obamacare and is the standard sweeping all segments of business. It will neither be a recruiting tool nor an advantage as no employer will be able to afford it.

By this time next year, it will be hard to find an employer anywhere in the country offering such a plan.

Beginning October 1st, employees will begin seeing a $1,000 tax and no coverage. They will then have to go out and find coverage on their own – poorer and likely unable to do anything but pay the fine.

Gordon Arnold
Gordon Arnold
10 years ago

What we see here is a race to improve profit taking to impress the market and the stockholders simply by reducing the cost of labor. Executives will show a continuing rise in applications as a means of justification. The job market’s supply vs. demand will give support to this mistake in identity. By mistake in identity I am referring to what customers will seem to see as an associate that is there to help and what they find with the store associate’s apathetic disregard for the customer’s need fortified by a total lack of knowledge. This feeling of disconnect by the employee associate will continue to grow as wages, training and company paid benefits continue to wither.

No worry, there are plenty of unemployed to assume the role of associate. But there is also an increase in the number of customers unwilling to participate with disgruntled employees. They are now called showroomers and internet buyers. So brick and mortar stores open an internet site and drop an app to get the customer back. This in turn floods the stores with unhappy or in a hurry internet pick-up and returns using about 1-2% of the store’s capacity and to what end? A higher cost of goods sold which eats away at the dollars saved through lowering wages, lessening training and no company paid benefits. This is a sad example of executive leadership skills no matter how one looks at the events taking place today.