Saving grace or socialism? Law of the land or doomed to fail? Capitalism or big government?
The polarity and confusion surrounding President Obama’s Affordable Care Act (ACA) have run rampant since health-care reform was signed into law four years ago on March 23, 2010.
Mila Spencer knows firsthand. Brought on as benefits manager for La Crosse, Wis.-based Kwik Trip just after the law took effect, she has had to navigate its mandates while upholding the chain’s hard-earned reputation of taking care of its people.
“It’s compliance-driven,” Spencer says of the law. “We’ve always managed our plan well, but now with all the regulations, it may stop feeling like a Kwik Trip health-care plan.”
Even for a company with resources to address the issue, Spencer’s job is complicated, she says, particularly regarding part-time employees working more than 30 hours a week, who under the ACA are deemed full-time employees.
“We’ve always had part-time benefits and a considerable number of employees in that 30-plus range, so the potential increase in cost is a concern to us,” Spencer says.
Also, Kwik Trip is self-insured, which adds to the impending burden. “We have a 40% profit-sharing plan, so when you look at a significant increase like that, it impacts the entire workforce.” She declined to share a dollar amount for the increase.
C-store operators as large as Kwik Trip—which has 11,000 employees and 450 stores—all the way to single-store momand- pops have suffered the extremes of frustration and ambiguity over the new law, with only one thing for certain: The June 2012 upholding of the ACA by the Supreme Court and the President’s November 2012 victory over Republican hopeful Mitt Romney suggest that “Obamacare” is here to stay.
“There has been a tremendous battle of sound bites over health-care reform,” says Nick Tate, deputy heath editor for Newsmax Media and author of the New York Times best seller “ObamaCare Survival Guide.” “What’s happening now is some of the practical implications are starting to play out.”
Tate himself embraced the moniker “Obamacare” because while opponents initially used the name to demonize the law and forever tie the reform to its No. 1 backer, he believes it’ll be Obama’s legacy if history proves the program a success.
Speculation aside, Tate says the law has its pluses and minuses. On the plus side, certain individuals are clearly ahead: Those with pre-existing conditions won’t be penalized when obtaining insurance; those younger than 26 can stay covered under their parents’ policies without penalty; and several advantages play out for seniors.
Businesses with fewer than 25 employees can take advantage of new tax breaks, while those with fewer than 50 employees can sign on for what may be less costly plans via government options.
But for businesses with 50 employees and more, the picture is less rosy. Tate admits that in many cases, premiums will rise and employers will have to make active choices about how to react when mandates finally settle out.
Tate’s advice is to stay calm and focused. “You’ve got to get beyond the political debate,” he says. “Whether you’re a small, medium or large business, you can make smart choices to maximize tax breaks, federal subsidies and other protections to minimize the fi nancial impacts. But you can only do that if you’re an informed, savvy individual or business.”
It’s not easy, thanks in part to the shaky rollout of the site healthcare.gov and the program’s initial online enrollment, as well as the law’s numerous updates and delays.
Some of the most pressing questions include:
▶ With so many delays and changes for both businesses and individuals, what will the law actually look like when it’s fully implemented?
▶ Allegedly, 7 million individuals needed to enroll by the March 31, 2014, deadline for the ACA to be a success. While numbers have yet to finalize, what happens if it falls short?
▶ Should naysayers hold out hope for a repeal or replacement? Since 2010, retailers have examined any number of ways to avoid the cost increase the law could bring. In late 2012, the Huffington Post reported that Royal Farms, a 155-store chain based in Baltimore, made efforts to shift all its store-level staff to parttimers. The chain did not respond to requests to confi rm the status of its efforts or comment on that report.
While others have taken less dramatic approaches, the postponements and ongoing uncertainty are keeping everyone on edge. Some chains, such as Cumberland Farms, Framingham, Mass., are tapping Obamacare as an employer-of-choice opportunity, shifting toward a full-time employment plan. In the case of Tulsa, Okla.-based QuikTrip, it’s improving an already-robust benefits plan.
“Our employees follow the news, they hear about other companies cutting back hours—QuikTrip’s not doing that, so it’s a huge morale booster,” says company spokesperson Mike Thornbrugh. “The only reason QuikTrip is successful is because of our employees. We’re going to take care of them regardless of what the federal government does.”
Gus Olympidis, president and CEO of 60-store Family Express, Valparaiso, Ind., says, “Our strategy, our inclination is [to] stay the course, to differentiate ourselves by delivering a package that is better than average. Obamacare creates an equalizing effect on a certain level. How are we going to be better than the better players, who are also in search of better people? At this point, we’re currently putting everything on hold. We’ve got time now. No decisions have been made at this point.”
Meanwhile, others are seeking a balance between cost and employee turnover.
“Going forward, we will look at health care and its costs every year,” says David Crawford, vice president of operations for Las Vegas-based Green Valley Grocery, which to date has offered health care to full-time employees. “We’ll try to do what is best for our employees, our business and our customers.”
Up Next: Plagued By Seemingly Arbitrary Changes
You Are Here
The Affordable Care Act is definitely a moving target. A quick review of just a few ongoing developments at press time show the numerous and seemingly arbitrary changes occurring with each passing week, touching on the flux in deadlines, the program’s tenuous progress and even the elements within the law itself.
Easily the most c-store-relevant adjustment has been the fluctuating deadlines for the employer mandate. Businesses with more than 50 employees were initially told they’d have to offer coverage to anyone working more than 30 hours a week once the majority of health-care reform went into effect Jan. 1, 2014.
That deadline has now changed multiple times. The first delay came last July, when the Obama administration announced it was pushing the employer mandate back by one year.
In a written statement on the Treasury Department’s website (where the delay was first announced), the administration said the decision was made to accomplish two goals: “First, it will allow us to consider ways to simplify the new reporting requirements consistent with the law. Second, it will provide time to adapt health coverage and reporting systems while employers are moving toward making health coverage affordable and accessible for their employees.”
That date was further pushed back in February 2014, when it was revealed that companies with 50 to 100 employees will have an additional year (until January 2016) to offer coverage, and companies with more than 100 employees would have to cover only 70% of workers in 2015 (as opposed to 95%). It was also announced in February that employers would have to provide certification that they did not drop workers in order to avoid providing coverage.
Of course, by the time January 2016 arrives, retailers could be dealing with a drastically different law—and costs— than what’s on the books today. Other updates are occurring as news about the ACA’s execution emerges and measurements of success become known.
Measuring Up
Though there are plenty of “back-ups” in place to ensure Obamacare works, regardless of signups, the Congressional Budget Office (CBO) originally had set the goal of 7 million insured by the end of the open-enrollment period on March 31, 2014. That figure later dropped to 6 million and, as the deadline approached, the administration backed off the goal altogether.
Shying away from that number is understandable. As of late February, about 2 million more people would have needed to sign up in order to be deemed “a success.” Part of the slow reception can be attributed to the disastrous rollout of healthcare.gov’s online system, which experienced multiple crashes and frustratingly long wait times in its first months.
Beyond the potential failure to hit the broader goal of 6 million to 7 million (the final figure had not been reported as of press time, though by early March signups were said to be above 4.3 million) is the deeper concern about who has signed up. For the system to work properly, it’s crucial that a decent percentage of younger, healthier individuals are enrolled and enrollees are actually paying their premiums.
The age ratios are at best concerning, and at worst disastrous.
According to U.S. Department of Health and Human Services (HHS) data, only 24% of Americans who enrolled in ACA plans during first three months of enrollment were in the coveted 18-to- 34 age bracket; by comparison, 55% of enrollees during that time were 45 to 64, an age bracket just shy of Medicare eligibility and significantly more risky.
Knowing the 18-to-34 bracket would be more difficult to attract, both because of generally better health and feelings of invincibility, ACA ads targeting this set flooded the market in 2014. That led to a 65% increase in January signups, but healthy, younger individuals still only accounted for roughly 25% of the 4 million ACA enrollees.
As troubling as the age gap may seem, measures such as risk corridors, reinsurance and risk-adjustment programs have been built into the law to ensure that—at least in the early years—healthy individuals are not paying increased premiums to cover the high cost of older or sicker enrollees.
No, analysts say the more important metric in the early success of the ACA is one that is not yet measurable. In a February interview with USA Today, Washington and Lee University law professor and health policy expert Tim Jost suggested that the true impact healthcare reform will have on insurers will be known only once officials have a better idea if new policyholders are actually paying for their insurance plans.
“If nobody shows up, that will have serious consequences in the risk pools,” said Jost.
To date, the HHS has data only on how many people have enrolled, not how many have paid. Jost believes that 2015’s premium rates will provide a better picture of how well the ACA is working.
“Are there insurers who drop out of the exchange because they can’t make a go of it?” he said. “Or do insurers jump in if things look pretty good?”
Up Next: Repeal? Replace? What's realistic?
Repeal, Replace?
The questions don’t end there. Bigger changes may surface as different parties—some within Congress, others on the state level—attempt to repeal, replace or amend the law. These efforts include:
▶ Repeal: In Congress, a Republican majority continues its attempts to repeal or derail Obamacare. March 5, 2014, marked the 50th time the GOP passed a bill doing just that. Previous attempts have failed, though Republicans have vowed to make Obamacare a centerpiece of the midterm elections. A full repeal may seem unlikely, but could a Republican landslide in 2014 change the discourse?
▶ Replace: Republicans are also looking to put forward a more conservative-friendly alternative to the ACA. House Speaker John Boehner hinted at the importance of a Republican plan for health care during a January House GOP retreat, and the House Ways and Means committee had initiated an effort at press time.
▶ State Battles: When the Supreme Court ruled in favor of the ACA, it also ruled that states could opt out of the Medicaid expansion part of the law. Many red-leaning states have done just that (though a number of states who once refused Medicaid expansion have reconsidered, thanks to the hearty federal funds to support the expansion). Other states have passed strict laws about health exchanges, making it exceedingly difficult for individuals to sign up. It’s a situation that varies from state to state and will undoubtedly continue to evolve.
Inevitably, each individual result could affect local retailers. “I tell everyone: Hope for the best, plan for the worst,” says Tate.
Fundamentally Speaking
The much-publicized, bottom-line requirement of the law is that employers with 50 or more full-time workers will have to pay for health insurance or drop their coverage and pay a fine of up to $2,000 per worker per year to the federal government.
What’s probably less known are the many standards to which these employer plans must comply to be sanctioned by the government. Tate has outlined a few of what he considers “strict” criteria:
▶ Minimum Actuarial Value: Company insurance plans must have a minimal “actuarial” value of 60%. This means 60% of an employee’s medical expenses must be covered under the insurance policy offered. So of all the dollars going to an insurer, that insurance company will have to cover at least 60 cents of every dollar of a person’s medical expenses as part of holding those policies.
▶ Deductible Limits: For individual and small-group plans, the law limits deductibles to $2,000 for an individual and $4,000 for a family.
▶ Affordability: Premiums can’t be higher than 9.5% of the worker’s total gross income (i.e., not household income, as the law originally stated).
If plans don’t meet these criteria, employers face a $3,000 penalty (higher than the $2,000 per worker if the company offers no plan at all) for every worker who buys insurance from an Affordable Insurance Exchange and gets a federal subsidy.
Some stipulations come in the form of added taxes, basically addressing perceived inequities in how companies cover certain employees. Here are a few of those cases:
▶ Companies offering expensive “Cadillac” health plans will pay new taxes on them, starting in 2018. Under the law, an employer offering a plan with a premium that costs more than $10,200 for an individual ($27,500 for a family) will pay a 40% excise tax on the amount exceeding the threshold.
▶ High-wage earners will face increases in Medicare taxes and net investment income. Under the new law, the Medicare Part A (hospital insurance) tax rate rises by 0.9% (from 1.45% to 2.35%) on wages of more than $200,000 for individuals and $250,000 for married couples filing jointly. Obamacare also imposed a new 3.8% tax on net investment income (exempting home sales for a primary residence) as of Jan. 1, 2013.
▶ Tax-free flexible spending accounts offered by many companies will face new restrictions, including a $2,500 cap per calendar year. Those with health savings accounts will also pay higher penalties for using that money for non-medical emergency expenses, making them less desirable (with the tax penalty rising from 10% to 20%). Health-care deductions will also take a hit. Taxpayers will have to document out-of-pocket medical expenses that are at least 10% of their income to itemize those expenditures on their taxes. Folks who exceed the new ACA limits on capital-gains taxes will also pay more in taxes.
Other mandates cover dependents of workers, seniors and young people under 26 who can find alternative coverage, fi nes for companies that “cushion” their plans to account for workers with preconditions and even a tax on companies that purchase “fully insured products.”
Up Next: Is Opting Out an Option?
Opting In, Up and Out
One of the effects of Obamacare will inevitably be higher enrollment in whatever plan a company provides, Tate believes.
The very nature of the policy encourages it, with the main driver being the individual mandate. Under the new law, every American is required to have insurance through some means as of Jan. 1, 2014, or pay a tax to the Internal Revenue Service. That tax amounts to $95 per year or 1% of modified adjusted gross income per individual next year, whichever is greater (up to a maximum of $285 per family).
In 2015, the tax rises to $325 or 2% of income per individual (maximum family penalty: $975). And in 2016, it scales up to $695 or 2.5% income per individual (maximum per family: $2,085). The government will likely collect the money by deducting it from people’s tax returns, Tate says.
The ultimate goal is to encourage people into preventive care. People who are insured are more likely to manage their health care better, heading off the likelihood of costly treatments later. It’s a strong argument, says Tate. Other countries with similar national policies spend far less on health care than the United States does.
Thornbrugh says QuikTrip—which not only offers health-care plans to fulltime workers but also has onsite wellness centers for any employee (and their families) and provides 30 different prescriptions free of cost—has already reaped the benefits of encouraging preventative care.
“The cost benefits are huge,” he says. “If we can catch a lot of problems or illnesses early, it not only helps the employee, but they get back to work quicker.”
While analysts expect millions will remain uninsured, even with the full implementation of Obamacare, most say these provisions will result in 95% of legal residents having insurance by 2016.
For employers offering health benefits, Tate says that day will have brought with it a surge in enrollment and increased costs.
The larger intent was to lower overall costs, but for businesses, that may not be the case. Tate says the law contains no cost-control provisions that will reduce health-care expenditures or hold down premiums in the short run. In fact, two independent studies of health-care spending and insurance premiums indicate both have continued to rise since Obamacare was signed into law in 2010.
In 2011, spending on health care rose 4.6%, up to $4,547 per person on average, says Tate, citing the nonpartisan Health Care Cost Institute. It rose again in 2012 by a similar amount and was projected to increase by about the same level in 2013. In terms of employer-sponsored insurance, an individual policy averages about $5,884, with the individual’s share $999 and the employer’s $4,885, according to the latest projections.
At the same time, insurance premiums climbed 9% on average for a family in 2011—double the rate of wage growth— to $15,073 in 2011 for employer-provided plans, according to the nonpartisan Kaiser Family Foundation. In 2012, they rose by a more modest 4% to $15,745. And last year, Tate says, they’re up, to about $16,351.
Giving a bit of context, the cost-of-living increases annually calculated by the U.S. Social Security office run far below these health-care increases: 0% in 2011, 3.6% in 2012, 1.7% in 2013 and this year projected at 1.5%. Simply put, healthcare costs are rising two, three, even four times as fast as the nation’s standard cost of living.
For Spencer of Kwik Trip, the law in many ways “encourages businesses to get rid of employer-sponsored plans,” which from the employee feedback she has heard means confusion and worry. “They’re concerned in that they always relied on the Kwik Trip health plan being here.”
She credits the company for continually communicating with its employees to calm those fears. And now that the government has delayed the compliance date, the company has time to continue to evolve its plan. Since 2010, the chain has worked with a third-party actuarial firm to better address its full- and part-time options.
Small-Company Compliance
The picture is different for smaller companies. Obamacare provides employers with 25 or fewer workers new tax breaks if they cover their health insurance. The credits amount to 35% of what employers now pay for health-care premiums. That tax credit rises to 50% in 2014.
Small companies—those with fewer than 50 employees in 2014 and fewer than 100 in 2016—will be able to take advantage of new Small Business Health Options Programs (SHOP), offering lower-cost health insurance plans as part of the Affordable Healthcare Exchanges. The SHOP plans are projected to have lower premiums than small businesses have historically been able to negotiate, once they become fully operational in all 50 states. Currently, only one such plan exists, giving rise to speculation of further deadline delays, Tate says.
All plans offered through the exchanges are required to meet specific “essential health benefits” designated by the federal government in 10 broad categories, including maternity care, mental-health services, prescription drug coverage, pediatric care and hospital treatment. The plans come in four varieties: Bronze plans have the lowest premiums, but also offer the lowest amount of coverage at 60% of medical costs on average; Silver, 70%; Gold, 80%; and Platinum, 90%.
An estimated 26 million people will also qualify for federal tax credits to help defray the costs of those plans. For instance, families and individuals who earn too much to qualify for Medicaid but less than 400% of the poverty level will qualify for a subsidy next year.
All that said, small businesses will certainly feel the heat in the bigger picture, says Tom Robinson, president and CEO of 34-store Robinson Oil Co., Santa Clara, Calif. Those with fewer than 50 employees will still have to compete in the labor pool with companies with better health-care packages, he says. In addition, talks at the state and federal level to increase minimum wage is among many other issues hitting small businesses on top of Obamacare.
“We keep wondering why the jobs market doesn’t get better as fast as we expect it should,” he says.
Ultimately, Robinson says he wants Obamacare to work. “I’m not against the idea of improving coverage, cost containment, better quality insurance at a better price. … That would be ideal,” he says. “I’m not negative—just not terribly optimistic I’m going to get the desired effect.”
Knowing Where You Fall
For retailers hoping to make sense of the law, the best place to start is knowing what category of employer a retailer falls into—25 or fewer workers, 50 or fewer, 50 to 99 and 100 or more.
That delineation may sound straightforward, but of course, details of the law are never simple. The complexity shows up in two areas: the definition of a full-time employee and the concept of full-time “equivalent.” So far, full time has meant any employee working more than 30 hours a week. However, at press time, the House Ways and Means Committee approved a bill to define full-time employees as working an average of 40 hours a week. How far the measure will go to affect the law is unclear.
In the meantime, being clear about the 30-hour requirement is an important detail, because there are gray areas. In some cases, an employee’s hours can fluctuate week by week. In that instance, an average over 12 months is a good measure, says one health-care consultant. If over the year the employee works more than 30 hours on average, then he or she is full time.
The real concept to grasp is that of a full-time “equivalent,” says Jeff Kirke, vice president of Holmes Murphy and Associates, a health-care broker based in Des Moines, Iowa. An employer may have less than 50 full-time workers and several part-timers. But two employees working 15 hours can add up to a single full-time person, thus triggering the fulltime “equivalent” scenario and bumping the employer into the next bracket.
Whatever the case, “employers will have to make a decision,” Kirke says. “But it’s a core-beliefs discussion. You don’t have to offer benefits today, but a lot are because they want to be an employer of choice.”
Indeed, for many businesses, the new law merely laps up against formidable packages they’ve already implemented. In Honolulu, for instance, employer mandates have been in place for years, so Aloha Petroleum officials say they already provide coverage to all full-time employees. “This does raise our costs,” says Richard Parry, president and CEO of Honolulu-based Aloha. “But it provides a valuable benefit to our employees.”
Up Next: How Retailers are Creating a Healthy Culture
Creating a Healthy Culture
As some retailers look to cut back full-time employees to manage the impending employer mandate of the Affordable Care Act (ACA), others have gone in the other direction, putting employee-driven health and wellness programs at the center of their company culture, regardless of what the government requires.
Cumberland Gulf Group: “It’s not just a smart thing to do—it’s the right thing to do.” This is what Ari Haseotes, president and COO of Framingham, Mass.-based Cumberland Gulf Group, said of the decision to offer more than 1,500 employees health-care coverage beginning Oct. 1, 2013—more than a year before the 600-store retailer needed to do so under the ACA.
QuickChek: “We are committed to being a great place to work … and part of that investment is to have a wellness strategy to achieve a healthy workforce,” says QuickChek CEO Dean Durling. The Whitehouse Station, N.J.-based chain offers its full-time employees medical, dental and vision plans; fitness-center reimbursement; discounts on fruits and salads to encourage healthy on-the-job meals; free flu shots; and a “Fit for Life” wellness program that encourages employees to improve their health through risk assessments and annual physicals in exchange for a discount on medical plan costs.
Kwik Trip: “Our co-workers are our No. 1 asset, and if they are your No. 1 asset, then you make sure that you put your time and resources into taking care of those people,” said Kwik Trip corporate communications manager John McHugh of the January 2014 opening of an on-site health clinic, just the latest commitment in caring for its employees, and perhaps reducing the company’s health-care costs at the same time. Located at Kwik Trip’s La Crosse, Wis., headquarters, the clinic will service about 3,000 area employees, with online resources for 8,000 additional team members.
Sheetz: “With escalating health-care costs, we were looking for a way we could provide a program for our employees that could help control health-care costs. Our goal is to create a culture of 'Shwellness,’ ” says Bill Young, Sheetz’s director of compensation, benefits and risk. The 10,000-square-foot, $3.5 million Sheetz Health and Wellness Center in Altoona, Pa., offers employees and their families primary care, health assessments, lifestyle coaching, disease management services and an impressive 4,300-square-foot fitness center.
QuikTrip: “We don’t ask what it costs. … The bottom line is everyone is healthier, and the cost to us is irrelevant on the back side.” This is how Mike Thornbrugh, spokesperson for the Tulsa, Okla.-based retailer, responded in the wake of the 2009 opening of QuikTrip’s second on-site employee health clinic—nicknamed “Doc in the Box”—in Belton, Mo. “No matter what Congress decides, we’re going to do this,” he said. “No offense to elected officials, but at QuikTrip, we think we know what our employees want and expect, so we’re going to go forward with what we’re doing regardless.”
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