CSP Magazine

Obamacare: Act Now

Despite federal delays, retailers shouldn’t wait to develop health-care strategy

It is prime time for convenience executives to be alert about more changes in the Affordable Care Act—and be ready take action.

Preparing for Obamacare

C-store operators large and small face decisions as enforcement of the Obama-care employer mandates  loom. Some, of course, have made their choices, but others maintain a “wait-and-see” stance.

“Don’t be lulled by the delays,” retailer Sam Odeh, president and CEO of Elmhurst, Ill.-based Power Mart Corp., cautions his contemporaries. “If you’ve put off thinking about it, you’re already late.”

As midterm elections at the national and state levels draw near, look for more changes right up until the last minute. “Hope for the best and plan for the worst,” says Nick Tate, author of “The ObamaCare Survival Guide” and deputy health editor for Newsmax Media Inc. He says “the worst” would be implementation of the law as written, but he expects election-year politics to spur further changes this fall.

“The big picture is that employers have more time, yes, but the reality is that the law in some form is not going away,” Tate says. It’s impractical to repeal the law entirely now, but he sees a willingness in Congress to work on it and make changes.

Employer mandates for those with 50 to 99 employees have been delayed to 2016, but those with 100 or more workers face enforcement in 2015 and must provide health benefits to at least 70% of their full-time-equivalent (FTE) workers by January, and 95% by 2016.

Tate hopes conversations turn more toward how to help businesses and individuals and away from politics. A good tactic for employers, he says, is to work closely with their current insurance providers and explore whether the brokers they have are still right. A new industry of health-care consultants has sprung up, so it’s a good time to explore the options, Tate says.

Resources such as USI Insurance Services in Washington, D.C., the Kaiser Family Foundation and the National Federation of Independent Business all keep up with changes in the law and its various penalties and deadlines, which have shifted more than once since the law was signed in 2010.

Decisions on how to deal with the law run the gamut across the industry, from breaking up formerly centralized companies into multiple entities—all with fewer than 25 employees—to keeping workers under 30 hours a week, or adjusting coverage and deductibles for employees.

CONTINUED: The Financial Bottom Line

Changing Their Ways

The one thing most retailers have in common is that the law comes at a cost for their businesses.

“We ran all the numbers, and the cost was higher than our entire bottom line last year,” says Rick Scriber, vice president of JBL Hit & Run, a chain of six stores in the St. Louis market. Most of his stores are drive-thrus, which typically require more employees per store (15 to 20) than a traditional c-store, so the staff total is close to 100 FTEs.

A change in the law to make a fulltime workweek 40 hours would help, Scriber says. His company renewed its

employee health benefits in December, so it is covered through 2014 and evaluating what to do for 2015.

Scriber does not oppose universal health care but says the country doesn’t have the structure to pay for it yet, and a weak economy in many areas remains a problem. “We are still seeing empty stores and stores closing in central Southern Illinois,” he says.

Odeh says the health-care law prompted him to change his business model when it was signed in 2010. Since then, he’s been decentralizing and divesting, converting to a commissioned marketer approach; he believes it’s a viable one for the c-store industry.

In a sort of hybrid of franchisee and landowner, the commissioned marketer earns money on sales and takes on the responsibility for operations, including staffing. His rule of thumb is for an operator to have five sites and about five employees at each, or about 25 as a maximum staff size. “The independent operator has more options than the big guys, and even the midsize chains,” he says. He believes the effect of the healthcare legislation may be a factor in some recent major sales in the industry.

Even as he’s re-engineered his business, Odeh says a positive outcome of the health-care law is renewed emphasis on the role of human resources and attention to workers. “We don’t think about that as often as we should,” he says. “Last time was with harassment; now we have [HR] in the spotlight again, and that can be good.”

CONTINUED: Getting a Greater Understanding

Greater Understanding

Pointing out that there is “no magic handbook” for operators, Odeh urges c-store leaders to become aggressive and not to wait. “Talk to others in the industry, and have someone on staff dedicated to it,” he says.

That’s exactly what Lisa Dell’Alba, president and CEO of Square One Markets, a chain of nine stores based in Hamburg, Pa., is doing. Her operations are split into two segments, one for fuel wholesale, the other for c-stores, with about 100 employees total. She worked with a health-care brokerage firm to do an analysis of the options. “They recommended we stay right where we are now,” especially as pieces of the law keep changing, she says.

“We’ve tried the route of keeping workers under 30 hours,” she says, but without much success. In a 24-hour-a-day operation, it’s difficult to hold at 30 hours even if that’s what’s on the schedule. “There’s always someone who misses a shift, and someone else fills in.”

Another twist makes scheduling difficult: Workers are putting together two part-time jobs to make ends meet, and they have to adhere strictly to a schedule to move from job to job.

Her company offers employees a choice of three health plans, which she calls a “Cadillac” plan, a middle plan with lower deductibles but less coverage than the top tier, and a “catastrophic” option for those who want a fallback but don’t need or want regular care.

She believes employees generally choose wisely to fit their needs, but she’s concerned about workers being educated and understanding the differences. One effect of the law is that individuals will need to be more aware of the cost of health care. She thinks that’s a good thing, but it puts the onus on employers to educate the employees, she says.

Dell’Alba says many workers are just looking at the bottom line on their paychecks, and the weak economy has taken away the ability for them to see the future and plan for it. Unlike retirement planning, health care is more of a gamble. “Most of us believe retirement will eventually come,” she says, “but health care is not the same—you put your money into something you may or may not need.”

Some good news, she says, is that it seems health-care providers are slowing down the rate of cost increases. After a 30% increase in 2014, she’s looking at something closer to a 10% rise for 2015.

Taking a different tack, companies such as Framingham, Mass.-based Cumberland Gulf Group (parent of Cumberland Farms) are shifting more workers from part time to full time and offering them health plans in an effort to recruit and retain top talent, Tate says. But most smaller employers can’t afford to follow suit, even though they also want to build a culture that attracts and retains good workers.

CONTINUED: Different Strategies

Different Strategies

On the flip side is a retailer such as Trader Joe’s. The company canceled health-care benefits altogether for part-time workers, but it’s giving them $500 each to buy health insurance through the exchanges—which may actually be a better deal for most employees, says Tate. The workers will qualify for federal subsidies that will make health plans cheaper for them to buy through the exchanges than through the company.

Tate gives this example: A single mom making $18 an hour working 25 hours a week who would have paid $166.50 per month for her Trader Joe’s coverage last year can get nearly identical insurance for roughly half that amount through an exchange in 2014, with the tax subsidy—plus the $500 she’ll get from the company. For many employers, the issue may come down to weighing the two key subsidies in the U.S. health insurance system, from employers and the government.

The Wall Street Journal has estimated 37 million Americans might get a better deal by forgoing worker-based insurance in favor of buying a health plan through the exchanges with a federal subsidy. The fact that many employers know this is likely to encourage the trend Trader Joe’s has embraced, Tate says.

Other strategies that have emerged:

▶ Canceling spousal coverage if they can get it elsewhere. UPS is noted for having done this.

▶ Rewarding employees who participate in workplace wellness programs by reducing their premiums by up to 30%. Also, some are charging a higher premium for workers who don’t participate, and smokers could pay 50% more than non-smoking co-workers.

▶ Sheetz has gone even further, building a 2,200-square-foot health and wellness center at its distribution facility in Pennsylvania for staff and their families.

Tate says these approaches demonstrate that there is no one-size-fits-all solution for employers. He emphasizes the importance of every company, no matter the size, to evaluate the specific costs and benefits of the many options before deciding how to proceed.

Jed Brewer of Study Groups/Finance and Resource Management Consultants Inc. heartily concurs. He says he’s heard a lot of concern about the ACA from business owners and HR departments. “Folks want to offer coverage, but the costs are the dilemma.” While there’s still uncertainty around the law and enforcement, he says it’s clear that consumers will pay higher prices and business owners will face higher costs to offer health-care benefits.

“The long-term outcome, in my view, is that I think it will lead to discrimination in hiring,” Brewer says. “Companies will look for younger, healthier people in an effort to keep health-care premiums as low as possible.”

CONTINUED: Should You Wait and See?

Wait and See?

And finally, whether it indicates that employers have made a decision and moved on, or are still in wait-and-see mode at this point, a couple of industry study group leaders say the topic of health care doesn’t register as a burning issue.

“Nobody has even brought it up,” says Jim Fisher, CEO of Houston-based IMST Corp. “Maybe it’s a lot of wait-and-see until after the elections.”

David Nelson, founder and president of Finance & Resource Management Consultants Inc., is in the same boat. He says he can’t recall any retailers getting close to 50 employees and seeking ways to stay under the threshold.

NACS recently polled HR professionals on health care. It reported that the group included c-store businesses across 47 states that in total employ more than 130,000 people. Of those surveyed, all have 50 or more employees and most of those had 100 or more.

While many reported redesigning their health plans, only 2% indicated they would drop coverage for workers. Half say they already have been forced to raise co-payments and deductibles, and nearly half say they have increased employee contributions to pay for insurance. One in five say they’ve been reducing benefits for employees.

The nonpartisan Office of the Chief Actuary at the Centers for Medicare and Medicaid Services has estimated that 65% of small firms in the U.S. would see increases in the amount they invest in employee health-care coverage.

Small-Business Tax Credit

Employers with fewer than 25 workers who pay the majority of health-care premiums will qualify for a tax credit of 50% of that cost if they arrange insurance through the Small Business Health Options Program (SHOP). This means a small company could get a tax credit in addition to regular tax deductions on the cost of the health plan. The hitch: Due to program glitches, employers were not able to provide a choice of plans in the first year. It’s unclear if those problems will be resolved for 2015.

CONINUED: Health-Care Information Resources

Health-Care Information Resources

▶ U.S. Department of Health and Human Services: www.healthcare.gov/law

▶ Internal Revenue Service: www.irs.gov/uac/Affordable-Care-Act-Tax-Provisions

▶ National Federation of Independent Business: www.nfib.com/webinars/healthcare-update

▶ Kaiser Family Foundation: kff.org

▶ Newsmax Health: Obamacare911.com, ObamaCareNewsUpdates.com, AskObamaCareQuestions.com

▶ John Micale, USI Insurance Services: john.micale@usi.biz, (702) 205-8785

Source: Nick J. Tate

Employees Defined: Special Cases

Seasonal: Generally refers to employees who work 120 days in a calendar year (of 250), or about six months.

Temps: They don’t count against the 50-worker benchmark, but they may count for the temp agency.

Subcontractors: Not considered employees, but the IRS and Department of Labor have said they will crack down on companies that convert large numbers of full-time workers to contractors (or misclassify employees as such) to circumvent the employer mandate. It will be important to examine and document non-employees to avoid penalties later.

Seniors, 20-somethings: Must be offered company-sponsored coverage even if they are Medicare recipients or are covered through their parents’ insurance plans because they are under 26. If such employees opt not to sign up for the company plan, no penalty applies as long as their coverage elsewhere is sufficient.

Excluded: Volunteers, unpaid interns, certain members of religious orders or those employed through state work-study programs are not considered employees.

Employee Classifications

Full-time employees are defined as those who work an average of 30 hours per week (not 40). Fulltime equivalents are also used to determine an employer’s size. To calculate this number, employers must tally the number of hours worked on average by part-time employees each week, then divide that figure by 30.

For example: Six employees who each work five hours a week (averaged over a month’s time) are counted as a single FTE. (Six multiplied by five equals 30, divided by 30 = one FTE.)

Twenty half-time employees, each working 15 hours per week, would be considered 10 FTEs (20 multiplied by 15 equals 300, divided by 30 = 10 FTEs.)

So a company with 40 full-time employees (working at least 30 hours per week) and 20 half-time workers (clocking in 15 hours per week) would meet the 50-worker benchmark for providing health benefits under the law.

Also, if an owner has a controlling stake in multiple companies (all of which have fewer than 50 employees) the IRS will classify those affiliated operations as a single company and count all of those workers toward the 50-employee benchmark. If five or fewer individuals own 80% or more of multiple businesses, they will be aggregated and treated as one employer.

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