Healthcare Update

Retail companies should expect this year and 2014 to be a wild roller coaster ride of health insurance changes for retailers. That assessment came from Neil Trautwein, VP, employee benefits, National Retail Federation, who said that retailers need to take prudent actions to comply with the requirements of the Affordable Care Act (ACA).

"It will be an extremely interesting time as we move toward open enrollment in the fall of this year, and then into 2014 when the health insurance exchanges are supposed to open," said Trautwein. "There are many different issues coming into play very quickly. There are not a lot of clear-cut answers."

CHANGING PLANS: Retailers are expected to be uniquely impacted by the ACA, given their high reliance on part-time and seasonal workers. That's because the legislation requires employers to extend coverage to all employees working 30 or more hours per week.

"Some 46% of retail and restaurant companies participating in our recent survey say they will have to change their current health insurance offerings in some way to comply with the law," reported Joan Smyth, partner, Mercer, a New York City-based benefits consulting firm (mercer.com).

The 46% response from retailers is notably higher than the average for other industries, where some 24% of survey respondents anticipate a similar need to change their insurance programs. Such changes might be to whom the coverage is offered, what coverage is offered or how much is charged to employees.

Furthermore, 47% of retailers and hospitality companies participating in the Mercer survey expect health insurance premiums to rise by at least 3% because of the law, according to Smyth. That figure is considerably higher than the comparable 34% for all employers.

MURKY REGS: Retailers face a critical problem in re-engineering their health insurance plans: insufficient regulatory guidance. Despite the steady stream of communications from federal agencies since the last presidential election, many requirements remain murky.

"One of the bigger headaches for retailers is figuring out how to translate the requirements of the ACA in a way that makes sense for their operations," said Trautwein. "To date, they don't have all the information needed to make plans."

Here are some areas that remain unsettled:

  • Guidelines on the constitution of an "essential benefits package," the minimum health insurance coverage employers must offer.
  • Parameters for "rate bands," ratios determining how much more a plan can charge older/sicker people versus younger/healthier ones.
  • Guidelines for settling conflicts between state and federal law: For example, will provisions on benefits adopted by individual states automatically become essential benefits under federal law? Will the exclusion of certain medical treatments end up conflicting with federal anti-discrimination laws?

Retailers will deal with uncertainty not only in matters of legislation and regulation, but also in marketplace dynamics. For example, what will happen with the new competitive statewide insurance marketplaces?

"Will they succeed or fail?" posed Mercer's Smyth. "The result will affect the future of employer-sponsored plans."

Another uncertainty is the participation levels of employees, added Smyth. "Who will join the employer plan, and who will say 'I will just pay my individual penalty because I can always join the exchange later if I get sick.' "

Many observers believe that younger, healthier people will opt out of the system, resulting in premium increases for everyone else.

"They may do the math, see that the penalty is not high,and decide they don't need health insurance," Smyth explained. "After all, employers are allowed to charge up to 9.5% of employee income for the plan, and that is a good amount of money."

Taken as a group, these uncertainties pose a considerable challenge. "One of my biggest concerns is that the legislation will put too much change in the hands of employers," Trautwein said. "It will be difficult for them to keep all of the different pieces straight."

KEY CONCERNS: Will the continuing confusion about the ACA lead to a delay in its implementation?

"It would not surprise me if there were an effort to provide time for a greater transition to the requirements of the law," said the NRF's Trautwein. "But that will likely not develop until late in 2013. So I keep telling retailers, 'Plan as if the law will go into effect on schedule.' "

Retailers can take steps to ease the transition to the new world of health insurance. (See related story.) No matter how carefully retailers tread, though, the ACA is likely to have a negative impact on the bottom line.

"The retail industry operates with thin profit margins," Trautwein said. "People are one of the biggest overhead costs. Health benefits, next to wages, are the largest part of those costs, and there is very little room to absorb additional expenses or pass those along to customers. So it's not a pretty picture."

Phillip M. Perry is a New York City-based business writer.

Retailers are expected to be uniquely impacted by the ACA, given the industry's high reliance on part-time and seasonal workers.