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Big Companies' Reactions to Health Reform

September 30, 2013
URL: http://www.entrepreneur.com/article/228492

This September, an internal memo from grocer Trader Joe's chief executive officer Dan Bane to his employees leaked--and caused more than a bit of a stir. The memo reportedly said that as of next year, Trader Joe's employees working fewer than 30 hours per week will no longer be able to obtain health coverage through the company, but instead would be steered towards the new health exchanges being set up under the Affordable Care Act, often referred to as Obamacare. This from a company that had become famous for offering exceptionally rich benefits to all of its employees, whom it refers to as Crew Members.

A spokeswoman for Trader Joe's, based in Monrovia, Calif., declined to confirm the existence of the memo, which was reported by Huffington Post. In an e-mail, she said: "We have made some changes to our health-care coverage that we believe will be a benefit to all Crew Members working in our stores. We are committed to providing all our Crew Members with benefits that are among the best in our industry."

As the October open enrollment period for health benefits draws near, several large companies are reacting to Obamacare by overhauling their health plans. Although they're loathe to admit it, cost is likely the biggest driver behind the changes. "We're continuing to see health-care costs rise at a pretty unrealistic rate. At the same time you have the health of the population declining," says Craig Rosenberg, health and welfare benefits administration practice leader for Lincolnshire, Ill.-based human resources consultant Aon Hewitt. "That feeds into a big challenge for employers, because there's only so much cost they can shift to employees and a lot has already been done through higher deductibles and [premiums]."

In addition to dropping coverage for part-time workers, many companies are re-thinking their approach to covering adult dependents, such as spouses and domestic partners. Many companies now tack on extra charges for employees who insure their spouses and Aon Hewitt estimates that nearly 20 percent of companies are now increasing those surcharges.

Some companies are taking even more drastic actions. United Parcel Service acknowledged recently that it would no longer offer coverage to spouses who can obtain health care through their own employers. A spokesman for the Atlanta-based company said in an e-mail that "there were a number of factors that went into the decision," and that it wasn't contingent just on cost pressures under health reform.

Other companies, among them IBM and Time Warner, have said they will shift their retirees from their companies' health plans to private exchanges that allow retired workers to pick from several different coverage options. The companies will still subsidize the coverage, they just won't administer it. This can save money for the companies while at the same time increasing the health choices for retirees. In a survey released Aug. 21 by New York-based Towers Watson, 58 percent of companies reported that they view private exchanges as a viable alternative to employer-sponsored coverage in 2015. (Both Towers Watson and Aon Hewitt run private health exchanges.)

In lieu of cutting back their health coverage--and possibly alienating valuable employees as a result--some companies are trying to lower health-care costs by promoting good diet and exercise habits in the workplace. Zane Tankel, chairman of Apple-Metro--owner of 35 Applebee's restaurants in the New York City area--says his company has started running health fairs, and it recently passed out pedometers to employees and held a contest to reward those who walked the most in the course of their day. Tankel expects healthier workers will incur fewer insurance claims, resulting in lower costs for the company. "Even when you have a young labor force, the rewards come back to you," he says.

James Smith, senior vice president in the New York office of the Camden Group, expects more employers to embrace such wellness programs. "Many employers are using incentives to help employees become healthier over the medium and long-term," Smith says. Some studies have shown that wellness programs reduce absenteeism in the workforce, Smith says, though "the jury is still out" on whether companies will see a financial return on their investment in wellness programs.

In the midst of all the changes, some companies are boasting that they're not cutting back on their health coverage, but rather adding to it. Seattle-based coffee chain Starbucks says it will continue to offer coverage to all employees working at least 20 hours a week and it's not dropping spousal coverage, either. As of next year, the company will begin funding women's preventative health services at 100 percent, a spokesman says in an e-mail, adding, "there are no plans to cut benefits as a result of the health care law."