Healthcare Costs Impacting Retailers

November 20, 2012

The Food Institute reports that the CONGRESSIONAL BUDGET OFFICE estimated that federal spending on major health care programs will reach 6.3% of gross domestic product by 2020, up from 4.7% this year and far above a 40-year average of 2.7%.

The Food Institute reports that the CONGRESSIONAL BUDGET OFFICE estimated that federal spending on major health care programs will reach 6.3% of gross domestic product by 2020, up from 4.7% this year and far above a 40-year average of 2.7%. While the federal government must find a way to pay for rising Medicare and Medicaid costs and provide for aging baby boomers, businesses must also come up with a solution to balance rising health care costs and employee benefits while following the provisions of the U.S. Patient Protection and Affordable Care Act passed in 2010.

Some of the largest employers in the U.S. are involved in the food industry, and their efforts are being closely watched by other businesses responsible for large numbers of employees. According to the KAISER FAMILY FOUNDATION’s Employer Health Benefits 2012 Annual Survey, the average monthly U.S. worker contribution this year was $79 per month for single coverage, and $360 per month for family coverage.

WALMART’s announcement that its U.S. employees will pay between 8% and 36% more in premiums for its medical coverage in 2013 led some of its 1.4 million workers to indicate they would go without coverage..

The retailer, the nation’s largest private employer, stated that rates would increase because health care costs continue to rise, but its employees’ average costs for health care would only rise about 4.4% in 2013, less than the 9% average increase human resources firm AON HEWITT expects for all American workers next year. Walmart’s figure is reduced due to the elimination of some high premium plans, its offer to most employees to cover heart and spine surgeries at the six health care centers and provision of other services such as access to a health care advisor.

While Walmart pays for preventive care such as routine checkups, workers must pay deductibles of at least $1,750 before Walmart covers 80% of the cost of other care such as doctor visits and diagnostic tests. It will also make a separate contribution of $250 or $500 for individuals, and twice that range for families. More than 50% of Walmart’s U.S. employees sign up for its health care plans, and the plans cover 1.1 million people when dependents are included, though nearly two-thirds of Walmart employees pay for individual coverage. Rates covering individuals will rise somewhere between $2 and $11 per paycheck, or 13% to 23%, according to documents viewed by Reuters. Newly hired part-time employees at Walmart will have to work a minimum of 30 hours a week, up from 24 hours previously, before they qualify for coverage.

The Affordable Care Act requires larger employers, with 50 or more full-time equivalent employees, to provide coverage for their staff who work at least 30 hours per week. To meet requirements and address rising health care costs, which have resulted in annual premiums for employer-sponsored family health coverage increasing 97% since 2002, while wages increased 33% and inflation 28% over the same period, according to the Kaiser Family Foundation. DARDEN RESTAURANTS, parent of Olive Garden and Red Lobster and responsible for approximately 45,000 full-time workers, plans to give its employees a fixed sum of money with which to purchase medical coverage through an online marketplace, reported The Wall Street Journal.

Employees will pay the same amount out of pocket as they currently do under the employer-sponsored plan, and those opting for more expensive plans will pay more themselves, and those who choose a less expensive plan will pay less. Darden’s exchange approach still involves employer-backed group plans, is not individual insurance and does not rely on changes in the Affordable Care Act that will be implemented in 2014.

Many in the industry are watching how Darden’s health insurance plan will work, and if it takes hold some predict it may follow the transition from company-provided pensions to 401(k) retirement-savings plans controlled by workers. Several big benefits consultants and health insurers expect the employee choice model to be successful, including Aon Hewitt, which is behind the insurance exchange that Darden will use.  TOWERS WATSON & CO. also purchased EXTEND HEALTH INC., an online marketplace used by employers to set retirees up with Medicare coverage, in May. Towers Watson & Co. plans to expand the marketplace to include active workers buying individual plans, starting in 2014, when official health insurance exchanges must be fully certified and operational.

“Within the next two or three years, it’s going to be mainstream,” according Ken Goulet, executive vice president at WELLPOINT INC.. Wellpoint will launch a product next year, Anthem  Health Marketplace, that lets employers offer a variety of its plans to workers and paired with a fixed contribution. Mr. Goulet claimed to be close to signing up more than 30 midsize and large employers for early next year, including one with more than 50,000 workers.