Coverage: Wal-Mart cuts health benefits

While it might not seem like a lot, Wal-Mart is cutting health benefits for 30,000 part time workers. That is about 5 percent of the workforce, but the reasons it is citing are what could be the most troubling.

Hiroko Tabuchi had this story for The New York Times:

Walmart Stores, the world’s largest retailer and the nation’s largest private employer, said on Tuesday that it would terminate health insurance coverage for about 30,000 part-time workers, joining a string of retailers that have rolled back benefits in response to the Affordable Care Act.

Starting on Jan. 1, Walmart will no longer offer insurance to employees working less than an average of 30 hours a week, a move the retailer said was in response to an unexpected rise in health care costs.

“This year, the expenses were significant and led us to make some tough decisions,” Sally Welborn, Walmart’s senior vice president for global benefits, said in a blog post announcing the changes.

The workers losing their coverage make up about 5 percent of the company’s part-time work force of about 600,000, including in-store, logistics and corporate workers, said Brooke Buchanan, a company spokeswoman. Walmart did not disclose what percentage of the part-time work force would be left without coverage. Many part-time employees were never covered for a variety of reasons.

The Wall Street Journal story by Shelly Banjo, Anna Wilde Mathews and Theo Francis pointed out Wal-Mart wasn’t the first company to shift costs to employees:

Many businesses are continuing to shift more costs to workers. Phoenix-based technology distributor Avnet Inc., for example, is paring back its traditional plans in favor of high-deductible options. Other companies are reducing coverage for spouses, according to consultants at Towers Watson & Co.

Still others are going further, ending their traditional coverage for employees who will instead get a fixed sum of money to buy their own insurance on private exchanges. Aon PLC’s Aon Hewitt is set to announce that enrollment in its exchange will grow to around 850,000 workers and dependents next year, as another 15 employers sign up.

Several facets of the health-care overhaul are driving concerns about costs: one is the coming tax on so-called Cadillac plans, which carry high premiums and offer rich benefits, and another is the individual mandate that requires most workers to obtain coverage or else face a penalty.

Writing for the Los Angeles Times, Andrew Khouri explained the law behind the move by many employers:

The Affordable Care Act requires large companies to offer health insurance to employees who work an average of 30 hours or more a week.

In some ways, those working fewer than 30 hours can do better with federal premium subsidies or by enrolling in Medicaid, if their state expanded Medicaid as provided for under Obamacare.

However, as some companies have cut workers’ hours to get below the 30-hour threshold, or stopped coverage they previously offered such part-timers, criticism has mounted that employers have simply dumped workers onto the government dole.

The Reuters story by Nathan Layne and Siddharth Cavale said the move would reduce costs and bring Wal-Mart in line with other retailers:

Wal-Mart said the bi-weekly premiums for its most popular and lowest-cost employee-only plans will rise by $3.50 to $21.90, which represents a 19 percent increase. Wal-Mart workers earn on average $12.92 an hour.

The decision to reduce coverage came a week before the company’s chief executive, Doug McMillion, is due to face fund managers and analysts at an annual meeting for the investment community. Wal-Mart has been struggling to boost profits, with U.S. same-store sales flat or declining for the last six quarters.

Wal-Mart said the move would bring it in line with many of its competitors. Target Corp (TGT.N) and Home Depot Inc (HD.N) recently announced cuts to benefits in light of the Affordable Care Act.

According to consulting firm Mercer, 62 percent of large retailers did not offer health-care benefits to part-time workers as of 2013, a comparatively high rate that reflects low wages and high turnover in the industry. That figure drops to 37 percent for companies overall.

Brian Yarbrough, an analyst at Edward Jones, said the decision by Wal-Mart could force other retailers to rethink what benefits they provide.

All retailers are “trying to cut expenses, to keep things lean,” Yarbrough said. “At some point you start looking across the board, and this is probably the next place to start looking at cuts.”

While it’s a small percentage of Wal-Mart’s employees who are losing their benefits, it is likely the most vulnerable employees. The whole notion of the new health care law was to make it more affordable for those with the least amount to spend, but if Wal-Mart is stopping benefits, then it’s hard to make the argument the law is doing what it intended. It might save money for the company, but for the nation overall it’s more part-time and underemployed searching for health care on the exchange. And if this becomes a trend, it could be even more costly for the nation as a whole.