Sounding Board: A closer look at “Obamacare”

Len LewisAs the implementation of the Patient Protection and Affordable Care Act approaches, retailers are going to have to make some tough decisions.

By this time next year, some of you will break the law in order to save your company. Some of you may break the law and not save it.

Not an enviable choice. But it is one that companies could be forced to make under the Patient Protection and Affordable Care Act, aka “Obamacare,” which goes into effect this year and next.

Let’s be clear. I have yet to meet anyone in this business that is against health care reform. But like with many government-mandated programs they fear this initiative is a complex, expensive and unworkable job killer that does not really lower escalating health care costs.

Here is the scenario. The law requires companies with 50 or more full-time equivalent employees to offer insurance to those working 30 hours or more.  Beyond that, you have to pay a $2,000 fine for each uninsured worker over 30 employees. The irony is that it may be cheaper to pay the penalty then to pay the cost of insurance.

The Kaiser Family Foundation says the average annual insurance cost to employers is $4,664 for a single employee and $11,429 for a family. Under the new legislation, it has been estimated that even the price of covering a minimum wage worker could increase $3,000.

Math was never my strong suit, but the numbers do not add up. Apparently they do not for a lot of people, including David Dillon, CEO of Kroger Co., whose chain intends to continue covering full time employees. As he told the Financial Times: “If you look through the economics of the penalty that companies pay versus the cost of coverage, the penalty is too low or the cost of coverage is too high, or the combination is wrong.”

Meanwhile, Nigel Travis, CEO of Dunkin’ Brands, said the company is lobbying to change the definition of “full-time” to 40 hours per week from 30. This is going to price unskilled or low-skilled workers out of the full-time market and hurt the very people that healthcare reform was meant to help.

Furthermore, many critics already characterize retailing as an industry composed largely of part-timers. Since employers will not face a penalty for not insuring part-timers, it is only logical that the industry will move further in this direction.

So what do you get when you cut a full-time employee to part-time status? Job sharing! An employee might put in 20 hours at your store then go across the street to your competitor for another 20-hour shift. Do you really find that an appealing prospect?

A recent editorial in the Wall Street Journal also suggested that companies who do this face the prospect of boycotts by activist groups. This already happened to the Darden Group, which owns the Olive Garden and Red Lobster chains. Do you really want to paint a big target on your back? No pun intended.

Additionally, some see the law as a disincentive to build new stores and hire people to staff them, an odd strategy for a company trying to build for the future during a shaky economic recovery. Also consider the danger of decimating your workforce at a time when customer service may be the only thing separating you from your competitors. It is all a bit perverse, is it not?

Certainly the major issue in all this is cost. That cost under Obamacare will be about $1.2 trillion over the next 10 years including penalty payments of about $455 billion, according to the Congressional Budget Office.

It also cuts deeply into the fabric of an industry whose reason for being boils down to good customer service. It begs the question of how many workers can be cut in service-oriented stores whose reputation is on the line every minute of the day. Cutting to the bone is one thing; cutting into it is another—and far more dangerous.

Meanwhile, the Labor Department estimates there are about eight million people stuck in part-time jobs that want full-time positions. The law of the land is not doing them any favors by making those jobs even scarcer.

As the Wall Street Journal editorial said: “…it doesn’t help workers to give them health care if they can’t get a full time job that pays the rest of their bills.”

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