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Health Care Reform Poses Challenges to Hospitality and Retail Industries

Source: Marsh

Posted on 20 Mar 13 by Annie George

A recent Mercer survey of more than 1,200 employers, conducted shortly after the Supreme Court’s decision to uphold key provisions of the PPACA, found that employers in the hospitality and retail sectors expect the reform bill to affect them more than employers in other industries. Nearly half of these employers (46%) expect their costs to increase 3% or more as a result of the PPACA’s requirements. Another third of hospitality and retail employers do not yet know what the full impact on their businesses will be.

What hospitality and retail employers have in common is that they typically employ more part-time hourly (and often lower-paid) workers than companies in other industries. This means they will be more affected by key provisions in the PPACA that are set to take effect in 2014.

With the fate of the PPACA secured by the Supreme Court ruling and 2012 presidential election, many employers are now looking at what the PPACA will mean for them and their employees. Hospitality and retail companies should pay particular attention to three provisions.

Extending Coverage to Part-Time Workers
The lion’s share of the added cost for hospitality and retail employers will come from extending coverage to employees who are currently ineligible for coverage in an employer-sponsored plan. In 2014, employers with 50 or more full-time equivalent employees will be required under PPACA to extend coverage in a qualified health plan (one that meets the minimum requirement of 60% actuarial value) to all employees working an average of 30 or more hours per week in a month. Employers that do not provide such coverage will face a penalty of $2,000 per employee, minus the first 30 employees.

About one-quarter of all employers (24%) that responded to Mercer’s survey said that they do not currently cover all employees working 30 or more hours per week. All of these companies will need to take action to comply with the PPACA, but the biggest challenge will be to hospitality and retail employers — nearly half of which (46%) currently do not cover all employees working 30 or more hours per week.

For these employers, the 30-hour provision comes down to a fundamental decision: Do we reduce the number of hours for certain employees to less than 30 per week? Or do we extend coverage to all those working 30 or more hours per week — essentially replacing some part-time positions with full-time equivalents?

A third option is to simply hold the course and pay penalties as needed, although this approach introduces a level of uncertainty that not many employers seem willing to accept. Potential loss of productivity should be taken into consideration as employers weigh their options.

Nearly two-thirds (65%) of retail and hospitality employers not currently in compliance with the 30-hour rule told Mercer that they are more inclined to change their workforce strategy so that fewer employees work 30 or more hours per week. But ultimately, each employer will address this in its own way, with approaches varying from enhancing their benefits packages to exiting the employer-provided health insurance marketplace altogether (leaving employees to purchase insurance on their own via exchanges). And because individual states are responding to reform in their own ways, some employers — particularly large chains — may take different approaches in different states.

Affordable Coverage
Under the PPACA’s shared responsibility requirement, employers must offer “affordable” health coverage to their employees. Full-time employees must generally be asked to pay no more than 9.5% of their household income for coverage. If employees’ contributions to health coverage are greater than this 9.5% level — and at least one full-time employee accesses subsidized coverage through a health insurance exchange — the employer may be subject to a $3,000 annual penalty per full-time employee purchasing the subsidized coverage.

Less than one-fourth (22%) of employers responding to Mercer’s survey believe it is likely that their current health plan would be considered unaffordable by this standard for at least some employees — but again the number is much higher (43%) for hospitality and retail employers. To offer more affordable plans, with lower contributions from employees, these employers have two primary choices: reduce the employee contribution required in the current plan, or add a lower-cost plan with lower contributions. The first option would clearly result in higher costs for employers; the second could either raise or lower cost, depending on whether the lower-cost plan was offered as an option or as a full replacement.

The Individual Mandate and Medicaid Expansion
Another consideration for hospitality and retail employers is that their low-wage employees have historically been more likely to opt out of enrolling in health plans. Once the PPACA’s individual mandate goes into effect, requiring all individuals who can afford coverage to obtain it or pay a tax penalty, employers with high opt-out rates today could experience a significant increase in enrollment, and thus higher costs.

Some employers may have been counting on Medicaid to provide a solution. Under the PPACA, Medicaid will expand to include individuals with household income less than 133% of the federal poverty level (FPL). It would seem that many lower-wage hospitality and retail industry workers would qualify for Medicaid — but in its June 2012 ruling on the PPACA, the Supreme Court allowed states to opt out of this Medicaid expansion. Some states, such as Oregon and Washington, have committed to expanding Medicaid eligibility, but others — including Texas, Florida, South Carolina, and Louisiana — have already declared their intention to opt out of the expansion. The bottom line is that hospitality and retail employers — particularly those that operate in several states — will need to pay close attention to how individual states are handling Medicaid.

Preparing for PPACA

Some of the most onerous provisions of health care reform are now less than a year away from taking effect. If your company does not yet have a strategy for how it will respond to PPACA in 2014 and beyond, you should begin to evaluate the various options immediately.

This starts with a fundamental understanding of how the PPACA — and various strategies that you may undertake to respond to the new mandates — will affect your specific business. Your employee benefits, human resources, and risk management advisors should already be helping you plan for the effects of health care reform.

When determining the strategies to comply with the PPACA, hospitality and retail organizations should work with their advisors to consider the following questions:

  1. What mix of full-time and part-time employees will create the optimal balance between health care costs and workforce productivity?
  2. Do our current health plans meet the PPACA’s standard of “affordability”? What would it cost to add additional health care options for our workers?
  3. How are the states in which we operate responding to the PPACA, including the Medicaid expansion?
  4. What options are available to help us navigate administration infrastructure setup?