Retailers reposition for health-care reform; shifting rules pose biggest challenge.
While greater access to health care may be the result of a sweeping reform bill signed into law last year, the near-term effect on convenience retailers could be fiscal paralysis.
By 2014, when implementation hits its final phase, health-care reform will drastically alter the bottom line for low-wage, high-turnover busi-nesses, with c-stores falling squarely into that category.
At least the way the law reads today.
And that’s the point. The health- care law in its current form may not stand. Real-world adjustments and questions over its constitutionality may hobble, if not sideline, reform altogether. About 20% of those sur-veyed in a CSP Daily News poll taken late last year believe this will be the case, with the law either undergoing a significant change or being overturned altogether. (See sidebar on p. 70.)
“This bill … in my opinion will actually hurt those who need it most, in the long run,” says Mike Triantafel-lou, president and CEO of Handee Marts Inc., Gibsonia, Pa. “If it’s not changed, it will be extremely damag-ing to small business.”
Proponents of the law believe otherwise, with many saying reform will actually lower costs for small businesses and help make health care accessible for 32 million more people via competitive insurance “exchanges,” tax credits and cost- sharing assistance.
Whatever the viewpoint, health- care reform law will affect an esti-mated 40% of c-stores, according to NACS, with key provisions forc-ing chains such as Triantafellou’s 62-store, 7-Eleven-branded operation to review current coverage and make critical choices down the road. These requirements include:
Pay or play. While businesses will have the option of grandfather-ing in their current plans, those that do not must either come up with a plan that meets government man-dates or pay a $2,000 penalty per year per qualified employee. Paying the penalty will move that employee into state-run health-care plans called “exchanges.”
Minimum qualification. The law would set the eligibility require-ment to a minimum of 90 days. Many chains now set minimums at six months to a year.
Nondiscriminatory oversight widened. Reform expands compli-ance to discrimination laws for all companies, not just those with self- insured plans. To add to the confu-sion, the government has yet to define the exact implications.
Additional paperwork. Written into the new law is an effort to recover uncollected income, one that will require businesses to file 1099 forms for employees or vendors making $600 or more. Operators believe this stipulation will cost them thousands in administrative expenses.
While the majority of retailers polled by CSP late last year believe change is inevitable, the specifics are definitely in play. For most, that means staying flexible.
“Our primary and immediate concern … is to monitor [the law’s] evolution during both the political and rule-making process,” says Todd Wright, president of BFG Risk and Benefits Management LLC, San Anto-nio, who oversees insurance matters for Tetco Inc., also based in San Anto-nio. “Hopefully, future changes to the reform will … make [it] more sup-portive of our free-market economy.”
ACCESS VS. COST CONTROL
Part of the reason reform is so vague lies in its underlying goals, says John Owens, vice president of special mar-kets for The Lewer Agency, Kansas City, Mo., an insurance provider and employee-benefits consultancy. When President Obama signed the Patient Protection and Affordable Care Act in March of last year and a subsequent amendment called the Health Care and Education Reconciliation Act of 2010 a week later, the goal was to expand access.
Health care did need reform, Owens says, but not just with the ability for many Americans to access affordable health care. The country faces the larger issue of skyrocket-ing medical costs, especially with the bulk of the nation’s population crossing the age threshold of 65, when Medicare takes over, and the govern-ment has to shoulder those spiraling expenses. “The old system was non- functioning,” he says. “But the [law] is geared for access. It didn’t do much in the way of cost containment.”
Many provisions are also imprac-tical. Communications giant AT&T, Dallas, conducted a study last year and found that it would save $1.8 billion if it moved its 262,000 employees over to state-run exchanges, Owens says. And instead of having the estimated 5 million to 6 million Americans in the exchanges, new estimates in the wake of various studies were putting the number closer to 40 million to 50 million, a “staggering figure.”
Estimates on subsidy costs were originally $300 billion. But forecasts with the new figures are hitting $2.5 trillion to $3 trillion. “The exchanges are not set up to handle the migration of tens of millions of people,” he says.
As a result, key factors in the plan, such as the $2,000 penalty amount— which may ultimately increase—are expected to change. Owens says signs of this include a number of govern-ment-issued waivers exempting businesses from many of the law’s current mandates.
“Will [the feds] tackle cost?” Owens says. “That’s the part they’ll have to think through.” And while change can come from those charged with implementing the legislation, the courts also may have a say. At press time, numerous challenges were weaving through the judicial system. One of the most recent involved a federal judge in Virginia, who ruled that forcing indi-viduals to get insurance or pay a fine goes beyond the power of Congress to regulate interstate trade. “How much will pass constitutional muster?” Owens says. “That won’t be known for another year or so.”
On the legislative front, Demo-crats concerned over any new push by Republicans to repeal health-care reform created and released a docu-ment late last year. In it, they cited data from the non-profit Kaiser Fam-ily Foundation showing that due to expanded tax credits, employers with three to nine workers offering insur-ance increased to 59% from 46%.
In statements to the media earlier this year, U.S. Health and Human Services Secretary Kathleen Sebelius warned that repeal of the health-care reform would add to the federal defi-cit and bring back the “worst abuses of the insurance industry.”
Citing a Congressional Budget Office study, Sebelius said the law would save $1 trillion, and that num-ber refutes GOP arguments that the law would add to the deficit. “There is no question that repeal would be a huge step backward that we can’t afford,” she said.
THE GRANDFATHER CHOICE
In the end, Owens, who has spoken before groups such as SIGMA and the BP Amoco Marketers Associa- tion, believes retailers should pre-pare for change. Even if the newly elected slate of lawmakers can repeal the law, he says the earliest it could happen is 2013, and he believes such chances are slim.
Owens encourages retailers to assess the situation and develop a strategy, with the most important choice whether to keep current plans. Due to a political promise of allowing Americans to keep the plans they cur-rently have, the bill contains a grand-fathering provision for anything in place as of March 23, 2010. With the exception of certain additions, those plans can stay the same. Those adden-dums include the following:
- Extend coverage to participant children up to age 26 starting in 2011.
- Remove lifetime limits on essential benefits.
- Remove limits on pre-existing conditions.
Set minimum annual caps that will start at about $750,000 next year and phase to higher levels until Janu-ary 2014, when they’ll be unlimited. In addition, premiums or contri-bution amounts must not change for the plans to qualify for the grand-fathering provision. That will be a tough hurdle, say NACS officials. (See sidebar on p. 72.) “Employers can’t keep their plans from changing,” says Julie Fields, director of government relations for Alexandria, Va.-based NACS. “If costs go up and a company decides it’s only able to cover 60% vs. 75% of the plan, then it would lose grandfather status.” The same would apply for changes in deductibles, she says, citing that “any small change in cost would auto-matically lose [grandfather] status and become subject to more expen-sive requirements that new plans have to have.” Spending time with an insurance provider, accountant or lawyer is already going to be a cost for opera-tors outside of the actual policies themselves. “It really comes down to a lot of burden to try and keep [original plans] … but at some point, everyone is going to lose that status,” she says.
OTHER KEY PROVISIONS
Owens and Fields say a number of additional stipulations in the law will affect retailers both in terms of the nature of coverage as well as the time and expense needed to manage the plans. The first, according to Owens, is a new mandate for eligibility. Waiting periods for entry into the plan cannot exceed 90 days starting this year. This is important especially for retailers with high turnover rates, he says, pointing out that it’s common to see six- to 12-month waiting periods for that level of employee.
“This is unfortunate, because it will generate additional cost for you as a business operation,” he says. “Insurance carriers also will have additional costs, constantly processing [those] terminated employees.” A second item says nondiscriminatory rules will now apply to all fully insured plans. Previously, only self-insured plans were required to meet discrimination provisions, but now penalties apply for all plans—potentially $100 per day per employee for the period that discrimination occurs.
Unfortunately, Owens says, the Department of Health and Human Services has yet to formulate exactly what the discrimination elements are. “Health-care reform was passed legislatively, yet significant portions of the law have yet to be regulated,” he says. “Again, it’s the regulators who are … now backfilling and defining how this all works.”
A third provision—the new 1099 requirements—has been a focus for NACS. Fields says retailers will now have to file a 1099 IRS tax form for every vendor with whom they spend more than $600 a year. A chain with 500 stores is looking at 10,000 forms based on purchases they make, everything from fuel to foodservice products.
“They have to get information from the vendor, do the tax I.D. forms—they have to do [all] the legwork and file forms officially with the IRS,” she says, calling it a “contentious provision” that has “nothing to do with health care but is a rev-enue generator for the government.”
Lobbyists, lawmakers and even President Obama himself oppose the provision. But while three unsuc-cessful attempts at repeal have been made, the toughest challenge has been replacing the projected income, Fields says.
“[I’m] hopeful that provision will be scaled back or, best case, elimi-nated,” she says. “But the next Con-gress will have to figure out how to pay for it.”
WHO HAS TO PAY
For many businesses, the magic num-ber will be 51. The “play or pay” aspect of the law forces companies with more than 50 employees to either provide coverage or pay penalties.
That’s not to say companies with 50 or fewer employees are totally exempt, Owens clarifies. An employer could have 45 full-time employees and 20 part-time. But if the num-ber of hours worked equals that of 51 full-time employees, then that company is subject to the law’s man-dates. According to Owens, compa-nies should up the total number of hours that all employees worked for the year. If it’s 106,080 or more (51 employees multiplied by 2,080, or 40 hours a week times 52 weeks), then the chain is over the threshold.
For many companies, the cost of compliance can be devastating, Owens says. Many in the c-store industry have adopted plans more commonly known as “mini med” approaches, designed primarily to cover emergency-room or doctor visits and not critical illness or cata-strophic injury. (Most have caps rang-ing from $5,000 to $100,000.)
The way the law stands now, Owens says, costs per employee could jump by $800 to $1,200 annually.
There is a break for some. The smallest of the small will receive assis-tance. For companies with one to 10 employees, the government beginning last year allowed tax credits of up to 100% for companies that paid at least 50% of an employee’s premium. For companies with 11 to 25, the govern-ment offered a possible 35% credit. Employers with 26 to 50 did not receive tax credits; however, in 2014, those companies would be exempt from the “play or pay” requirement.
Fortunately, even if a company does qualify for the 51-employee thresh-old, they do not have to pay the $2,000 penalty on part-time or full-time sea-sonal employees (those working less than 120 days out of the year).
“Health-care reform is really health-insurance reform,” Owens says. “But access doesn’t matter if [businesses and individuals] can’t afford it. That’s the challenge.”
For Wright, who oversees such mat-ters for the 759-store Tetco chain, it’s a wait-and-see scenario. The chain already offers a comprehensive ben-efit plan to every full-time employee, with the bulk of eligibility require-ments already consistent with those mandated by the reform. His concerns lie in how differ-ent mandates, such as what he calls “preset loss ratios,” will influence his insurance providers and the even-tual cost of the policies. Other media reports suggest that providers may be boosting premiums today as a hedge on the uncertainty of the law’s full impact in 2014.
All that said, Wright’s strategy focuses first and foremost on personal wellness. “Regardless of reform, all stakeholders benefit from an engaged approach to wellness,” he says. “Our greatest challenge is to ensure that we stay abreast of the … process. This allows us the opportunity to antici-pate and plan for required change.” Owens suggests a similar strategy, advising retailers to “stay engaged.”
Planning for Health-Care Reform
Here are a few steps to take in prepara-tion for upcoming health-care reform mandates:
- Don’t panic. The biggest mandates will occur in 2014.
- Review current plans.
- Identify “marginal” stores. Health- care reform may make those opera-tions unprofitable.
- Stay engaged. Though the law passed last year, many of the actual regulations have yet to be written.
- Consult a professional. This may be the time to reach out to a trusted adviser or consultant.
Losing Grandfather Status
A provision in the new health-care reform allows companies to maintain plans in effect prior to the March 23, 2010, date that Presi-dent Obama signed the bill into law, effec-tively “grandfathering” in those plans. But many believe the stipulations involved will force chains to relinquish their grandfather status. Here’s a list of things that disqualify a company’s plan:
- Eliminating a benefit
- Increasing cost-sharing as expressed by any percent
- Increasing a deductible or out-of-pocket maximum by an amount that exceeds medical inflation (any change fundamentally between 20% to 25%)
- Increasing employee contribution rates towards the cost of insurance by more than 5%
- Imposing annual limits of a dollar value below current amounts
Health-Care Reform Timeline
After health-care reform went into law in March of last year, tax credits took effect for small businesses to help cover the cost of providing coverage. In addition, the elimination of certain limits, expanding coverage for dependents up to age 26 and other measures went into effect.
- Health-benefit reporting on W-2s
- Changes covering the purchase of over-the-counter medicine, among others
- Prescription-drug taxes on pharmaceutical companies
- Manufacturer tax on medical devices begins.
- “Medicare” payroll tax will increase to 2.35% from 0.9% for high-income individuals (those with $200,000 income and joint filings of $250,000).
- Investment tax of 3.8% for individuals with $200,000 income ($250,000 family)
- Taxes on health-insurance providers begin.
- Federal officials must define what the “essential benefits package” requirements are.
- Individual mandates begin.
- Employer mandates begin.