Wal-Mart Health Cuts Reopen Debate Over Obamacare Costs, Savings

Wal-Mart Stores Inc.’s move to eliminate health insurance for about 30,000 part-time workers underscores the mixed benefits of Obamacare for companies and their employees.

Wal-Mart said yesterday it would no longer provide health coverage to employees who work less than 30 hours a week, following similar moves by retailers such as Target Corp., Home Depot Inc. and Walgreen Co. Wal-Mart had already dropped benefits for many new part-time workers in 2012.

The U.S. Patient Protection and Affordable Care Act, known as Obamacare, has brought more health-care options for employees pushed out of corporate benefit plans. That may have made it more palatable for Wal-Mart to make the change, which could save the company about $50 million in premiums this year.

Still, adopting Obamacare has brought other costs, leaving the total effect on large companies unclear. Wal-Mart said in February that the Affordable Care Act contributed to a $330 million increase in health costs -- a number it later raised to $500 million. Employers shedding coverage also may have to pay workers more to make up for the loss of benefits, said Larry Levitt, a senior vice president at the Kaiser Family Foundation of Menlo Park, California.

“Economic theory would tell you that employers won’t save money since they’ll have to compensate the workers in higher wages,” he said in an e-mail. “Economic theory isn’t always right, though, particularly in the short term.”

Exchange Subsidies

For employees, losing company-sponsored benefits can mean they qualify for subsidies in government-run insurance exchanges, which opened last year. That softens the blow, said Ron Pollack, executive director of Families USA, a Washington-based group representing health-care consumers.

“People who are losing coverage can get it in a way that provides high-quality coverage at a much lower price,” he said. “Many of these people will be better off.”

Wal-Mart’s move yesterday affects about 2 percent of its 1.3 million U.S. employees. The company, based in Bentonville, Arkansas, will rely on the firm HealthCompare Insurance Services Inc. to help employees find replacement coverage.

“We don’t make these decisions lightly, and the fact remains that our plans exceed those of our peers in the retail industry,” Sally Welborn, senior vice president of global benefits, said yesterday on the company’s blog.

Premiums Rise

Wal-Mart, which is the world’s biggest retailer and the largest private-sector employer in the U.S., also is increasing premiums as it copes with mounting health-care costs. The company’s lowest-cost health plan -- its most popular offering - - will climb by $3.50 to $21.90 per pay period. Wal-Mart pays employees biweekly and covers 75 percent of its employees’ premiums.

Wal-Mart shares fell 0.1 percent to $77.30 yesterday in New York. The stock has fallen 1.8 percent this year.

Target, based in Minneapolis, said in January it was dropping coverage of part-time employees. Trader Joe’s Co., a closely held grocery chain, announced a similar move in September of last year. In the case of Trader Joe’s, the company offered $500 to employees to help them get set up with coverage at the new health-care exchanges.

The Obama administration has modified the law’s rules for employer health coverage, requiring companies with 100 or more workers to offer coverage to 70 percent of their full-time employees beginning next year. They must cover 95 percent of full-timers beginning in 2016, when the mandate will be extended to companies with 50 or more workers. Those that don’t comply may be liable for fines of as much as $3,000 per worker.

Getting Qualified

The Affordable Care Act created new government-run health insurance exchanges to sell coverage to uninsured people, often with premiums discounted by federal subsidies. It disqualifies Americans for subsidies at the exchanges if they have an offer of “affordable” coverage from their employers, defined as an insurance premium less than 9.5 percent of their income.

White House press secretary Josh Earnest said yesterday that the administration wouldn’t comment on a decision by an individual company. Before the health-care law was passed, it wasn’t uncommon for workers to find their insurance benefits cut or eliminated, he said.

“The difference now is that those 30,000 employees from Wal-Mart who no longer have access to insurance through their employer now do have a legitimate alternative where they can acquire high-quality, affordable health care,” Earnest told reporters traveling with President Barack Obama to a fundraiser in New York.

With the exchanges set up under the Affordable Care Act “these individuals now have somewhere to turn in terms of getting health care for themselves and their families,” he said.

Before it's here, it's on the Bloomberg Terminal.