Ask any American what President Barack Obama will be remembered for, and most will say: health care. Obamacare has been the President’s flagship policy, bringing with it a number of changes that will be felt throughout the health care and insurance industries for many years to come.
However, most U.S. residents will see few immediate effects of the Affordable Care Act. A study from the U.S. Census released in February 2013 showed that more than half of all Americans hold health insurance through their place of work, and of those Americans without employment-related coverage, more than one third are on a health insurance policy through a spouse or family member’s employer.
This high rate of employer-sponsored health insurance means that although workplaces may consider purchasing new health insurance under Obamacare, employees themselves don’t need to shop for coverage or even look at an oft-discussed online exchange – unless they work at Target.
On Tuesday the 21st of January, the superstore chain Target explained that it would not be offering health insurance to part time employees; instead giving these workers a one-time stipend of US$500 with which workers can purchase their own insurance policy through an online marketplace.
This decision was announced on Target’s public blog during a question and answer session with executive vice president of human resources Jodee Kozlak. In the interview, Kozlak said that part time employees would benefit from not being a part of Target’s company-wide insurance policy. Coverage options through an exchange might actually be cheaper than insurance with Target, because on an exchange buyers can access low-income subsidies from the federal government, and tax breaks. Buying through an online exchange can also offer employees more choice of plan, according to the human resources vice president. Young insurance shoppers in good health, for instance, can choose a plan with limited care but a low monthly premium, while shoppers managing chronic conditions can elect coverage with good prescription drug benefits and a low in-patient deductible.
Target is certainly making its new policy sound like a positive change for part time employees, but workers’ advocates aren’t so sure. If the company doesn’t have to fund insurance for part time employees, it’s possible that Target may decrease full time employees’ hours and hire more part time workers; that way the company will cover the same amount of hours with a larger number of employees, none of whom are entitled to health insurance. Target defines a part time worker as anyone with 20 to 31 hours per week, and at the moment, around 36,000 Target employees across the United States are contracted to work part time.
The Affordable Care Act dictates that all businesses with over 50 employees must fund health coverage for their full time workers, beginning in 2015. If the company elects not to offer insurance, an annual fee of US$2,000 per employee must be paid to the federal government. It sounds like a lot of money, but a business’ first 30 employees are exempt from the annual fee, and what’s more, employers have many financial advantages when giving company-wide health insurance. Many health policies offer a discount when buying a group coverage plan for everyone in an organization, and through online exchanges, employers can find further government subsidies – small businesses with fewer than 25 full time employees, for example, may be eligible for premium reductions of up to 50 percent.
Along with Target, other nationwide businesses have said that they too will be cutting health benefits for pat time workers. In 2013, fashion chain Forever 21 was criticized after a leaked memo indicated that the retailer was planning to drop a number of employees’ hours to 29.5 per week – an interesting figure considering that Obamacare classifies a full time employee as anyone working 30 hours per week or more. In response, Forever 21 released a statement saying that its decision to lower employee hours was based on financial projects for the coming year and had nothing to do with skirting Affordable Care Act insurance rules.
Home Depot and Trader Joe’s have also been exploring a reduction in employee hours to avoid the Obamacare insurance mandate.
In an unexpected move, Wal-Mart (the biggest employer in the nation) has said that it will actually be giving part time employees more hours. The retailer announced last September that it is planning to move 35,000 part time workers to full time employment status, as part of its commitment to offering shoppers a better experience and improving the service skills and working environment for employees. Although this move may have financial ramifications in terms of providing health coverage for all of these new full time workers, the retail giant is betting that happier workers with steady, full time employment will mean better sales for the company.
Still, at least one financial expert says that U.S. companies are more likely to follow the precedent of Target and Forever 21. Steve Parente, a finance professor with the University of Minnesota, has predicted that Target is “just the first of many,” and that smaller retailers especially might avoid the burden of mandated coverage by altering employees’ hours.
Target has responded to criticism by saying that although the retailer will not be providing coverage to part time employees, it also will not be cutting hours for anyone who wishes to continue working full time. Kozlak has explained that anyone wishing to increase their hours should speak to a supervisor, and has also promised that part time employees will be able to meet with a benefits manager to better understand the transition to purchasing their own, independent insurance plan.