Obamacare And Retailers: The Good, The Bad, And The Ugly

Obamacare has led to much debate from both sides of the aisle. Not only was its rollout controversial, but it has major implications for businesses and how they operate. One sector of the American economy, retail, will need to change the way it functions in particular. Put simply, by 2015, they must offer health insurance to all employees working 30 hours per week or more. Otherwise, they must pay a $2,000 penalty per worker. 

Target (NYSE: TGT  ) , Wal-Mart (NYSE: WMT  ) , and Costco Wholesale (NASDAQ: COST  ) have all made moves in response to Obamacare. One of these retailers has taken the good-guy approach, another potentially plays the bad guy role (depending on how you look at it), and while the third retailer is seen as ugly, in this case, beauty is in the eye of the employee.

Looking at the retail space as a whole, if employees are happy then they're likely to offer better customer service, which then leads to happy customers. This chain reaction matters more than most people think.

The good
Last year, United Parcel Service stopped covering employees' spouses if an employee's spouse had coverage available through his or her employer. Regal Entertainment Group cut hours for thousands of its employees to less than 30 per week. And Stryker, a medical device company facing an excise tax due to Obamacare, laid off 5% of its workforce (1,000 people).

It would seem as though these trends would spill over into the retail space, especially since retailers employ massive numbers of people. However, just as Costco raised its employee pay during the financial crisis, it recently partnered with Aetna to form Costco Personal Health Insurance. This has resulted in lower rates than the state-run exchanges . This is one of many examples of how Costco treats its employees well, which leads to an excellent company culture and possibly higher sales.

The bad
Target recently announced that it will not offer health coverage to part-time workers. This will begin on April 1, and it's not a joke. Target's reasoning: if it offered its part-time employees health insurance, it would prevent them from having opportunities to take advantage of better alternatives. Target will give $500 to every part-time employee who will no longer have coverage through the company. This move will impact between 30,000 and 36,000 people. Of course, it's more likely that Target is looking to cut costs, especially after its recent massive data breach. While it would be a reach, it's possible to put a positive spin on this news.

The ugly
If you were to ask people to select the retailer that best describes ugly, many of them would choose Wal-Mart. Due to the way Wal-Mart treats its employees, this is understandable. However, according to the Journal of the American Medical Association, an "Unsubsidized enrollee (referring to Obamacare) could pay premiums from five to nine times what they would pay for a Walmart employee plan." Wal-Mart employees have access to better facilities in the event of a serious illness, such as the Mayo Clinic or Cleveland Clinic. It should also be noted that Wal-Mart moved 35,000 people to full-time status last year.

Wal-Mart is far from the most moral company in the world, but it's not as ugly as many people think, either. 

Foolish takeaway
Wal-Mart shouldn't be hated by investors; it generates significant cash flow and returns capital to its shareholders. However, Wal-Mart employees aren't the happiest bunch you will come across.

As far as Target goes, its employees are often happier. That said, Target's recent move might lead to resentment, and combined with customer loss of trust due to its data breach, this doesn't make for a positive situation.

Costco believes that taking care of its employees and making sure they are treated and paid what they deserve makes for a well-run operation. Over the past year, Wal-Mart and Target have grown their top lines 0.91% and 0.97%, respectively. Costco, meanwhile, has grown its top line 3.23% over the same time-frame. Whether it's the way Costco treats its employees or Costco's business model (likely a combination), you might want to consider an investment in Costco before looking at its peers. However, please do your own research prior to making any investment decisions. 

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  • Report this Comment On February 01, 2014, at 11:47 AM, 007 wrote:

    Nobody working part time in retail has to worry about an unsubsidized premium....they obviously do not earn enough for that to be relevant....making the irrelevant unsubsidized comment seem politically motivated instead of objective evaluation. Many companies are allowing part time employees to participate in the public exchanges because of the three fold benefit 1) employees get more choices including better coverage options, 2) it saves the company money, & 3) after the subsidy the bottom line cost for employees on public exchanges are usually the same or less for comparable coverage...a true win-win. Many companies are putting their full time employees into private exchanges with employer subsidies (which becomes a tax subsidy to the corporation...tax avoided by corp or direct government subsidy to low & medium paid persons has the same bottom line effect to government) & their part time employees into the public exchanges. The private exchanges are essentially a few plans at each of the public exchange coverage levels...eg..a few bronze, silver, gold & platinum plans each that company choses to include. The main difference between the public & private exchanges is that the company filters through the public offerings and provides a few options each and then the company subsidizes the plan participant cost in the private exchange (direct private dollars) and the government subsidizes the plan participant cost in the public exchange (direct public dollars). Either way the government subsidizes the insurance cost ... directly for part time employees and indirectly via tax breaks to the company for the full time employee.

    BEWARE though the Republican proposed P-CARE. It would make the healthcare benefit the full time employee receives taxable. It would also RAISE the max premium cost for Boomers to FIVE times the young person's cost versus the ACA cap of THREE times the young's person's cost for the Boomers. Additionally P-CARE only allows you to obtain insurance if you have a pre-existing condition if you are already insured and have been continuously for the prior 18 months which is opposite the ACA (Obamacare) point of covering both the uninsured and those with pre-existing conditions regardless. While some insurance companies are fine with ACA some have been exposed. The exchanges lets you see which insurance companies are charging two or more times the premium of other insurance companies for the same coverage. Thus the exposed companies cannot compete and are looking to the Republican party to save them. The insurance industry has had anti-trust exemptions for far too long....just compete...premium payers will win unless the Republicans have their way. However that is not likely until 2017. This P-CARE effort reminds me of the tax effort by the Republicans. The President wanted taxes to pay for ACA to be limited to households making more than one million dollars per year. But the R's did not want their core constituency (the $1 million group that has received 98% of all the income gains producing the largest disparity of incomes in US History) to carry the load even though they have received the most benefit from the economy..they wanted everyone to pay and ended up compromising by agreeing to allow those with $250k or more incomes to pay the tax. Effectively the Republican party sold out everyone making between $250k and $1 million per year in order to protect their core constituency (above 1 million). Here we go again...they want to move the burden from multi-billion dollar insurance companies that cannot compete... to workers. Note typically households above $ 1 million do not pay payroll taxes...they simply invest...or move the majority of their income to deferred income trust arrangements and thus pay little to no payroll tax even if they had employment based ordinary income. The two percent of small business owners that have $250k incomes simply

    re-structure income so that anything over $249k becomes bonus. So the Repubs are worried that ultimately if enough revenue is not there that the government might come after their core constituency (above $1 million) with real unavoidable taxes instead of make believe window dressing taxes. To avoid that possibility they again are seeking to place the cost on the back of any American working full time and receiving a healthcare benefit. Bottom line....ACA is the best alternative for workers, employers,& society. The cost of treating uninsured Americans and underinsured Americans in hospital ER's (the ER Indigent Care Program is the most expensive health care delivery system in the world) is a logistical, policy payers premium, and state & local income & personal property tax payer nightmare about to unfold as 10,000 Boomers hit high healthcare use ages per day for decades to come.

  • Report this Comment On February 01, 2014, at 8:04 PM, guruofplay wrote:

    Wal-Mart should be listed under the ugly category just because of the way it treats its subsidiary, Sam's Club. They are firing 2300 associates, don't be fooled by the severance package, it is a joke. They are also trying to eliminate their full time people and go with part time to lower the amount of health care they have to offer. It's another way for the rich to get richer off the hard work of their people.

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