Obamacare's health-insurance exchanges have now been open for business for nearly three weeks, and, depending on who, you ask, they're either a saving grace or the greatest disaster to emerge from Capitol Hill in decades.
For some, such as lower-income individuals and families, as well as people with pre-existing conditions, Obamacare represents a genuine way of securing and receiving health care when most other avenues were closed off. For healthier young adults resistant to the idea that they'll go to the doctor in the first place, and large businesses that will be required to supply health insurance to full-time employees, it's a burdensome cost that many are undecided whether they'll pay.
On the defensive
One group that certainly falls into the latter camp and has generally taken a negative view of the Patient Protection and Affordable Care Act, known better as Obamacare, in recent months are labor unions.
Many unions fear that some businesses may choose to drop coverage and instead send those employees to state or federally run exchanges. While there could be potentially cheaper insurance options available on Obamacare's exchanges, union health plans are often more encompassing and cover the higher risk of on-the-job injuries. Therefore, if fewer people wind up on these plans, the premium costs could soar, ultimately hurting unionized employees.
The effects of Obamacare are also being felt on the employer front via the employer mandate. Under the PPACA, for businesses of 50 or more full-time employees, any employee working an average of 30 or more hours per week needs to have access to company health insurance. That employer doesn't necessarily need to pay for any of that employee's health insurance, but if the cost of the insurance totals more than 9.5% of that employee's total income, then the business will face $2,000 to $3,000 in fines for each employee for which it's in violation, starting Jan. 1, 2015. The result has been a noticeable move by employers to reduce hours or shuffle employees to privatized health exchanges.
The next Obamacare battle could be coming to an aisle near you
However, one industry in particular that could soon become the staging ground of the unions-versus-Obamacare battleground is the supermarket industry.
In my home state of Washington, the Teamsters and the United Food and Commercial Workers, better known as the UFCW, represent some 30,000 grocery workers employed at chains such as Fred Meyer and QFC (both owned by Kroger (NYSE:KR)), Albertsons (owned by SUPERVALU (NYSE:SVU)), and Safeway (NYSE:SWY). These grocers are, in turn, represented by the Allied Employers. At the end of the week, these two sides were miles apart in ongoing negotiations, and union workers were less than 48 hours away from going on strike.
The current spat between Allied Employers and the UFCW can be ultimately traced to changes in health reform introduced by Obamacare that establishes the need to provide health-insurance options to those who average 30 hours a week. Under the current UFCW contract, supermarket employees who work 16 hours or more receive health benefits. In other words, with Obamacare now the law of the land, these three supermarket chains are unwilling to renew a new contract that'll cover union members who work less than 30 hours and instead want to send them to Obamacare's health exchanges.
From the perspective of Safeway, Kroger, and SUPERVALU, the move to send part-time employees to the Washington state-run exchange makes sense from a financial perspective. In other words, all three are already paying taxes that help subsidize lower-income people in their state, so why pay for health insurance for employees who work less than 30 hours and are likely to qualify for low-cost or free health insurance on the exchanges? It'd be like paying double the subsidy!
For labor unions it comes down to a matter of coverage. Although we're not talking about a unionized industrial job with a high degree of injury risk, UFCW employees do currently have a very comprehensive health-benefit plan that meets all the requirements set forth by Obamacare. Should grocers move these employees to state exchanges, the UFCW contends that the coverage wouldn't be nearly as encompassing.
Cleanup, aisle four
Both sides have essentially been arguing since May over a new three-year contract without making any headway (sound familiar? Ahem, Congress!) and the prospect of a strike hurting grocers' earnings in Washington is very real. The last time grocery workers in the state went on strike, it lasted 81 days, and it's very possible we could be looking at something similar here.
For Safeway, Kroger, and SUPERVALU, this is particularly bad news, since margins in the grocery industry are measured in millimeters, not feet. Grocers often generate gross margins around 1%-2% because of food inflation and promotions used to drive traffic into their stores. Were UFCW members to strike, even with replacement workers the inefficiencies created could bottleneck those already razor-thin margins. Let's also keep in mind that the Teamsters union, which represents the trucking companies that deliver the majority of the food to these stores, would honor the UFCW's strike and not make deliveries as well.
This strike could also be just the beginning of hardball tactics by unionized workers across the country that don't want to be cast aside by businesses to Obamacare's health exchanges. The UFCW alone has dozens of local unions around the country, of which the 25 largest equal about 2.8 million workers. Put simply, if you own stock in businesses that allow unions, you have no choice but to pay close attention to how these contract negotiations work out because, they could set a precedent for union contracts moving forward.
Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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