Healthcare reform and the retail sector

By Maureen Aylward

With healthcare reform still a big issue in the US, we wanted to know more about the potential impact on retail and companies that rely on part time workers. The resulting responses from some of our Zintro experts lean toward the same concerns that other sectors have. The biggest concern is the continued rise of healthcare costs and the possible status quo of services in the face of increases in patients to the system.

Tony VanValkenburg, an expert in retail management in many of the largest retail markets in the US and experienced in turn-around projects, feels that the healthcare changes in the US will significantly impact and increase margins, workload, and earnings for most medical and pharmaceutical companies. “While the added number of insured people will increase traffic to hospitals, pharmacies, and clinics, one of my concerns is that service standards remain at their current levels and not decrease,” he says. “I am watching whether healthcare providers are stretched with limited resources and if Wall Street is prepared for lower overall returns in the retail sector.” VanValkenburg recommends that retail operators who anticipate being impacted by healthcare reform begin running financial and capacity models to ensure actions are being put in place to tackle the challenges that may be set in motion from the healthcare reform law.

CP Guide, an expert with business development and brand management experience in the vitamin industry and big box retail, thinks that recently enacted healthcare reforms to the US healthcare delivery system is unlikely to have meaningful impact on expenditures or improve the comparative health status of Americans. “The US healthcare delivery system, as it is currently contrived, primarily benefits drug companies, medical device manufacturers, and indirectly insurance companies. The losers are physicians and patients,” CP Guide says. As for the impact on retail sector, CP Guides points out that the recent legislation contains some laudable provisions. “But the devil is always in the details, many of which have yet to be revealed and many more of which have yet to be implemented,” he notes. “While we don’t know exactly how healthcare reform will work, we do know that industries have power.”

What do you think? If you have a question or comment about the retail sector or US health care reform, we would like to hear it. Click here. Would you be interested in signing up to be a Zintro expert and generate free leads for your business? Click here.

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  3. Dana B. Mehta, CFA, MHP, CEBS says:

    Healthcare reform and retailers
    Retailing has two unique aspects. It includes diverse operations such as large national retailers like Walmart and Sears as well as mom-and-pop stores. It includes restaurants and an assortment of operations that sell directly to the individual consumer. It employs one in five Americans, of whom about 22 percent of retail and wholesale workers are uninsured, compared to about 16 percent of the population as a whole.
    What retailers have in common is that a vast majority of their employees are part-time workers. Because of recent publicity pressures, large retailers have begun providing health insurance to part-time workers and currently about 1.4 million Americans are covered under mini-med plans. A very real criticism of mini-meds is very high cost and limited benefits. Much of the cost is driven by administrative expenses related to tracking part-time employees, their hours worked and providing or withholding benefits on a weekly basis. Additionally, the high cost causes adverse selection, attracting sicker employees, driving up premiums further. Add on the cost of mandates including but not limited to exclusion of pre-existing conditions, first dollar coverage of preventative care and emergency care, and premiums quickly become unaffordable.
    Health care reform brings myriad new responsibilities and mandates on retailers of every size, year by year until the law is fully implemented in 2018. One of the most daunting requirements of the law is the MLR rule, which requires spending a minimum of 85% of premiums on healthcare coverage, leaving only 15% for administration, not near enough for the mini-meds. One solution is to terminate these plans and let the employees buy their own on the proposed state health insurance exchanges. However, the MLR rule is effective almost immediately and the exchanges are not mandated until 2014. Furthermore, the House just voted to defund exchanges. A temporary reprieve of one year from meeting MLR requirements should be used to work on solutions.
    A major challenge for the mid-sized retailer, with close to 50 full-time employees is the mandate to provide health insurance by 2014 or pay a penalty. This mandate is already affecting hiring decisions as the 51st employee will trigger penalties based on all 51 employees. This can be a significant deterrent to headcount addition even if it curtails growth. The penalty in the first year is only about $2,000 per employee, undoubtedly cheaper than providing coverage, however, compensation would have to be increased to subsidize individual purchase on the exchanges. This calculation is further complicated by increased taxes and changing subsidy levels with increased income. Furthermore, penalties in subsequent years will increase substantially.
    The small retailer will be pressured the most and have little recourse unless insurers can create innovative products for them. Regardless, there will be additional costs that will put many out of business. One estimate of additional cost is $500 per year per employee. Tax credits are available but only about 12% of small businesses are expected to qualify according to the CBO.
    Regardless of these challenges, national retailers have supported healthcare reform. The position improves their image and weeds out smaller, less resourceful competitors. Solutions to the above-mentioned challenges can be found. It is possible to morph the mini-med product to reduce administrative expenses substantially and to modify benefit design. Mandatory participation will eliminate adverse selection. Once retailers can show they have done all they can, the government may be more likely to modify the mandates to fill the gap.

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