Unexpectedly Intriguing!
September 26, 2013

We said that there was more to the story of Trader Joe's decision to dump its part-time employees into ObamaCare, and there is. What follows is our analysis of the statement that Trader Joe's provided to the Washington Post's Wonkblog over a week and a half ago, for which we're apparently the first media organization to produce any sort of serious analysis. We'll start at the top:

Thank you for writing to us. It's possible you have been misled, at least to some degree, by the headlines in some articles regarding our reasons for implementing the [Affordable Care Act] in January. We'd like to take this opportunity to clarify some facts.

For over 77% of our Crew Members there is absolutely no change to their healthcare coverage provided by Trader Joe's.

In January 2012, Trader Joe's was estimated to have approximately 5,500 employees nationwide, working at 365 stores, with half of these situated in the state of California. Today, we would estimate that figure is over 5,700, as the privately-held grocery store chain now has at least 380 locations.

According to the company's statement, of those estimated 5,700 employees, 23% are part-time employees that Trader Joe's will drop from their employer-provided health insurance program, which works out to be over 1,300 employees that will be affected by the change.

The ACA brings a new potential player into the arena for the acquisition of health care. Stated quite simply, the law is centered on providing low cost options to people who do not make a lot of money. Somewhat by definition, the law provides those people a pretty good deal for insurance ... a deal that can't be matched by us -- or any company. However, an individual employee (we call them Crew Member) is only able to receive the tax credit from the exchanges under the act if we do not offer them insurance under our company plan.

Since half of the company's employees are based in California, we can see just how "affordable" their insurance coverage will be after they are forced out of Trader Joe's employer-provided health insurance plans into the plans that will typically be available in that state. The table below reveals what we found when we used UC-Berkeley's "How Much Will a Family Save Under the New Federal Health Law? California Calculator" application to approximately determine what a single adult or a single adult parent with one child will have to pay for health insurance on the state's exchange:

Estimated Full Cost of Monthly Premium for Second-Least Expensive "Silver" Health Insurance Plan in California in 2014
Household Description Age 21 Age 25 Age 30 Age 35
Single Adult $230 $231 $261 $281
One Adult, One Child (Under Age 21) $376 $377 $407 $427
Source: University of California at Berkeley Labor Center

California's "Silver" plans are intended to cover roughly 70% of the health care expenses for the individual or family covered by the plan will have, with the remaining 30% of the costs being paid for by the insured. But that's after paying the premiums for the plan, the full cost of which would run anywhere from a minimum of $2,760 per year for a single, 21-year-old individual with no children to $5,124 per year for a 35-year-old single parent with just one child.

We know from a previous example that we considered that Trader Joe's employer-provided health insurance policies are much closer to what would qualify as being a "Gold"-level plan on the new exchanges being established under the Patient Protection and Affordable Care Act, which would cover roughly 80% of the costs for health care incurred by the insured. The costs associated with the "Silver" plans that we've listed above would therefore represent a downgrade in the quality of coverage, even though they would be considered to be more affordable because they cost less than what a "Gold"-level plan would cost. Basically, the savings result because you pay less to get less.

These numbers don't consider the role that the new ObamaCare subsidy tax credits might play in reducing the out-of-pocket costs that would be paid by Trader Joe's employees, but we'll need to know how much they earn to be able to approximate what their actual out-of-pocket costs for insurance will be after being kicked out of Trader Joe's employee plan into California's ObamaCare health insurance marketplaces.

Fortunately for us, Trader Joe's provided just such an example.

Perhaps an example will help. A Crew Member called in the other day and was quite unhappy that she was being dropped from our coverage unless she worked more hours. She is a single mom with one child who makes $18 per hour and works about 25 hours per week. We ran the numbers for her. She currently pays $166.50 per month for her coverage with Trader Joe's. Because of the tax credits under the ACA she can go to an exchange and purchase insurance that is almost identical to our plan for $69.59 per month. Accordingly, by going to the exchange she will save $1,175 each year ... and that is before counting the $500 we will give her in January.

Let's do some relevant math to get some insight into what's going on here:

  • Assuming the single mother, parent of one child, works 52 weeks per year, at a wage of $18 per hour and working 25 hours per week, she will earn $23,400 in a year.
  • Trader Joe's claims she has been paying $166.50 per month, or $1,998 per year, for health insurance through the company's health insurance program, which covers both herself and her child.
  • If she buys insurance on California's ObamaCare exchange, Trader Joe's claims she will only pay $69.59 out of pocket each month, which works out to be $835.08 per year.
  • The difference between $1,998 per year and $835.08 per year is $1,162.92, which would be the actual annual "savings" that she would have if Trader Joe's accurately represented these figures.

Trader Joe's states that the savings would be $1,175 per year, which is off by $12.08. That doesn't sound like much, but it was enough to get us to dig deeper into their numbers.

Using the tool we originally developed to determine whether it would be better to buy health insurance on your state's ObamaCare exchange or to pay the ObamaCare income tax instead, we reverse-engineered Trader Joe's numbers. Here's the adapted version of the tool with the relevant numbers so you can see what we found (the calculations below apply just for 2014):

Your Household Data
Input Data Values
Your Total Household Income, or Modified Adjusted Gross Income (If Known)
Number of Household Members
Number of Children in Household
Your State's Health Insurance Exchange Data
Select Your State (Select "United States" If Your Territory Isn't Listed)
Monthly Premium for the Second Lowest-Cost "Silver" Plan Available To You
Monthly Premium for the Health Insurance Plan You're Considering Purchasing

Your Annual Health Insurance Results
Calculated Results Values
Annual Premium (Full Price) of the Health Insurance Plan You're Considering Purchasing
Annual Subsidy Tax Credit You'll Receive For Buying This Health Insurance
Your Annual Out-of-Pocket Cost
For Health Insurance (Premium Only, No Co-Pays or Deductibles)

Since the $377 figure in our tool represents the estimated second-lowest cost for a "Silver" plan for a 25-year year old single mother with one child, it appears that Trader Joe's would have their employee enroll in what the price for the monthly premium for the health insurance plan being considered suggests is the lowest-cost "Silver" plan for health insurance, which appears to run $367.81 per month.

Obamacare-Driven Greed - Source: sanders.senate.gov

Once again, since we've already established that the coverage of Trader Joe's employer-provided plan is more akin to a "Gold"-level plan in the new ObamaCare exchanges, this represents a downgrade in the quality of the single mother's health insurance coverage.

If the employee were willing to continue paying the same $166.50 per month, or $1,998 per year, for health insurance that she is today for a "Gold" or perhaps even a "Platinum"-level plan on California's ObamaCare exchange, she could afford a plan with a premium of $464.72 per month, or $5,576.64 per year, which would be more equivalent to the level of coverage she had through the plan that Trader Joe's previously provided to her family.

As such, we can work out how much Trader Joe's stands to gain from dumping their single mother employee onto the ObamaCare health insurance marketplaces. Here, assuming that our estimated ObamaCare "Gold" or "Platinum" health insurance cost is close in value to the full cost of the policy that Trader Joe's provides today for this particular employee, we find that since the employee is contributing $1,998 toward the cost of their health insurance premium, Trader Joe's must be paying about 64.2% of the full cost of the health insurance toward her family's coverage, or $3,578.64. Multiply a number like that by 1,300 part-time employees being dropped from good health insurance coverage into ObamaCare, and suddenly, we're talking about millions of dollars worth of reduced costs and savings for the company.

This is why Trader Joe's is able to provide the part-time employees that it's ousting from its employer-provided health insurance plans with $500 each. In reality, they would be reducing their costs and increasing the company's annual profit by $3,078.64, and that's just from dumping this single employee onto the ObamaCare exchange in California.

Let's resume going through Trader Joe's statement to the media:

While we understand her fear of change, at her income level this is a big benefit that we will help her achieve.

Hopefully, she won't recognize that in gaining this "big benefit" as Trader Joe's would have her do, she's putting herself into a situation where she has health insurance coverage of lesser quality than she did before, putting her at risk of higher out-of-pocket expenses.

Clearly, there are others who will go to the exchanges and will be required to pay more. That is usually because they have other income and typically a spouse who had a job with no benefits and they do not qualify for the subsidies under the ACA.

One example of that we had yesterday was the male Crew Member who worked an average of 20 hours per week but had a spouse who is a contract consultant who makes more than $200,000 per year. The Crew Member worked for the medical benefits and unfortunately for them they are likely to have to pay more because of their real income. We understand how important healthcare coverage is to our Crew Members and we are pleased to be able to provide and support this program.

Does this means that in addition to greedily profiting from pushing their part-time employees into lower quality health insurance by selling them on the phony "big benefits" they'll get if they do, they also oppose the idea of any of their employees being married to people who also work in jobs that don't provide the generous benefits that Trader Joe's has previously sought to provide, but would now appear to believe are too generous?

We do hope this information helps, and we appreciate your interest in Trader Joe's.

It helped quite a bit actually. It tells us exactly what Trader Joe's principles and priorities were and will be with respect to their employees, given the perverse incentives created for the company by the Obamacare law.

We must remember that before the law's provisions kicked in, the company was very willing to provide very generous benefits to all of its employees. We're just starting to find out how the law has changed their perspective on the value of their crew members so much that they're now willing to kick 23% of them to the curb. The company is being compelled by President Obama's Patient Protection and Affordable Care Act to break the trust they worked hard to build with their crew members.

And that's perhaps the biggest problem with Obamacare. ObamaCare breaks trust.

References

University of California at Berkeley Labor Center. How Much Will a Family Save Under the New Federal Health Law? California Calculator. [Online Application]. May 2013. Accessed 23 September 2013.

Oakner, Larry. Trader Joe's: The Chicken or the Egg? [Online Article]. CoreBrand. 10 January 2012. Accessed 23 September 2013.

Kliff, Sarah. Trader Joe's cut health benefits last week. Here's its side of the story. [Online Article]. Washington Post. 16 September 2013. Accessed 23 September 2013.

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