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Retailers Find Health Reform Harsh Medicine

WASHINGTON -- As Congress is poised to take up health care reform in the coming weeks, retailers are screaming louder than anyone else that proposals for mandatory employer-paid insurance could raise costs and eliminate jobs.<BR><BR>Retailing insures...

WASHINGTON — As Congress is poised to take up health care reform in the coming weeks, retailers are screaming louder than anyone else that proposals for mandatory employer-paid insurance could raise costs and eliminate jobs.

Retailing insures just 35 percent of its work force, less than any other industrial sector surveyed by the Employment Policy Institute.

Universal coverage could cost the industry billions yearly in higher health insurance costs, and to deal with the expenses, some observers predict, retailers would cut more than 700,000 jobs nationwide.

In February, when Congress returns to Washington, three House committees and two Senate panels will begin drafting the ultimate reform proposals. They have held dozens of hearings to discern what various sectors think about overhauling the nation’s health care system.

The committees already have before them seven major reform proposals.

It promises to be a bruising battle, and retailers won’t emerge unscathed.

“This debate will be the biggest we have ever dealt with,” said Sen. Phil Gramm (R., Tex.), who is the author of a reform plan that has the backing of the retail community. “I don’t believe my bill will be adopted as written,” he said. “I don’t think anyone’s bill will be adopted as written. We’ll end up combining bits of each proposal.”

Gramm’s advice to the retail community on influencing the debate is: educate members of Congress on the effects universal coverage would have.

“The way to be effective is not trying to cut some deal to be sure somebody else is hurt instead of you,” Gramm said. “The future of America will be gravely affected by what happens here this year.”

Reform in how America pays for Health care is expected to be a key component of President Clinton’s State of the Union address, which is scheduled for tonight.

Clinton’s 1,342-page overhaul has ignited the debate over employer mandates. While it makes some allowances for small business, it makes few allowances for labor-intensive industries, said Carlos Bonilla, chief economist with the industry-backed Employment Policies Institute.

“It’s not small companies vs. large companies in the health care reform debate,” Bonilla said. “It’s high-labor vs. low-labor. The more people an employer has on the floor, the harder hit the employer will be.”

Bonilla says his study shows that the percentage of industry workers insured is directly related to the profits earned on each full-time worker. For example, retailing, which insures the fewest employees, also earns the smallest profits — $2,204 per worker, he said.

Manufacturing, on the other hand, insures the largest share of employees at 74.9 percent and earns the largest annual profits on workers at $8,740, the Institute’s study said.

To partially cover the costs of full health care coverage, the Clinton plan would require employers to pay 80 percent of the premium costs, with a cap of 7.9 percent of total payroll.

A second bill, introduced by Rep. Jim McDermott (D., Wash.), would levy an across-the-board 7.9 percent payroll tax to fund universal coverage. Each bill has 100 House sponsors, and both are opposed by the retail industry.

In the current competitive market, it would be difficult for retailers to absorb a 7.5 percent increase in labor costs, industry analysts say.

Younger speciality retailers with smaller growth would be hurt the most by a universal coverage mandate because most of their workers are part time, and the full-timers have not been with the company long enough to qualify for health care coverage, said Don Spindel, a retail analyst with A.G. Edwards.

Mall-based specialty retailers would be especially hard hit, Spindel said, because of their reliance on part-timers and inability to redesign their work force to include more full-timers — an option available to big discounters and department stores.

“Many of these stores may hire students to staff their stores in the afternoon, and don’t have the same kind of flexibility of a bigger store that may hire more full-timers and just a few part-timers,” said Spindel.

Charles B. Weed, benefits director for Schottenstein Stores Corp., Columbus, Ohio, said of Clinton’s employer mandate plan, “America can’t afford that kind of health care.”

Schottenstein Stores Corp. owns or has investments in retailers in 33 states, including Value City Department Stores and Furniture Stores, and American Eagle Outfitters. The corporation employs about 18,000 nationwide.

Clinton’s proposal would add more than $2 an hour in payroll costs for each minimum-wage worker, Weed said. He also is skeptical of the administration’s proposed 7.9 percent cap on employer contributions.

“That would only be temporary,” he said, “Then after a few years, it would go up. We can do better than that.”

In testimony before the House Ways and Means Committee last year, Weed said Clinton’s plan would increase health care costs for one of Schottenstein’s affiliates by 147 percent. He declined to say which retailer he was discussing, but he did say the retailer employs 600 full-time and 1,900 part-time workers in more than 170 stores.

Many of the uninsured employees who work part time have health care coverage through their full-time job or through their parents’ insurance policy, Weed said. In 1993, the Schottenstein affiliate paid $750,000 to insure its covered workers. Under Clinton’s plan, its costs would rise to $1.8 million. To meet the increased costs, the retailer would have to eliminate 1,100 workers, Weed said.

Anthony Palizzi, executive vice president and general counsel of Kmart, told the House Ways and Means Committee last year that Clinton’s plan could raise health care costs for Kmart’s 350,000 employees by $400 million yearly, to a total of $700 million.

Another retailer, the Dayton Hudson Corp., has a similar story [see sidebar]. Fred Hamacher, vice president of compensation and benefits, said a mandate to provide health insurance for all of DH’s nearly 200,000 workers would increase its insurance costs 70 percent, to about $185 million yearly from about $115 million.

To compensate, Hamacher estimates that about 15,000 jobs, primarily part time, would be eliminated. DH currently pays about 70 percent of premium costs for its covered employees, Hamacher said.

The Employment Policies Institute predicts that 726,000 jobs in retailing, a category that excludes fast-food restaurants, would be eliminated nationally.

DH, along with other retailers led by the International Mass Retail Association and the National Retail Federation, will be waging an intense lobbying campaign as Congress returns to Washington and takes up health care reform next month. Hamacher said part of DH’s message will be the importance of the part-time work force in retailing.

“Our economy deserves part-time employment,” Hamacher said. “The government perception is that the retail industry has part-timers, so it doesn’t have to provide benefits, but that’s not true. Part-time work also fits the lifestyle of many of our employees.”

IMRA is bringing in retail executives to meet with members of Congress on Feb. 24 to make the industry’s case on health care reform. The NRF arranged meetings last September between congressional leaders and Joseph E. Antonini, chairman, president and ceo of Kmart Corp.; Jack Shea, vice chairman, president and ceo of Spiegel Inc.; Allen Questrom, chairman and ceo of Federated Department Stores Inc., and Barbara Rackes, ceo of Rackes, a South Carolina specialty chain, to discuss health care.

The retail associations also are coordinating grass-roots campaigns with industry employees.

“This is the biggest issue any business or individual could face,” said Cecelia Adams, director of tax, budget and health care for IMRA. “The president’s plan is unworkable. Health care is a huge cost to retailers, and we’re looking for a way to reduce costs and provide top-quality benefits to employees.”