Target Cuts Health Care. For Some, It's Not A Bad Thing

Shoppers arrive at a Target store in Los Angeles on Thursday, Dec. 19, 2013. Target says that about 40 million credit and deb
Shoppers arrive at a Target store in Los Angeles on Thursday, Dec. 19, 2013. Target says that about 40 million credit and debit card accounts may have been affected by a data breach that occurred just as the holiday shopping season shifted into high gear. (AP Photo/Damian Dovarganes)

When Target announced last week that it would be slashing health benefits for part-time workers, one of those part-timers said she was actually happy to receive a letter saying she wouldn’t have Target-sponsored health care come April 1. “It’s probably a really good thing,” said the employee, who makes slightly more than $9 an hour setting up displays at an Arizona Target.

“If they kept that in place, I probably wouldn’t be able to go to,” she said. The worker, who asked for anonymity to protect her job, said she was already scoping out her options on the government-run health care site before Target made the announcement. She hasn't gotten to the point of doing a direct price comparison yet, but the 63-year-old already determined that she'll be able to choose a plan under Obamacare with fewer co-pays than her Target coverage, so she'll pay less or nothing at all when she visits the doctor.

"It was great to have health coverage, it was better than what a lot of people had, but was it a great plan? No, not really," she said.

As Target, Trader Joe’s and others face criticism for cutting health benefits in response to the new law, the reality is that some, like the 63-year-old Arizona Target employee, may actually be better off by being forced to turn to the marketplaces set up as part of the Affordable Care Act for coverage.

“They could very well come out ahead,” taking the $500 provided by Target to pay for coverage and enrolling in a plan through Obamacare, said Ken Jacobs, the chair of the University of California-Berkeley’s Labor Center.

Some workers may make so little that they qualify for free coverage under the law's Medicaid expansion. And for workers making up to roughly 250 percent of the poverty level, or about $28,000 a year for 2013, the subsidies they'd get by enrolling in coverage through Obamacare could be worth more than the tax breaks they'd get for opting into their company-sponsored insurance, according to an analysis from Eugene Steuerle, a senior fellow at the Urban Institute.

That includes a mix of tax credits on a sliding scale, as well as extra subsidies to cut out-of-pocket costs like deductibles and co-insurance.

As the Target blog post announcing the change notes, in many cases workers could be disqualified from taking advantage of the Obamacare subsidies if they still had the opportunity to opt for affordable coverage through Target. When contacted by The Huffington Post, a Target spokeswoman said the company couldn’t say what share of part-time workers would be affected by the changes because the number of part-time workers “fluctuates often." In the blog post, the company said less than 10 percent of its total workforce participates in the plan being discontinued.

“Target could be doing some of their workers a favor,” said Paul Fronstin, a senior research associate at the Employee Benefit Research Institute. “They’ve become eligible for subsidies in the exchanges, and that may be better for them.”

Still, “the devil is in the details,” according to Fronstin. If a worker lives in a state that didn't expand Medicaid under the law and they make poverty-level wages or less -- a real possibility for a part-time worker making slightly more than minimum wage -- they'd get no subsidies or tax breaks to help with the cost of coverage, very likely making it unaffordable. Premium tax credits and out-of-pocket subsidies are only available to those who earn between poverty and four times that amount, because Congress intended the Medicaid expansion to be mandatory nationwide, a plan upended by the 2012 Supreme Court ruling that states could opt out.

And while some workers may have incomes low enough to qualify for subsidies on their own, their spouses may make enough to disqualify them. That’s the case for one Target warehouse worker, who asked to remain anonymous to protect his job. “They said flat out in the bottom of the page [of], you don’t qualify, because my wife makes too much money to be considered low-income,” the worker said.

Going on his wife’s insurance isn’t financially feasible either, he said, because it would cost “half her paycheck per week.” The worker, who makes $9 an hour, said even though he likes his job, he’s looking around for other work because he needs the health coverage.

“I don’t want Obamacare, I have insurance,” he said. “Even if I qualified for it, I don’t need government assistance if [Target] just keeps helping me.”

It's worth noting that Target's decision to offer benefits to part-time workers in the first place is relatively uncommon. In addition, the company waited to drop coverage until it seemed part-time workers would have a viable alternative.

Still, Target and others companies' decisions to cut part-time benefits highlights a “weakness” in Obamacare’s employer mandate, Jacobs said, because it allows employers that traditionally offered part-time benefits as a way to attract the best workers a reason to drop the coverage. Some part-time workers erupted at Trader Joe's after the company announced in September that it would be slashing benefits. Many said they opted to work at Trader Joe's for the company's generous benefits, which are atypical of grocery industry.

As the Trader Joe's example illustrates, an unintended consequence of Obamacare could be to push companies to "race to the bottom," Jacobs said, as they get rid of benefits for part-time workers because they now have a viable alternative.

“We wouldn’t expect a large number of employers to be cutting benefits for many workers. This low-wage, part-time work is where you expect to see it take place,” Jacobs said.