Health benefits may be slump’s next casualty
Workers who haven't gotten pink slips this year may be lucky enough to hang onto their jobs in 2009, but keeping their benefits may turn out to be a different story.
At many companies across the valley, hours have been reduced, retirement plan matches have been frozen, and now some employees are being asked to pay for their own health care or go on the expensive alternative, COBRA. And a new federal law enacted to help laid-off workers obtain health coverage may backfire.
COBRA is costly under any scenario, and it suddenly got a lot more complicated for employers. The federal Consolidated Omnibus Budget and Reconciliation Act typically allows most workers to keep their group health care coverage for a period after they lose their coverage at work, but the employee must pay up to 102 percent of premiums. Although that cost will be partly subsidized for at least nine months under President Barack Obama's new stimulus plan, some observers say it may increase companies' willingness to cut health benefits altogether.
Insurers and human resources professionals worry that a new law -- requiring employers to pay 65 percent of the premiums for workers who are involuntarily terminated in return for receiving a federal payroll tax credit -- may be too costly to administer. The law requires companies to find and notify all affected workers by March 1.
"What do you do to eliminate your COBRA liability?" said one insurance industry official who asked not to be identified. "You cancel your health care plan."
Other observers said the new law's complexity could end up harming companies.
"There are more questions than answers right now," said John Grady, an insurance broker and owner of Grady & Associates.
Among the unanswered questions for the new COBRA provision: How far back will the subsidy go and who will qualify? The law covers workers laid off between Sept. 1, 2008, and Dec. 31, 2009. ManagedPay President Bill Rosado thinks that means reimbursement to workers will go back as far as September. He calls some of the law's requirements "an administrative nightmare."
Grady isn't exactly arguing that point, but believes reimbursements for laid-off employees are effective only after the law's Feb. 17 enactment. He said the law is so new and complicated that even insurance companies are confused.
The confusion doesn't end there. The law, which is part of the stimulus bill passed last month as the American Recovery and Reinvestment Act, doesn't define involuntary termination. That omission could leave lots of room for interpretation, he said.
"Somebody may have resigned on paper," he said. "But (the law) does not make it clear whether terminations in anticipation of a layoff, constructive terminations or (forced) early retirements are covered."
Casino employees are among the largest local groups facing possible continued job losses, cuts in hours and cuts in health care coverage. Dealers at the two local Arizona Charlie's hotel-casinos are being told to maintain at least a 32-hour weekly average over a six-month period or go on COBRA to keep their coverage. But that policy either wasn't in place or wasn't enforced until January, sources said.
The hotel-casinos' operator, American Casino & Entertainment Properties, which also owns the Stratosphere, had initially said benefits' eligibility policies had not been revised.
"During these challenging economic conditions, American Casino & Entertainment Properties has not made any changes to its benefits package," a statement made last month by company spokesman Michael Gilmartin said in part. " ... ACEP reviews policy to ensure that full-time employees are maintaining their hours to receive benefits. In addition, part-time employees' hours are reviewed to determine if they qualify for full-time status and the accompanying benefits package."
But American Casino & Entertainment Properties has since announced, in a Wednesday statement, that it was "reducing staffing levels and making reductions in expenses," which includes suspending its 401(k) match as of April 5. The cuts affect Arizona Charlie's Boulder, Arizona Charlie's Decatur, and the Stratosphere in Las Vegas and the Aquarius in Laughlin.
"We held out at long as possible," American Casino & Entertainment Properties CEO Frank Riolo said in the statement. "Our goal is that the expense reductions will help us maintain as many jobs as possible as we move forward."
Casino dealers have a long tradition of staying on their shifts only as long as customers are there and leaving early when business is slow. But that culture may be a thing of the past in this new economic reality.
Brian Gordon, a principal in Las Vegas business advisory firm Applied Analysis, noted that the drop in tourism has affected casino workers.
"There is an overall reduction in consumer demand," he said. "And we are seeing the gaming sector attempt to right itself and be the right size."
In December, 1.24 employees were employed per hotel/motel room, the lowest level since Applied Analysis began keeping records in 1992.
MGM Mirage has a policy requiring a minimum of 30 hours for health care benefits and has no plans to change it, company spokeswoman Yvette Monet said. Wynn Resorts Ltd., which announced a reduction in hours for workers at its Wynn Las Vegas and Encore hotel-casinos last month, did not return requests for comment.
Businesses across the valley are also cutting benefits and hours. Hours reductions mean more people are seeking unemployment benefits even as they continue to work. Claims for partial unemployment are rising at a much faster pace than claims for total compensation, said Dave Schmidt, an economist for the Department of Employment, Training and Rehabilitation.
"Partial unemployment claims grew 135 percent (year over year) in January," he said. "That's faster than unemployment claims to totally unemployed workers."
Claims for total compensation totaled 233,155 in January, a 93 percent annual growth rate. Partial unemployment claims totaled 20,074 as of Jan. 31. If an unemployment insurance claimant reports any income he or she is considered a partial claimant.
South Point owner and Chief Executive Officer Michael Gaughan didn't want to break the "no layoffs" streak he's had since 1972, so he instituted a voluntary reduction in hours. Gaughan estimated the program could save the hotel-casino about $100,000.
The longtime casino operator also found a way to save his workers' benefits as they helped out the company.
"I waived my health insurance hours' requirements," Gaughan said. "I was trying to not lay anybody off. I was trying to get them to take time off."
He's never subscribed to the so-called "dealer culture" of overfilling shifts and letting workers go home early, either.
"I think that is b.s.," he said. " ... If a guy comes to work, he is here to work."
Some health plan administrators have their own minimum hours and don't allow for the generosity of the employer to waive them, said Rock Rocheleau, principal of Brock Rock Insurance.
One of Rocheleau's clients, Red Rock Country Club (and its sister properties Regal and Sienna), fell into the same discretionary spending category as casinos did. Customers didn't consider the golf course a necessity and started making fewer visits. That forced general manager Thom Blinkinsop to lay off 10 to 15 employees. The next step was to cut hours for many of his 240 remaining workers.
"Just like the Wynn did," he said. "They are mirroring us in how they manage hours."
Salaries were also reduced for nonhourly workers. But he was able to save workers' health care benefits by charging a $15 per-pay-period premium for what was a free benefit. However, new employees will have to work more hours to qualify for coverage. The employee handbook is being revised.
New hires will have to work 36 hours each week, rather than the current 32, to qualify for benefits.
When workers lose their benefits, they rarely opt for COBRA, but Obama's stimulus subsidy may change that. Even so, a worker may end up with a $150 monthly premium for coverage of just one person.
Blinkinsop is like many employers dealing with falling profits. He doesn't want to be painted as the bad guy. He said he hated to see people lose their jobs or part of their pay, but didn't see any other choice.
"If you don't have people walking through the door, you don't need three employees versus two."
Contact reporter Valerie Miller at vmiller@lvbusinesspress.com or 702-387-5286.
EXPLAINING COBRA
What is COBRA anyway? The federal government's Consolidated Omnibus Budget and Reconciliation Act is a budget law enacted in 1996 that allows workers and their families to keep their group health care coverage if their employment is terminated, their hours are reduced, or they are changing jobs.
UNDER COBRA, WORKERS CAN CHOOSE TO CONTINUE THEIR HEALTH CARE COVERAGE AT THEIR OWN EXPENSE, FOR UP TO 18 MONTHS AFTER A QUALIFYING EVENT. SOME ADDITIONAL CONDITIONS MAY EXTEND THE COBRA COVERAGE FOR UP TO 36 MONTHS. BUT A TERMINATION FOR GROSS MISCONDUCT DISQUALIFIES A WORKER FOR THE BENEFIT.
THE EMPLOYEE OR FORMER EMPLOYEE GOING ON COBRA STAYS ON THE SAME HEALTH CARE PLAN HE OR SHE WAS ON BEFORE. BUT THE EMPLOYEE TYPICALLY PAYS ALL OF THE PREMIUMS THAT USED TO BE COVERED PARTLY OR ENTIRELY BY THEIR EMPLOYER, PLUS ADMINISTRATIVE COSTS. ALL TOLD THE WORKER USUALLY PAYS 102 PERCENT OF THE PREMIUMS.
ONCE SOMEONE BECOMES ELIGIBLE FOR COBRA, HE OR SHE HAS 60 DAYS TO OPT FOR THE COVERAGE AND ANOTHER 45 DAYS AFTER THAT TO PAY FOR THE COBRA.
THE 1.5 MILLION U.S. WORKERS WHO HAVE LOST THEIR JOBS SINCE SEPT. 1 ARE NOW ELIGIBLE TO RECEIVE A 65 PERCENT SUBSIDY FOR THE COST OF THEIR MONTHLY HEALTH CARE PREMIUMS UNDER COBRA. THE NEW LAW, THE AMERICAN RECOVERY AND REINVESTMENT ACT, COVERS WORKERS LAID OFF FROM SEPTEMBER 2008 THROUGH DEC. 31, 2009. THE SUBSIDY IS AVAILABLE FOR UP TO NINE MONTHS.
EMPLOYERS PAY THE REMAINING 65 PERCENT OF PREMIUMS AND GET A FEDERAL TAX CREDIT FOR THE PAYMENTS ON THEIR CORPORATE PAYROLL TAXES. WORKERS WHO OPTED NOT TO TAKE COBRA WHEN THEY LOST THEIR JOBS CAN NOW ELECT TO TAKE COBRA.
DOS AND DON'TS FOR CHANGING HEALTH COVERAGE RULES
BUSINESSES SHOULD TREAD CAREFULLY WHEN IT COMES TO DETERMINING HOW TO CUT HOURS AND BENEFITS. LABOR LAWYERS JEFF WINCHESTER OF FISHER & PHILLIPS AND BOB SPRETNAK, ALONG WITH HUMAN RESOURCES COMPANY MANAGEDPAY PRESIDENT BILL ROSADO GIVE SOME POINTERS:
•DO BE CAREFUL IN CUTTING THE HOURS OR PAY OF SALARIED EMPLOYEES, AS THEY MIGHT TRY TO SAY IT NULLIFIES THEIR "EXEMPT" STATUS AND THUS QUALIFIES THEM FOR OVERTIME.
•DO CONSULT WITH YOUR HEALTH CARE PLAN ADMINISTRATOR TO MAKE SURE THE PLAN DOESN'T HAVE ITS OWN MINIMUM HOURS REQUIREMENT FOR ELIGIBILITY, BEFORE YOU SAY, "DON'T WORRY. YOU CAN KEEP YOUR BENEFITS," WINCHESTER SAYS. PROMISES MADE BY THE EMPLOYER MAY MAKE THE COMPANY LIABLE FOR FUTURE MEDICAL EXPENSES.
•DO DETERMINE HOW MANY EMPLOYEES YOU NEED TO GET WORK DONE.
•DO CUT EVERYTHING ELSE YOU CAN BEFORE CUTTING EMPLOYEES. LOOK FOR WAYS TO BE MORE EFFICIENT.
•DO MAKE SURE YOU DON'T INTENTIONALLY OR UNINTENTIONALLY DISCRIMINATE WHEN CUTTING HOURS. "UNINTENTIONAL DISCRIMINATION IS ALSO AGAINST THE LAW," SPRETNAK SAID. THE SAME CAUTION SHOULD BE TAKEN AS WITH EMPLOYEE TERMINATIONS. EVALUATE WHAT YOUR COMPANY'S MAKE-UP WILL BE AFTER THE CUTS, IN TERMS OF RACE, SEX AND AGE.
•DON'T PLAY FAVORITES WHEN REDUCING HOURS. CUT HOURS EQUALLY WHEN IT IS PRACTICAL FOR THE BUSINESS, AND DON'T ALLOW FRIENDSHIPS OR EMPLOYEE HARDSHIPS TO DETERMINE WHO GETS MORE HOURS. "IF SOMEBODY IS GETTING 90 HOURS AND EVERYONE ELSE IS GETTING 30, THERE BETTER BE A GOOD REASON. ONE OF THE REASONS PEOPLE GO TO THE (EQUAL OPPORTUNITY EMPLOYMENT COMMISSION) IS THE PERCEPTION OF FAVORITISM," WINCHESTER SAID.•DO BE CAREFUL IN MAKING PREDICTIONS ABOUT THE FUTURE. "DON'T SAY, 'DON'T WORRY. WHEN THINGS GET BETTER, YOU WILL GET YOUR HOURS BACK,'" WINCHESTER SAID.
•DO WATCH YOUR UNEMPLOYMENT CLAIMS LIABILITY. "COMPANIES MAY CUT HOURS AND THINK THEY ARE SAVING MONEY, BUT THEN THEIR UNEMPLOYMENT INSURANCE COSTS GO UP THE NEXT YEAR," ROSADO SAID. "MAKE SURE YOU DON'T REDUCE PEOPLE'S HOURS SO MUCH THAT THEY QUALIFY FOR UNEMPLOYMENT."
