Kroger (KR) employees could see health plan changes as Affordable Care Act rules come into focus

Union-sponsored plan could lose members

CINCINNATI - The Kroger Co. has yet to hold its first bargaining session on a new contract for about 12,000 local employees. But already there is an elephant in the room: The Affordable Care Act, more popularly referred to as "Obamacare."

"Bargaining health care coverage is always a challenge. But in this round it will be especially difficult," said Brigid Kelly, communications director for the United Food and Commercial Workers Local 75. "It's not entirely clear what the regulations are and how they're going to be implemented."

For Kroger employees and their families, the new contract could bring changes to benefit structures, how they purchase insurance and what they pay for medical coverage.

"It is very possible the place they get their coverage may change," said Earl Pomeroy, a former North Dakota Congressman and senior counsel for the Alston & Bird law firm in Washington, D.C. Among Pomeroy's clients is the national trade group for Taft-Hartley health plans, which is the type of fund that covers Kroger employees.

National experts have warned for months that the changes in health care could have a negative impact on such plans because they create financial incentives to shift lower-income union workers into health care exchanges. The goal of the exchanges is to make individual insurance more affordable, expanding coverage for everyone.

Unions have lobbied to allow consumers to use Affordable Care Act tax credits for union-sponsored plans, but because those funds aren't open to everyone, the Obama administration has resisted. Ultimately, companies may find it difficult to justify spending upwards of $1,200 per month to cover workers through union plans if those same workers can find cheaper, comparable coverage through an exchange, according to industry expert Randy DeFrehn.

"When you're talking about a difference of $5,000 per employee, it's a pretty clear economic decision," said DeFrehn, executive director of the National Coordinating Committee for Multiemployer Plans (NCCMP), a Washington, D.C. –based nonprofit. DeFrehn told the online publication, , that some union-affiliated plans could be terminated if the Affordable Care Act is implemented without changes.

"The reality is, (people in Taft Hartley plans) were seeing their coverage erode over the years," said Pomeroy, whose clients include DeFrehn's group. "The good news is that having premiums subsidized provides relief for both Kroger and the employee. So there might be more room for a typical employer … to raise salaries and other benefits."

Pomeroy predicted some companies will offer supplemental coverage to employees who leave Taft-Hartley plans for subsidized policies purchased through exchanges.

Kroger CEO David Dillon told the Financial Times of London in February that Kroger will continue to cover its full-time employees after 2014, when major elements of Affordable Care Act take effect. But he added that Kroger might revisit that decision if the cost of coverage greatly outweighs the $2,000 penalty that companies would have to pay for not providing coverage.

In a March 7 conference call with analysts, Dillon said the company is working with unions to provide quality health coverage employees while keeping Kroger costs as low as possible.

"We have a workforce that we're very proud of and we don't look at this as something that is – some opposition argument," Dillon said. "We're trying to actually work on their side on this argument. We're trying to find a way to balance the business needs with what our associates need."

Kroger will have to find that balance in Cincinnati this year.

It's one of several cities where the company has contracts expiring in 2013. Kroger recently came to terms on labor agreements in Houston and Portland. It is in the middle of contract talks in Indianapolis, where the elimination of spousal coverage is under discussion.

UFCW Local 700 President Joe Chorpenning told Indianapolis Kroger employees in an April web post that the Affordable Care Act "continues to complicate our negotiations. For example, the company discussed with the committee their views concerning eliminating spousal coverage and coverage for members working under 30 hours per week."

Chorpenning could not be reached for comment. He posted a message to members on May 6 that said the union is working with consultants to determine the cost and impact of benefit changes under discussion in Indianapolis.

Chorpenning is one of eight trustees in charge of the UFCW Local Unions & Employers Benefit Fund of SW Ohio Area. It is a Dayton-based nonprofit, organized under the Taft-Hartley Act for pension and welfare funds. The plan covers not only Kroger employees in Cincinnati, Dayton and Toledo, but also employees of CVS drug stores, Butternut bread and 81 other companies. About 25,000 people are covered by the plan, including 21,000 Kroger employees, spouses or dependents.

The plan has $54 million in assets and received nearly

$97 million in employer contributions in 2011, according to its most recent tax return. The fund paid out $95 million in accident, health, vision, prescription, dental and life benefits to members in 2011.

Kroger declined to discuss the pending contract talks in Cincinnati, where a three-year deal with UFCW Local 75 expires in October. In April, the union surveyed its members about their priorities for the next contract. Kroger's last labor agreement was negotiated without controversy but its 2007 talks were settled only after a strike vote was taken and federal mediators brought in. Kroger declined to discuss the upcoming negotiations.

"Our goals are always to provide our associates with a competitive and solid compensation package with good wages and benefits," said Rachael Betzler, spokeswoman for Kroger's Cincinnati division.

Local 75 spokeswoman Brigid Kelly said Cincinnati negotiations will likely begin in late summer.

"We hope that we'll implement an agreement on health care that can be implemented elsewhere," she said.

Among the options that might be discussed is a "universal benefit plan" for all Kroger employee groups covered under the plan, including single employees, family coverage and part-time workers. The goal is to streamline the administration of benefits, saving money.

Kelly said the Affordable Care Act brings new mandates for coverage that might require modification of Kroger benefits, including expansion of coverage for dependents up to age 26 and 100 percent coverage of preventive care.

"All of those things cost money," she said. "We love to expand coverage, but it's also something that has to be accounted for not only in the administration of health care plans but also in the cost of the contract."

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