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Employers cutting costs by cutting health insurance

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Odd-Hour Workers Face Loss of Employer Health Plans
Redrawn Lines Between Full- and Part-Timers at Sodexo Decide Who Is Eligible for insurance

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By LAUREN WEBER CONNECT
April 13, 2014 7:17 p.m. ET
Susan Caspersen was in a hospital in Akron, Ohio, last November recovering from an emergency appendectomy when she got some unwelcome news: as of Jan. 1, 2014, she would no longer be eligible for the health-insurance plan offered by her employer, food-service giant Sodexo SW.FR -1.46% USA.

Ms. Caspersen, a waitress at Virtues Restaurant in the Summa Akron City Hospital, falls into part of the workforce that may feel the strongest effects of the Affordable Care Act: workers whose hours change on a weekly or seasonal basis.

Thousands of these so-called variable-hour employees—many of whom work on college campuses that don’t operate during summer months—could lose their benefits as employers use new formulas to classify workers as full time or part time. The distinction determines which employees are entitled to company-sponsored health coverage.

Sodexo USA worker Anita DeVito AJ Mast for The Wall Street Journal
A large portion of Sodexo’s 125,000 U.S. workers are variable, and about 10,000 of them are losing access to health insurance, paid vacation and sick days and other benefits available to full-timers. Sodexo says it has taken steps to ease the strain on workers, but avers that the new formula lets it manage costs and stay competitive in a business driven by low-margin contracts.

Other employers are likely to follow Sodexo’s lead in reclassifying workers as they get closer to the ACA’s Jan. 1, 2015 compliance deadline, said Gary Claxton, a vice president at the Henry J. Kaiser Family Foundation, who said that businesses sought clear guidance from government officials on how to handle workers with nonstandard hours. Many of those workers, he added, may be better off on public health-care exchanges if they qualify for tax credits to subsidize their coverage.

About 68% of U.S. employers have variable-hour workers, according to benefits consulting firm Mercer LLC, with most of them in the hospitality, retail and education industries.

For seven years, Ms. Caspersen, 61 years old, kept her eligibility for Sodexo benefits under the company’s rules, which deemed employees full time if they worked at least 30 hours a week for six or more weeks of a 12-week quarter. In 2013, she paid $69 a week for a Cigna Corp. plan that covered herself and her husband.

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She carefully managed her hours—no easy task when the longest shift is six hours, and the availability of shifts is limited. She worked five-day weeks, putting in occasional night shifts “just to make sure,” she says.

Sodexo, which is based in Gaithersburg, Md., and is part of Sodexo of France, informed workers of the new eligibility formula late last summer and in the fall. The company’s new formula takes a weekly average of hours worked during the 52 weeks from October 2012 to October 2013. Workers whose averages exceed 30 hours, the number at which the ACA requires employers to offer company-sponsored insurance, are now considered full time.

Ms. Caspersen’s average for that period was about 29.6 hours, according to a Wall Street Journal review of her pay records. She twice appealed the decision to end her eligibility, arguing that she would have passed the threshold had she been given more notice of the change, but was twice denied. She lost her Sodexo coverage on Jan. 1, and is now paying $231 a month for a high-deductible plan offered through a government health-care exchange.

“This has been puzzling and devastating to me,” she said.

For Sodexo, the policy reflects the fine line employers walk between taking care of staff and managing costs. “We’re balancing what’s the most economically feasible model while recognizing that these employees will be able to get access to benefits on the public exchanges in ways they couldn’t have before,” said Julie Peterson, Sodexo’s vice president of compensation and benefits.

Sodexo says that, because not all eligible workers opted into its health plans, 3% of its workers, or about 4,000 people, have lost insurance they previously had.

Ms. Peterson declined to disclose how much money Sodexo will save with the change, but says “the ACA, on a net basis, is costing the company material amounts of money.” The law’s requirement that individuals buy coverage “has driven thousands of employees into our medical benefits and that’s offset any savings from the change in eligibility,” she said.

It isn’t clear yet if Sodexo’s competitors will follow suit. Aramark Holdings Corp. ARMK -0.55% declined to comment on its classification method. Compass Group USA is using a 12-month look-back period, but only counts weeks worked for employees in its education business, a spokesperson said.

The Internal Revenue Service allows companies to use a “look-back” period of anywhere from three to 12 months to calculate an employee’s average weekly hours, and then lock in that status for the following six months to a year.

Sodexo’s policy change will have the greatest impact on its food-service workers at colleges and universities, where summers and holiday breaks limit potential hours. About half of Sodexo employees fall into that group, and those individuals often work only during the school year, making it nearly impossible to arrive at the 1,560 hours needed to qualify for benefits.

At Earlham College in Richmond, Ind., nearly all of the 40 or so hourly Sodexo employees have lost access to full-time benefits, according to two workers there.

Anita DeVito, 52, was among them. She estimates that she worked 1,000 hours in 2013, and paid around $40 a week for her medical and dental insurance through the company.

On Indiana’s health-care exchange, she may end up paying less for insurance, but the plan would offer fewer choices. She says she and co-workers are frustrated by what they see as a cost-driven decision by their employer.

Sodexo focused on four things when determining its approach to its variable workers, Ms. Peterson said: “Caring for employees, complying with the law, watching our costs, and making sure we continue to be competitive in a business that is very low-margin.”

Earlham’s Sodexo employees are now campaigning to organize with the help of Unite Here, a union that mostly represents hospitality workers. “We’re going to see if we can find a fair process where they’ll have a dialogue about how to make things better,” said Todd Reda, 52, a cook who didn’t participate in Sodexo’s health plan but no longer has access to other benefits he used as a full-time worker, such as supplemental life insurance and paid sick leave.

Sodexo is aware of the hardship to employees, said Ms. Peterson. The company has given raises to affected workers to compensate them for the vacation and sick days they lost.

Plenty of other businesses appear poised to use the same eligibility formula as Sodexo, but most will implement it this year, in preparation for the 2015 deadline. According to a March report from Mercer, 55% of employers with variable workers say they will use a 12-month look-back, while 31% hadn’t decided on their formula.

“Twelve months is the fallback,” said Jim Napoli, a lawyer who consults with employers on ACA compliance at law firm Constangy, Brooks & Smith LLP. “But [employers] are looking to see what the cost difference is between the various options.”