About 4 months ago

06/20/2017 - Caught Up in the Entitlement Reform Debate – Again

The President recently made headlines with the release of his first draft budget proposal and while some convenience store operators might applaud the perceived “belt tightening”, leading brands need to be aware of a few hidden minefields. Most prominent among them is the call for $800 million dollars in cuts to Medicaid. While any entitlement reform fight can get sticky, it may not be readily apparent why messing with this one can be particularly hazardous for the industry.

Unfortunately for operators, recent history has shown the last few national debates over Medicaid have centered less on taxation and other spending choices by government and Increasingly on the perception that entry-level employers pay so little that their employees have to enroll in public assistance programs like Medicaid to get by. The argument made against companies is that their low-wage model only works when supplemented by government assistance programs like Medicaid and that taxpayers are essentially subsidizing large companies by covering the health costs of their workers – accusations from which entry-level employers have historically struggled to defend themselves.

For context, it is worth looking deeper into the circumstances that impacted companies that faced this accusation. During the recession in 2001 and the “Great Recession” in 2007-2008, we saw significant increases in the need for public assistance. That led to obvious pressure on public programs like Medicaid. The conversation shifted away from the recipients and who should be eligible and toward the employer community and why people who worked full time needed to leverage these public programs. As a result, the entry-level employer community got dragged through the reputational mud and began to defend itself against a slew of legislation aimed directly at them.

The first “fair share” campaigns criticizing retailers were originally aimed at Walmart. From 2003-2006, countless states introduced “Walmart” bills and while the details in various states sometimes differed, most were focused on mandating that certain large employers had to pay a percentage of their payroll on health insurance, or pay all of that amount into the state Medicaid fund. While Walmart took the initial brunt of the public relations and political assault, it wasn’t long before other large employers like McDonald’s started wearing it too.

The same set of factors came into play after the 2008 recession. A similar narrative and PR assault played out right on schedule along with accompanying legislation. This time, however, Walmart (and many other retailers) had made enough changes to benefits packages and related internal policies that they effectively removed themselves from the conversation over time, leaving it mostly a restaurant and QSR conversation for the last five years or so. Now, rightly or wrongly, any entry-level employer could get pulled into the mix.

Ironically, many of the programs that tie government assistance to employment are products of bipartisan efforts at welfare reform during the 1990s. Policymakers, in many ways, have incentivized employers to participate, and to hire workers who rely on government assistance programs. The logic behind these policies is that employment will eventually allow these workers to move off of government assistance. But instead of entry-level employers being part of the solution as envisioned in the 1990s, the goal posts have been moved and now many think those same employers are part of the problem.

It’s a classic example of the law of unintended consequences. Now, with the release of his new budget calling for cuts to Medicaid and the potential cuts to the program if his AHCA were to pass, the industry may quickly find itself right back in the middle of the same conversation. Once again, the law of unintended consequences.

Lately, even though the “fair share” drumbeat from the labor community, media and political circles has continued, it has been mostly drowned out by the debate over $15 minimum wages, expansion of leave policies and mandated scheduling. That is until now, perhaps. If the Medicaid cuts called for in either the AHCA or the president’s budget come to fruition, this conversation will reignite, and likely burn much brighter and hotter than the last few times. The SEIU and its allies are better organized internally and better funded this time around and their lack of success in unionizing service industries has made them more desperate.

The ‘Fight for $15’ campaign is proof that they know how to change the conversation. They have already gotten the ball rolling in recent legislative sessions over the last few cycles. California has a “shaming” law on the books and Oregon, Connecticut and New York continue to look at similar proposals. And that was long before these Medicaid cuts were proposed.

While many in the retail and restaurant industries see Medicaid cuts and other healthcare reforms as a gateway conversation to tax reform, be careful what you wish for. When you squeeze the balloon in one place, it pops out in another. History shows us that we may be heading down a road where our “friends” could be – intentionally or unintentionally – unloading their legislative burdens onto the backs of employers and making them the fall guy for the Medicaid problem. Considering the ongoing reputational challenges the industry is already facing, we are ill-prepared to fight this one as well.