Recently, the team at the Free ObamaCare Guide read the news report that starting in January 2014, UPS would no longer offer insurance coverage for the spouses of more than 15,000 UPS workers. After learning the details and then reading the memo issued by UPS, we were disappointed that UPS seemed to place the blame for the increased healthcare costs they are projecting on the Affordable Care Act, also referred to as ObamaCare.
Brad Hayes, Communications Director for the guide said the following regarding the guides response.
“First and foremost, we should be clear that we have a lot of respect for UPS, which is a great American business that employs a lot of people. That said, we felt that the data released and the focus of the media seemed incredibly biased and does not bring to light some important points. Our organization believes that if UPS were to be perfectly candid with their employees, they would simply need to say that ObamaCare now provides them with the ability to save $60 million dollars by no longer offering this coverage because someone else will. Their decision had little to do with the ACA, this is just one of the advantages they can leverage. While this may be an inconvenience to some, UPS has the opportunity to save $60 million by dropping 15,000 people while placing the blame on ObamaCare, win-win.”
According to the memo UPS provided its employees, it had seen annual insurance cost increases of 6% to 7% for general reasons, meaning not relating to the ACA and ObamaCare. This year they anticipate the increase will be 11.25% and UPS specifically attributed 4% of that rise to ObamaCare.
Here is specifically what UPS said in the report:
“Historically, the cost of providing coverage to our union-free population has increased yearly, ranging from 6% to 7%. We anticipate an 11.25% increase from 2013 to 2014. That percentage includes 7.25% for trend, or health care inflation; and 4.0% due to the impact of the Affordable Care Act. Our goal for 2014 was to minimize or eliminate cost increases paid by the majority of our people.”
UPS stated that by no longer offering insurance benefits to those 15,000 non-union worker spouses, they will see savings of more than $60 million dollars a year. That $60M figure has been thrown around by some news agencies in a way that can mislead a person to believe that ObamaCare would have cost UPS an additional $60 million this year. This is clearly not true and the organizations that are perpetuating this false information are likely doing so for political reasons only. If we quickly do some math, we find out what the truth of the matter really is.
According to UPS estimates, ObamaCare would have cost them an additional 4% to cover those 15,000 spousal policies.
4% of $60 million is $2.4 million.
$2.4 million divided by 15,000 policies is $160 per policy, for the year.
So basically it looks like UPS had two options: ask for an additional $15 a month from those who wanted to keep their spouse’s insurance policies, or throw 15,000 people under the Big Brown Box Truck and save $60 million dollars for the year and then blame it on ObamaCare.
Ultimately, the most comically ironic part of all of this is that the news outlets reporting that the ACA cost these people their healthcare are the same ones that cite “industry insiders,” who say that ObamaCare will increase insurance rates by 30% or more in 2014. Well, did they not notice that UPS just released data they claim to be factual that indicates ObamaCare will only increase costs by 4%? If any organization should know the costs of ObamaCare compliance it is UPS, which has self-funded healthcare benefits and manages its costs directly.
It seems that UPS is just like some media outlets that want to play both sides of the story to “spin” it to their advantage: Save $60 million by dropping coverage for 15,000 people while crying foul of ObamaCare and how it drastically increased costs, when in reality, according to UPS, it is only responsible for a 4% increase.
Asking for a $15 a month increase versus dropping coverage for 15,000, or at least giving their employees that option, would have been a better thing to do. UPS has no idea if these people will have better options elsewhere, nor does it seem that they really care.
We will never know how many of the 15,000 would have preferred having a choice. What we do know for certain is the decision UPS made for them.
Something that is really troubling about the coverage of this story is how easily many major news publications, some of which are considered to be on “the left”, have felt that it is perfectly acceptable to leave out the very critical point that, according the UPS, ObamaCare is only responsible for a 4% increase in their overall insurance costs for the year.
Some of the major news sites that leave the percentages out completely and instead rely on splashy if not misleading headlines include:
Fox News chose to go with the headline of: “Employers dropping coverage for thousands of spouses over ObamaCare costs”
CSM was even more dramatic: “UPS drops health benefits for 15,000 spouses. An Obamacare bellweather?”
The Washington Times and Atlanta Business Journal essentially had the same headline.
Glen Beck’s future Pulitzer Prize winning site, The Blaze, might have had the most comical headline and article and by comical we mean in that dark comedy (think Fargo) type of way.
The title really did not matter, what did matter is that they cited the Kaiser Health News website; however they did not bother to mention a report by the Kaiser Family Foundation, a non-partisan group they enjoy citing when they can bend the truth to their advantage. The Kaiser Family Foundation released data that shows that ObamaCare will only increase individual and family plan costs by 4% to 5% in 2014 and in fact may already be lowering general healthcare inflation costs.
For this indignity, we won’t provide The Blaze with a link.
Even CNN.com got in on the action, and although they do get some credit for at least including some of the percentage data, they did have the second most misleading headline with: UPS cuts insurance to 15,000 spouses, blames Obamacare.
Here is the real problem that all of these articles have: they are not disclosing all of the information and not just the claimed 4% increase that UPS cites in the memo. They are not providing their readers with any insight as to why, aside from the ACA, UPS would want to make this cut in the first place. You see, UPS isn’t exactly having a tremendous year to begin with and it has a lot of problems facing its organization and is naturally looking to cut costs wherever it can.
UPS, like FedEx, has seen a sharp reduction in demand for its super fast shipping services. This is especially true for international shipping services. Consumers and businesses are turning to their less expensive alternatives, which of course arrive later but cost significantly less. To add insult to injury, their freight service business in which large containers are shipped via jumbo jet are now finding a lot of competition with airlines that are now trying to boost their bottom line by filling unused aircraft cargo space with another revenue stream. Airlines are able to price their services below UPS and, as a result, the company’s supply and freight unit recently reported operating profits that were 21% lower than a year ago.
UPS’ rival FedEx is reducing the amount of jets it has in service, but unfortunately for UPS they cannot do this because they have contractually committed to purchasing more aircraft from Boeing through 2013.
UPS is making a lot of changes to the way the company spends its money. In fact it has made the costly investment of placing more natural gas trucks in service in order to reduce fuel costs. One area where UPS is not changing course is as to whether or not it will continue to issue a dividend to shareholders. UPS CEO, Scott Davis, said the following in a recent earnings call when asked about whether or not continuing to issue the dividends makes sense since revenue has been flat and earnings are down:
“Clearly we’re committed to our distributions, committed to our dividends, we’re committed to the share repurchases; the numbers we talked about in the past. But we’re also committed to reinvesting in the business, so we have a lot of opportunities out there right now for us to reinvest, particularly in areas of emerging markets we talked about earlier. There are all kinds of opportunities in health care that we’re just tapping right now, and B-to-C,”.
Why wouldn’t UPS cut back on dividends in tough times, considering those funds could be better spent elsewhere? Well in short, if they were to do that, a lot of institutional investors might dump their position in the company, which could send the stock into a free fall. That is the very last thing any company wants, but especially one facing the challenges UPS does.
One other area that is of concern for UPS is the continued interest from some very large and capable companies that are venturing into local delivery locker systems. The Wall Street Journal has an excellent article detailing Amazon.com’s move into this business, which could very well create some massive problems for the UPS core ground delivery business. WSJ Article
Basically a localized locker service could mean that through various methods, a company such as Amazon, eBay or even Google, which is interested in the emerging industry, could find ways to circumvent UPS and their logistics service. A lot of companies are looking to partner with large grocery chains by placing these storage lockers within their stores. For the grocery chain it is a major win simply because having something else to draw people in your store at a time they might not otherwise have been there is a good thing. Secondly, the company would have to pay the grocery store fees to keep their locker system within the store in the first place. The concept has grown in popularity with other industries with movie and video game rental systems being commonplace now in many supermarkets.
Even more disconcerting for UPS is the fact that Amazon has recently announced their decision to move into the grocery game. It will be years before it is commonplace; however one thing is for certain, they will have their own fleet of vehicles. Therefore, in theory, over a long enough timeline, Amazon, which is a huge source of revenue for UPS could no longer need them.
What this all points to is that some very uncertain times are ahead for UPS; none of which have anything to do with healthcare or the ACA.
Unfortunately, what we believe happened here is the exact same thing that will continue to happen within other large companies. This $60 million in healthcare costs was an expense that a struggling UPS would have been thrilled to cut a long time ago. If they were really concerned about the well-being of the spouses of these 15,000 non-union workers, they would have sent a memo asking for them to chip in $15 a month in order to keep their plan, or look elsewhere. But why do that? After all, isn’t it much better to just cut them off and then place the blame on ObamaCare?
Large corporations will use the ACA as a way to not have to offer coverage to a spouse if it is going to now be offered by their own employer, regardless if it might cause them a financial hardship and or be a huge pain in the neck to have to do.
It is a way to reduce costs, pass the buck, and focus on profits and politics.
We hope that Americans will research things on their own and determine if in fact ObamaCare “increasing healthcare costs to absurd levels” (cough, ahem 4%) is solely responsible for corporations making these decisions or, if it is just financial news sites with a better understanding of UPS current business have suggested, nothing but a smokescreen for cutting costs. Read Further.