Yesterday, UPS ($UPS) said they wouldn’t cover spouses anymore on health insurance because it was too expensive. The fine print said if the spouse was employed, they could get health insurance from their company, not UPS.
Image via CrunchBase
I posted the article to my Facebook ($FB) wall and one of my friends commented that UPS will do better by not insuring spouses.
Because health insurance is a benefit to workers, and a non-taxable straight expense to companies, under Obamacare they have an economic incentive not to give employees insurance.
Remember, health insurance became tied to work during the Roosevelt administration. The federal government froze wages and so companies figured out a way around the law to attract employees. One of those ways was health insurance.
UPS isn’t going to raise the salaries of employees who’s insurance is dropped. Either the employee will have to bear the cost of finding insurance, or the spouse’s company will have to pick it up.
I agree that we shouldn’t tie employment to insurance-but Obamacare was not the way to do it. Health Savings Accounts (HSA) and vouchers was the way to go. Not federalizing and socializing our medical system.
The math for UPS works like this. If they drop 15,000 spouses, and it conservatively costs them $7000 per year to insure them, UPS gets $105,000,000 directly to their bottom line. It’s just accounting, and there isn’t any real economic value being created or added to the economy.
The policy and subsequent accounting change increases earnings before interest and taxes (EBITA) and will increase enterprise value.
Of course, the flip side is also true. Companies that have to assume the cost of insurance could have a negative effect on earnings. But, my guess is that most large and small companies won’t cover health insurance, and more people will be forced into the pool.
Have fun waiting online for insurance.
UPDATE
My friend correctly points out that at $100 million in savings and a 20ish PE UPS increases it’s market capitalization by $2 Billion. Or around 2% of current value. With say a $20 Trillion total market cap and zero incentive to keep insuring spouses and a great excuse not to, this could be a $400 Billion or so windfall for the owners of US Stocks, who just happen to overwhelmingly fall into the category known as the 1%. Thus ,the rich get richer by helping to bankrupt the country through offloading expenses like what McDonald’s and Walmart are already doing by showing their employees how to apply for federal assistance… This will end up being Bush’s fault…
For traders, is this bump already factored in?
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