Watch out retailers, Wal-Mart takes hit on health care

Wal-Mart health costs really a headwind?
Wal-Mart health costs really a headwind?

Wal-Mart Stores earnings are taking a hit as more of its U.S. workers sign up for health-care coverage.

The nation's largest retailer said Thursday it now expects to spend about $500 million for U.S. health-care costs this year, up from a previous estimate of $330 million. A larger number of employees seeking coverage as well as other medical costs that are rising contributed the company's higher expenses and its decision to trim its earnings forecast for the year.

"We are concerned that those costs could creep higher," Deutsche Bank analyst Paul Trussell told CNBC.

Wal-Mart offers health-insurance coverage to both full-time and part-time employees, with some plans costing as little as $18 a paycheck, according to a company spokesman.

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One factor that is likely driving more employees to seek benefits is the Affordable Care Act's mandate that most individuals have some form of insurance coverage or be subject to a tax penalty. Workers likely weighed their options for getting coverage either through their employer or through an Obamacare health exchange.

In addition, in some states, some low-wage workers may not have qualified for a subsidy for their health coverage because their state chose to not expand access to Medicaid. Under the health-reform law, individuals who earn less than 200 percent of the poverty level couldn't qualify for a subsidy. Instead, these people were eligible to receive coverage through Medicaidbut that was only if their state opted for the Medicaid expansion.

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Wal-Mart said it anticipated that more workers would seek health coverage, but the actual numbers topped their projections. Trussell said that with the year now halfway complete, it's "fair to say they probably have a better gauge now just on how many associates of theirs will participate in the plan."

Although he said the retailer will more than likely face this headwind all year, he views it as mostly one-time in nature. Trussell has a "hold" rating and $75 price target on the company.

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It remains to be seen if other retailers will see similar trends.

This week, a survey from the National Business Group on Health said some of the nation's biggest companies are projecting health-benefit costs will rise 6.5 percent in 2015. However, companies expect to keep their own costs limited to just a 5 percent gain by moving to lower-premium plans and shifting more costs on to employees.

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This puts more pressure on the employee to choose wisely and be educated on their health-insurance choices, said Neil Trautwein, a vice president at retail industry trade group the National Retail Federation.

"There really are many factors that go into writing premiums including actual health-care costs, predicted health-care cost increases, diversity issues and which market we are talking about," Trautwein said.

Trussell said he doesn't foresee the issue becoming widespread.

"Wal-Mart is probably the retailer that was most under-penetrated in terms of the amount of the employees that were not enrolled in health care, so we don't see this being a big issue across the broader universe," he said.

—By CNBC's Landon Dowdy