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When Employee Healthcare Costs Move Stocks
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When Employee Healthcare Costs Move Stocks

Joseph Andelin is the founder of Olavi Group, LLC, a healthcare research and consulting firm. His work focuses on quantitative storytelling for commercially insured healthcare strategies, equity market research and insights, as well as healthcare and financial literacy. His past professional experience includes roles at Goldman Sachs, ExtendHealth, Willis Towers Watson, and Compass Professional Health Services.
Healthcare costs in America are seeping into nonhealthcare companies’ earnings announcements. The list from a cursory search of one recent week’s public company earnings transcripts includes firms that sell sneakers and tennis rackets, make the dressing for your Caesar salad, deliver flowers to your sweetheart, and provide services to oil companies.

None of those companies discussed healthcare this time last year. It may be too early to it call a trend but it’s worth noting.

The negative press of outlier expenses, and a renewed focus on what does or doesn’t work, may lead to some improvement. Below is a summary of what the companies reported:
  • Hibbett Sports: In explaining higher expenses management said that “ costs were elevated and with us being self-insured, we do see volatility from time-to-time in expense, so part of it was that.” The stock dropped more than 30% on the earnings announcement, even as same-store and online sales jumped.
  • Footlocker: “And as we have been talking about for a while now, higher minimum wages, selling wages is a big piece of our SG&A [selling, general, and administrative expenses] and medical costs, as well.”
  • 1-800-Flowers: Earnings before interest, taxes, depreciation, and amortization declined 8%. “This primarily reflected Cheryl's [Cookies’] operational issues and higher transportation and healthcare costs incurred throughout the year.”
  • Lancaster Colony: “And that's part of our long-term plan, honestly, is to figure out where can we invest in automation to take out unskilled labor, so we're relying more predominantly on true skilled labor that helps us today, and as we think into the future about things like healthcare costs, worker's comp costs and everything else, it will help us, as well.”
  • EnservCo Corp: The company “is partially self-insured and, therefore, makes a relatively large upfront payment on each claim. Within our well enhancement segment this accounted for an approximate $283,000 increase in the second quarter compared to last year.” Rounding up, this amounts to 1% of sales—not an insignificant amount.
As a top 3 or 4 expense, nonhealthcare companies rarely discuss healthcare costs with investors. It’s hidden within the SG&A line of the income statement. Brokers, vendors, and consultants have been inconsistent with delivering solutions. Usually their interests are not aligned and it’s a tough battle. Inflation, demographic changes, regulation, and innovation have pressured budgets. Costs of $8000 to $12,000 per employee in the United States is just the price of doing business. Healthcare trend of 2 to 3 times the consumer price index is the benchmark and is set in budgets. Breaking that has not been something companies have consistently reported or reliably bragged about.

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