Free Riders

WalMart, arguably the largest employer in the United States, is frequently the target of criticism for its parsimonious pay and benefits package. And they know it. In a smoking gun type memo from 2005, they look hard at their health care benefits. While the memo is nearly a decade old, most of the observations and conclusions seem current. In particular, they know their reputation suffers:

Wal-Mart’s healthcare benefit is one of the most pressing reputation issues we face because well-funded, well-organized critics, as well as state government officials, are carefully scrutinizing Wal-Mart’s offering. Moreover, our offering is vulnerable to at least some of their criticisms, especially with regard to the affordability of coverage and Associates’ reliance on Medicaid.

They in part blame the health of their workforce. A couple of Plum Liners often note the WalMart is the employer of last resort. You work there because you can’t get a better job somewhere else.

Our workers are getting sicker than the national population, particularly with obesity-related diseases. For example, the prevalence of coronary artery disease in Wal-Mart’s population grew by 6 percent compared to a national average of 1 percent, and the prevalence of diabetes in our population grew by 10 percent compared to a national average of 3 percent. (That said, our workforce is no sicker at present in absolute terms than the national population.)

A segment of our workforce consumes healthcare inefficiently, in a pattern similar to a Medicaid population. Our population tends to over utilize emergency room and hospital services and underutilize prescriptions and doctor visits. This pattern is most evident among our low-income Associates, and one hypothesis is that this behavior may result from prior experience with Medicaid programs.

In remarkable self-awareness, they realize that healthcare is their Achilles heel in the public mind.

Healthcare is one of the most pressing reputation issues facing Wal-Mart. Survey work done last summer shows that people’s perception of our wages and benefits is a key driver of Wal-Mart’s overall reputation. Several groups are now mounting attacks against Wal-Mart focused on our healthcare offering. These increasingly well-organized and well-funded critics – especially the labor unions and related groups, such as Wal-Mart Watch – have selected healthcare as their main avenue of attack. Moreover, federal and state governments are increasingly concerned about healthcare costs, and many view Wal-Mart as part of the problem (a view due, in part, to the work of Wal-Mart’s critics). Medicaid costs are a major priority on most governors’ agendas; already a quarter of states are spending more than 25 percent of their budgets on Medicaid, and observers across the political spectrum assert that the current system – with spiraling costs, a large population of uninsured, and an increasing number of medical bankruptcies – is unsustainable (although there is little consensus on what should take its place). In this environment, we can expect efforts like those in Maryland (which is trying to mandate that companies spend a certain percentage of revenue on healthcare) and New Hampshire (which requires health services to track where Medicaid enrollees are employed) to accelerate. Proposals such as these, if successful, will bring added costs to Wal-Mart. Moreover, these battles with critics and governments are contributing to the decline of Wal-Mart’s overall reputation.

As for being free-riders, nearly half of their employees’ dependents are either on Medicaid or just going bare.

We also have a significant number of Associates and their children who receive health insurance through public-assistance programs. Five percent of our Associates are on Medicaid compared to an average for national employers of 4 percent. Twenty-seven percent of Associates’ children are on such programs, compared to a nation al average of 22 percent (Exhibit 5). In total, 46 percent of Associates’ children are either on Medicaid or are uninsured.

In their recommendations, the realize the need to make sure their position is heard. This memo was written before the word got out that individual mandates are Kenyan Socialism but it’s interesting that at one time they supported the concept.

Become more engaged in the national healthcare debate, to position Wal-Mart as a leader in healthcare in general and on access (e.g.,individual mandates…
Public reputation risk. Healthcare enrollment will fall several percentage points due primarily to a shift to more part-time Associates, which could draw additional attacks from Wal-Mart’s critics. Also,despite the proposed efforts, the Medicaid problem will not be “solved.” A significant number of Associates and their children will still qualify for Medicaid. Because many of these programs will offer more generous health insurance than Wal-Mart provides, many Associates will still choose to enroll in Medicaid, leaving the door open for continued attacks.

For those that decry the welfare state, it seems that they easiest way to shrink it is to make sure the private sector is not part of the problem. Increases in the minimum wage and mandatory benefits increase employment costs. Possibly a lot. Labor costs are a particularly high percentage of food service and retail. But these are jobs that cannot be easily outsourced or automated.

We have a tragedy of the commons problem in that what is good for WalMart (and their customers) is not necessarily good for the nation as a whole. It’s good to know that WalMart recognizes the problems they face. It’s less reassuring that in the nearly past decade they have done little to alter the perception of them.

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