Health Care: Health Insurance Gambit by Wal-Mart (05Jul09)

July 2, 2009 2:50PM

Wal-Mart’s Health Insurance Reform Gambit

Just this week, Wal-Mart raised eyebrows across the country when it came out supporting an employer health insurance mandate.

Now, Wal-Mart has got to know that its endorsement is probably not good for its profits. Wal-Mart is the country’s biggest employer, with more workers than the US Army.

What’s going on here?

Does Wal-Mart, a cut-throat, calculating company when it comes to costs and the competition, know that an employer health insurance mandate is even worse for its competition’s profits, and is getting on board to crush its rivals?

An employer health insurance mandate means companies would have to offer health insurance to their workers, no matter what.

Wal-Mart’s support came a day or so before new Congressional Budget office numbers showing the impact on the mushrooming federal deficit of the Senate’s health reform proposal, spearheaded by Democratic Senators Chris Dodd and Ted Kennedy.

The new CBO numbers show the cost of this legislation is now below the $1 tn mark. How does the Senate get there? By not including the costs for expanding Medicaid costs, and because of the employer mandate.

The Senate bill does not include expanding costs for Medicaid. And the new CBO figures do not include the cost of the 15 million people expected to be enrolled in the employer-mandated health insurance premium coverage.

The CBO’s initial $1 trillion plus number that the White House and Democrats in Congress had gulped at, then attacked, had assumed—get this—that employers would dump those 15 million or so workers onto the US government—meaning, federal taxpayers.

So, what’s the deal with Wal-Mart and an employer mandate for health insurance premiums?

(1) Wal-Mart already provides more employee health insurance than its average competitors. Approximately 52% of Wal-Mart’s 1.4 million U.S. employees are covered by company-provided insurance, while the retail industry average is 45%.

To raise this coverage to 100%, Wal-Mart would have to increase its coverage by 48%, while its average competitor would have to increase their coverage by 55%. Advantage: Wal-Mart.

(2) Wal-Mart has economies of scale that its competitors lack. As a large employer, Wal-Mart already likely pays a lower premium than its competitors with far less employees.

For example, the CBO notes that the share of the health insurance premium that covers administrative costs varies significantly by the size of firms, from about 7% for firms with at least 1,000 employees to a more sizable 26% for firms with 25 or fewer employees.

Requiring employers to provide health insurance to all employees would thus probably cost Wal-Mart less on a per employee basis than its competitors. Advantage: Wal-Mart.

(3) The economies of scale and greater percentage of covered employees would further benefit Wal-Mart if the government mispriced the penalty that it would assess on employers for failing to provide health insurance premiums for its employees.

The government plans to smack companies that don’t participate with a fine, a so called play or pay requirement. The fine could be equal to 8% of pay for each worker not given coverage. Advantage: Wal-Mart.

(4) Wal-Mart has indicated that its endorsement is conditioned only upon the ultimate mandate being designed in a way that further advantages Wal-Mart compared to its competitors. Advantage: Wal-Mart.

According to the Congressional Quarterly, Wal-Mart spokesman Greg Rossiter said “that Wal-Mart wanted an employer mandate that would have companies pay in based not on how many employees they have, but based on ‘profit per employee.’”

Wal-Mart has more workers than the US Army, and low-wage employees as well, so you can see why it wanted an employer mandate based on this metric. If an employer mandate was constructed otherwise, Rossiter said, “it certainly could become a disincentive to support it.”