Why Wal-Mart Provides Health Insurance to Its Employees

Full disclosure. Readers here know I own Wal-Mart (WMT) shares.

Now the news (from the WSJ):

In a major break with most other large companies, Wal-Mart Stores Inc. Tuesday told the White House that it supports requiring employers to provide health insurance to workers, a centerpiece of President Barack Obama's effort to provide near-universal coverage to Americans.

The support of Wal-Mart, the nation's largest private employer, could give momentum to one of the most-contentious aspects of legislation taking shape in Congress to fix the health system. To help pay for covering the 46 million uninsured, lawmakers have proposed mandating that all but small employers provide insurance for workers or help pay for it.

Lobbies for large corporations have opposed the idea. The U.S. Chamber of Commerce has fought such a mandate, saying it would prompt companies to cut jobs, lower wages and possibly drive them out of business. Wal-Mart -- which provides insurance to employees and wants to level the playing field with companies that don't -- on Tuesday delivered a letter to President Obama taking a different stance.

"We are for an employer mandate which is fair and broad in its coverage," said the letter, signed by Wal-Mart Chief Executive Mike Duke. Andrew Stern, president of the Service Employees International Union, also signed the letter, along with John Podesta, who led President Obama's transition team and is chief executive of the Center for American Progress, a liberal-leaning think tank.

Why? It seems to run counter to Wal-Mart's "we'll do what we think is right" approach.

Wal-Mart provides health care to it employees. Much of the competition does not. Should they then be required to do so, the company's cost basis for its business suddenly rises... considerably. Should that happen, in order to offset its new cost increases two things must happen. Either Wal-Mart offsets it with pay freezes or reductions for new hires OR increase its prices to consumers.

Either scenario aids Wal-Mart immensely as it slows growth in its payroll and / or increases its competitive price advantage over the competition.

I like Wal-Mart and I shop there quite a bit. Let's not read anything into this like a sudden altruistic bent or support for the current administration's policies. It is as simple as "whatever hurts your competition helps you".

As Micheal Corleone was fond of saying.... "It's just business".


Disclosure: Long WMT

Comments

[Steven Hansen:]

okay, the issue is not wal-mart or other retail providers in america.

it is companies that produce goods or services which could be used all over the world.

for exporters - it means higher costs. the government could get around this problem by refunding health care costs for goods or services exported. somehow i cannot envision his happening.

for goods and services being imported, they will have a distinct and special advantage over domestically produced products and services - up to a 15% advantage. there is no way to adjust the playing field here short of imposing tariffs.

jobs, jobs, jobs.

we are admittedly in the worst employment crisis since WWII. anyway you cut this it is bad for jobs.

if we don't do something about health care it will bankrupt the country.

we are facing the proverbial place between a rock and hard spot.

Jul 02 03:58 AM

[Graham and ...:]

"Whatever hurts your competition helps you." Or, "the enemy of my enemy is my friend."

Jul 02 09:17 AM

[Ted Hurlbut:]

Of course Walmart would be for it. They're much better positioned to absorb the hit than their competitors, which adds up to greater share, and that's what the Walmart business model has always been about.

Jul 02 04:41 PM