Wal-Mart and Offering Employees 'Strategic' Healthcare

Wal-Mart came out in favor of an “employer mandate” approach to health insurance, in which employers are forced to purchase health care for their employees. Now I’m more of a public option kind of guy. I didn’t vote for Obama so Wal-Mart (WMT) lawyers could go ahead and try and stack the deck for part-time high-turnover labor which will be exempted, leading to incentives to make labor even more transient than it already is, which is almost certainly what they’ll do here.

However the general consensus among internet blogs is that Wal-Mart is using this to bully and squeeze their competition by creating barriers to entry that other businesses can’t afford as well as Wal-Mart. This has a few flavors. One is that it is strategic competition between the big guys:

But it all became clear when the lobbyist explained the reason for Wal-Mart’s position: “Target’s health-benefits costs are lower.”

I have no idea what Target’s or Wal-Mart’s health-benefits costs are. Let’s say that Target spends $5,000 per worker on health benefits and Wal-Mart spends $10,000. An employer mandate that requires both retail giants to spend $9,000 per worker would have no effect on Wal-Mart. But it would cripple one of Wal-Mart’s chief competitors.

I highly doubt that story. That is predicated on Wal-Mart giving great health benefits, both better than Target (TGT) and/or less cost-efficient, which I know of no evidence of. Wal-Mart and its competitors work hard to keep good data and numbers here from getting to the public, but we have this:

In a state analysis, the Massachusetts Department of Health and Human Services found that in 2003, Wal-Mart covered only 52% of total health care premium costs compared to K-Mart which covered 66%, Target which covered 68%, and Sears which covered 80% ["Employers Who Have 50 or More Employees Using Public Health Assistance," Division of Health Care Finance and Policy, 2/2005]

And we have Target Transfers More Health Costs To Its Employees
(2006, WSJ) : “Target Corp. has changed its health-care plan so that employees are responsible for more of the costs and it is considering entirely eliminating its traditional health insurance…” As people noted, this is the same approach Wal-Mart had at the time. Target was trying to get its health care costs down to the level of Wal-Mart.

Team Rortybomb's last trip to Target; Wine cubes and a swiffer vac. I am a functioning adult, fyi.

So let’s think of this as a prisoner’s dilemma. Target and Wal-Mart have been engaged in a competition to reduce health care as much as possible. However, Wal-Mart is the one that is getting zinged for it. So it is like the PD with the special condition that the outside Mob only observes one person, Wal-Mart, confessing. Note this representative story:

But somehow, perhaps because of its relative small size compared to Wal-Mart, Target has largely avoided negative publicity.

In fact, it benefits from anti-Wal-Mart anger, a fact that isn’t lost on company officials.

Media reports describe Target executives booing and hissing at a Wal-Mart logo during sales meetings and calling it the “evil empire.” While communities often fight tooth and nail against new Wal-Marts, residents usually welcome Targets, as local governments offer the corporation generous tax breaks and subsidies to locate in their area.

That is what happened last fall in West St. Paul, Minn., where a new Target reaped $731,000 in local tax breaks, while 30 miles away, Ham Lake was fighting Wal-Mart’s efforts to open a superstore. The Target in downtown Minneapolis received $68 million in public subsidies, according to the Star Tribune newspaper. In Chicago in 2004, a city-wide coalition formed to oppose two proposed Wal-Marts and the fight roiled the city council for months. Meanwhile at least three new Target stores have been built in the metro area in the last several years.

Picture your normal prisoner’s dilemma, where both Target and Wal-Mart are playing the “poor health benefits” card, but only Wal-Mart is being observed and penalized by the government for it. (Rationally too; these costs are just being transferred over to the government to handle.) It’s easy to see Wal-Mart wanting to change its strategy, but that would only lead to it getting nailed by Target even worse. So it wants a mechanism in which they both have to move at the same time. I suspect this is what is going on.

In case this seems exaggerated, there are several Wal-Mart specific lawsuits going on across the country. Rather than deal with 50 angry state governments, or hundreds of angry city counsels, all stabbing little bits off the current strategy, why not simply deal with it for once at the federal level and get to the other equilibrium?

Economies of Scale

The government does all kinds of things to benefit Wal-Mart over small competitors. As anarcho-capitalist Kevin Carson pointed out, if we didn’t publicly build highways there would be no Wal-Mart business model. That initial start-up cost of Wal-Mart's, having a national transportation grid, is paid for by small businesses and ordinary taxpayers. The question is how much the tradeoffs are worth these hidden benefits, and how great the benefits are?

People talk about competitiveness of small businesses, but what this really means in this context is competing with providing less health care. Or an ‘optimal’ amount of health care if you will. The major way to innovate here is to make people think you are giving them more health care than you will actually give them. If your goal is to get more people covered than what the current market, with its adverse selections and moral hazards, provides, which is my goal, then are going to be winners and losers. But by how much? I’m curious to see better numbers on this.

Comments

[conceptwizard:]

"Welcome to Wall Mart". The demise of the American Dream. Where "Made in China", rings through the isles in the land of the free. Wonder where your job went, take a run down to Wally World, take a walk up and down the isles and check the "made in" labels. Then realize what you have in your hand was made for about one tenth of what it cost to make it in the USA.

Now nothing against China, they are just making their way like everyone else. But how do we compete on a world scale with such an imbalance. How do we sell US made cars in a competitive way. Or anything else for that matter. I dont know the answer but it seems to me if we are in a globalization arena then our wages are all going to have to go down to compete, so much for a union job. After all with all the people unemployed by the time this is over we will work for food.

Jul 02 04:12 PM

[nova:]

conceptwizard wrote:
"After all with all the people unemployed by the time this is over we will work for food."

It appears a "sound" way to solve the present American tragedy. It appears we are about to witness a drastic change of the American Constitution. Unfortunately, there are no ways around.

Jul 02 07:18 PM

[reveigel@ms...:]

Once government gets into the act, the situation just becomes a big expensive mess. Unless and until this is reversed and freedom rings in the market place it will just get worse and worse. This will not make anyone feell better, but back in 1949 when I had my first full-time job, after graduating from college, I made $60/wk. Social security tax was just a few cents and my Blue Cross Blue Shield program was about 50 cents. Take home pay/week about $59. My wife and I lived pretty well. House cost $4,000 and payments were $40/month. Had one car, food costs about $10/wk. We were married in 1948, took honeymoon in NYC. Stayed at the Commodore Hotel for one week. Still have the bill, $70 for the week. We have come a long way since then and it 'ain't' all flowers and ice cream. Why? GOVERNMENT invasion into our lives.

Jul 02 08:31 PM

[Steve0:]

China's manufacturing engine support over 100 million jobs for their people. China's economy is one third the size of the USA. China holds over a trillion dollars of the USA debt.

Wall Mart requires their suppliers to base their supply chain in China. It's quite frighting to think were the USA will be in 20 years.

Jul 02 11:56 PM

[jaydawg:]

It befuddles me to think that Wal-Mart is naive enough to cozy up with the government on this issue. Haven't they been sworn enemies on mandated health costs for years? If the government is willing to share it's bed with a nemesis, Wal-Mart in this case, how much more are they willing to kick them out when the government's true bedmates the union and nationalized health care say this fling is over? I say Wal-Mart is beginning to play with fire using government to squash its competitors and once you play with fire you're bound to get burned!

Jul 02 11:57 PM

[rogersails:]

Here's another angle. Wal-Mart want's to expand its retail model health care services, and has run into all kinds of obstacles from the obvious entrenched interests. So this announcement could be phase 1 of a broader plan. Phase 2 would be an administration supported rollout of retail health care services, which would be justified by the need to keep the costs of such a plan manageable. Wall-Mart gets health care for their workers, the administration gets game changing low cost health care in every town with a traffic light. Lights out for the big medical interests.

Somethin' to think about.

Jul 03 11:37 AM

[Jasper M:]

For some reason, I am reminded of Otto von Bismark's creation of the Original "Social security" system, for the express purpose reducing the appeal of socialist agitators.
You cannot defeat something by beComing it.

Jul 03 06:50 PM

[alienation:]

The mandate without a public option will grow out of control. The public option, contrary to opinion on this forum, will be more efficient and cheaper than the private options.

Now, as for Wal Mart playing with the government -- you're forgetting that WM has a big lobbying budget, and they have been getting involved in politics since the mid 1990s. Believe me. I had to volunteer to help elect some anti-Wal-Mart candidates. Wal-Mart had a professional political operative to organize to defeat us (and he's still doing the work, outlasting community opposition). Wal-Mart outspent us 10 to 1, lost once, then won, later.

When you look at a WM store, remember - the HQ is willing to hire a political consultant and spend money to protect that store, and make sure City Hall is friendly to it.

Jul 03 10:52 PM

[a. palmer jr.:]

Do they have any Chinese doctors that can come and work for Wal-Mart? They could set up offices in Wal-Mart and care for the people who work for Wal-mart, solving their healthcare needs, and on the side they could doctor for Wal-Mart's customers, thus making Wal-Mart tons of more money and also running the rest of the doctors out of town!

Jul 03 11:56 PM

[Djinni:]

Freedom in the marketplace is what got us into this mess. Unfettered greed is not democracy, it's the rape of the poor by the unscrupulous.

Jul 04 12:52 AM

[Bill Cassill:]

For all the morons who outsourced manufacturing and off-shored back office operations, they will all get the big shock soon enough. You see what these businesses have not managed against is the exchange rate risk. While everyone is focused on how much money the US is printing, China, India, S. Korea, Japan and every other country in Asia with an export drive economy have been printing $$$$ every bit as fast in order to maintain their peg to the dollar. This purposeful currency devaluation is where much of their competitive "advantage" comes from. With China and others clamoring for a new reserve currency, don't expect the peg to last forever. The days of these folks exporting their way to prosperity has come to an end. When the pegs are eventually undone, those who have outsourced and off-shored will suddenly see their cost "savings" evaporate. When that happens, I'll likely laugh so hard I'll have an accident in my pants. The corporations who have worked so hard to destroy the American middle class deserve every bit of the catastrophe that awaits them.


On Jul 02 04:12 PM conceptwizard wrote:

> "Welcome to Wall Mart". The demise of the American Dream. Where "Made
> in China", rings through the isles in the land of the free. Wonder
> where your job went, take a run down to Wally World, take a walk
> up and down the isles and check the "made in" labels. Then realize
> what you have in your hand was made for about one tenth of what it
> cost to make it in the USA.
>
> Now nothing against China, they are just making their way like everyone
> else. But how do we compete on a world scale with such an imbalance.
> How do we sell US made cars in a competitive way. Or anything else
> for that matter. I dont know the answer but it seems to me if we
> are in a globalization arena then our wages are all going to have
> to go down to compete, so much for a union job. After all with all
> the people unemployed by the time this is over we will work for food.

Jul 04 02:05 AM

[Nick Rao:]

Instead of identifying the root cause for the rise in healthcare costs and remedy them, we'll bash business because they are responding to these costs by curtailing benefits. The liberal response is to throw a government program at it.

Jul 04 11:33 AM

[RatWatcher:]

"The days of these folks exporting their way to prosperity has come to an end. When the pegs are eventually undone, those who have outsourced and off-shored will suddenly see their cost "savings" evaporate. When that happens, I'll likely laugh so hard I'll have an accident in my pants"

Unfortunately, you will also bail them out, as will we all.

Jul 04 11:12 PM

[Ted Hurlbut:]

I suspect Walmart has come out in favor because they know that whatever the impact on their business, they are better positioned to absorb it than their competitors. Walmart has always been about building share, and anything that weakens their competition in relative terms benefits them.

Jul 05 03:03 PM

[Rollerball:]

It's really quite simple. Mandate employer health care (by the productive unit) based on an acceptable quality of life (globally, of course), and let the provider bidding begin. Imports will be tariffed if don't meet global "wealth" fare employee standards. Problem solved.

Jul 05 07:42 PM