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Health Care Costs are Too Much for Wal-Mart.

By Chris Rangel MD ⋅ October 27, 2005 ⋅  Email this post ⋅  Print this post ⋅ Post a comment

Wal-Mart is stuck in Medicaid hell!

If you have a chronic health condition or you have risk factors for developing serious illness (obesity) or you have unhealthy habits (smoking) then you might not want to bother applying for a job at the nation’s largest private employer.

An internal memo sent to the Wal-Mart board of directors (and intercepted by WalMartWatch.com) listed suggestions on how to cut the annual costs of Wal-Mart’s employee benefits including the costs of health insurance which is $1.5 billion a year ($2,660 per employee) and had the largest increase (19%) of any other employee benefit.

After reading the memo one thing becomes clear. Wal-Mart believes that they have been put in the untenable position of subsidizing the health care costs of hundreds of thousands of its employees. According to the memo, internal surveys have found that those employees who are least satisfied with their health insurance benefits tend to be younger, healthier (i.e. less likely to be obese or have other health risks), and more productive. The memo called them “low-utilizers” implying that they use less health care benefits. The are less satisfied because they tend to pay a lot for a benefit that they don’t often use.

On the other hand, “high-utilizers” are older and less healthy but are more satisfied with their health care benefits. The problem comes from the fact that the less satisfied “low-utilizers” tended to leave the company after only a few years while the more satisfied “higher-utilizers” tended to stay up to seven or more years since they continue to have their health care costs covered. But longer tenure while leading to increased costs does not result in increased productivity in the “high-utilization” group.

This means that Wal-Mart is losing younger, healthy, high-productivity employees and retaining older, less healthy employees who cost the company more but do not necessarily produce more. For many of its 900,000 employees, Wal-Mart is acting to subsidize health care costs for people who would otherwise be dependent on charity or state Medicaid. Naturally Wal-Mart is pissed off about this especially since their critics have continuously attacked the company for not enough health care for its employees and for shifting too much of the health costs on to the employees.

The overall problem is that Wal-Mart’s woes as far as health care costs and utilization are concerned almost exactly mirror the crisis that most state Medicaid programs face. A great many Wal-Mart employees, like Medicaid eligible recipients, tend to have higher rates of obesity, unhealthy lifestyles, and higher rates of chronic conditions like diabetes and coronary artery disease (according to the memo) which consume the largest amount of health care dollars of any insured population. These patients tend to be not only “high utilizers” of health care insurance but also “poor-utilizers” of health care resources in that they have more ER visits and higher rates of hospitalizations (steming from poorer compliance with medications and follow up physician visits because of the prohibitive costs of medications and the dwindling number of physicians willing to accept Medicaid).

In order to reverse this trend of ageing, less healthy, and expensive employees, the memo suggests that Wal-Mart change from offering low deductible, expensive health insurance plans to high deductible plans bundled with Health Savings Accounts (HSAs). I have written about HSAs before. While they are revolutionary in their approach to consumer driven health care spending and introducing the concept of saving for one’s future health care costs, they are most appropriate for relatively young and healthy employees and their families. Wal-Mart clearly wants to attract younger, healthy employees who would be more satisfied with an HSA plan then an expensive health insurance plan that they rarely use.

But is this fair to the 300 lb 40 year old woman with diabetes, hypertension, arthritis, and a history of a heart attack who takes seven different medications each day and wants to get hired by her local Wal-Mart in part to acquire health insurance to help cover her health care costs? Under an HSA plan she would have to pay out of pocket for most or all of her outpatient medical costs. If she can’t get Wal-Mart to cover her health care expenses then where does she go?

There are two obvious solutions but neither is very palatable. One solution is to implement nationalized universal health care coverage so that people will not be dependent upon employment in large companies for their health insurance. But this just shifts the costs from Wal-Mart to the taxpayer and would require a huge tax increase to achieve such a massive program. The other solution is to require large companies like Wal-Mart to offer complete health care insurance at low cost to all its employees. But this would actually hurt employees in the long term by causing these companies to decrease hiring, decrease work hours, and increase the number of part time employees in an effort to try and avoid these mandated costs .

There is actually an interesting alternative solution and it has nothing to do with health care costs. The memo listed several incentive options for improving not only the health of the employees but the quality of health care of the employees and how they utilize health care resources. However vague these recommendations are they illustrate how far behind American companies are compared to . . say . .the Japanese when it comes to promoting the health of their workers as good business practice.

Wal-Mart has a chance to do much more for the health of their employees than to just offer expensive health insurance. Depending on how far they want to go they can organize in store health programs, and mandate weight loss or smoking cessation treatment, exercise breaks, and regular physician visits for preventative care. They have the opportunity to try and promote wellness in a way that Medicaid managers can only dream about. But then again, making a worker’s employment, pay, or promotions dependent upon their health as well as their productivity is sure to attract howling from the left who will cry “health discrimination!” Wal-Mart has a long road ahead of it.

UpDate: The majority of health care costs are consumed by the minority of the population and most of these have two or more chronic conditions such as diabetes, coronary artery disease, and congestive heart failure. Employee programs designed to address health risks (obesity, smoking) and reduce the need for expensive health care utilization should be beneficial to both employer and employee. Unfortunately Wal-Mart appears to be more concerned with saving money via changes in health care insurance benefit options and improving it’s image then with saving money by improving the health of it’s workers.