Wal-Mart Heeds Critics on Health Care Issue

As the public opinion poll released yesterday shows, Wal-Mart is in serious need of systemic change. More and more, shoppers are avoiding Wal-Mart because of how the company does business. Wal-Mart recognizes this as well, as this article from the New York Times explains. Wal-Mart is finally changing its employee health care plan not because the company cares so much about its employees, but because constant criticism of the company’s business practices has made expansion extremely difficult.

Whatever the company’s motivation, its efforts to improve employee health care are a step in the right direction. However, there’s still much to be done. As Michael Barbaro’s article points out, enrollment is still pitifully low: less than half the company’s employees are buy in to the company’s plan. Much of this is undoubtedly due to the fact that the premiums are almost out of reach for an employee making the Wal-Mart average of roughly 18,000 year.

Check out the article on the Times website for multimedia interactives, charts, and plan comparisons with other companies, or visit our Health Care page to learn more about why Wal-Mart should continue to improve it’s health care practices.

A Health Plan for Wal-Mart: Less Stinginess [New York Times]

For much of the last decade, the retailing behemoth Wal-Mart Stores has been associated with stingy health care as much as low prices.

Across the country, politicians and labor groups derided the company’s health plans for their high expense and bare-bones coverage. Two states, California and Maryland, even passed laws demanding, in effect, that the company spend more on employee health benefits.

“We want this giant to behave itself,” one Maryland legislator, Anne Healey, said at the time.

The giant, it turns out, was listening. All the criticism was hurting its reputation and its ability to expand. So now, after spending two years seeking advice from everyone from Bill Clinton to executives at Starbucks, Wal-Mart is overhauling its health plans.

The company, according to data available for the first time, is offering better coverage to a greater number of workers. Wal-Mart, the nation’s largest private employer, provides insurance to 100,000 more workers than it did just three years ago — and it is now easier for many to sign up for health care at Wal-Mart than at its rival, Target, whose reputation glows in comparison.

Wal-Mart has hardly become a standard-bearer for corporate America: it still insures fewer than half its 1.4 million employees in the United States.

But the changes in its policies have accomplished what once seemed impossible. Many of its most ardent critics have put down their pitchforks. Andrew L. Stern, whose Service Employees International Union set up an advocacy group to attack Wal-Mart three years ago, now concedes that “there is clearly a focus on covering more people.”

Given Wal-Mart’s unparalleled track record of sharply cutting prices and wringing out inefficiencies, its focus on providing more affordable health care also holds significant promise in taming what has become a runaway expense for the nation.

In one sign of its success so far, the company has pushed down the price of 2,400 generic prescription drugs to $4 a month for employees, starting next year, a program that it offers, in more limited form, to its customers.

Now, the chain is even considering weight-loss clinics in its 4,000 stores and is toying with the idea of selling health insurance, hoping to finally bring coverage within reach of most Americans.

The company’s turnabout demonstrates the power of public pressure to change even the biggest corporations like Wal-Mart, which has based its business strategy on low costs at all costs.

What Wal-Mart discovered is that the chorus of critics it had long ignored or blithely rebutted had a point. “We were spending a lot of energy, and we weren’t making any headway,” said H. Lee Scott Jr., the company’s chief executive, who once traveled the country defending the retailer’s practices. “Retrospectively now I say, yes, that plan needed to be improved.”

For a company whose mantra is to pinch every penny, the improvements have not come without a struggle. For decades, tens of thousands of its employees were never eligible for coverage, and what was offered was too costly for a work force whose average wages amounted to roughly $20,000 a year.

The cheapest plan for a family cost about $1,500 a year in premiums and required workers to pay $3,000 in medical bills before Wal-Mart began paying any of their expenses. Even fewer could afford the more than $10,000 in bills they could end up responsible for under the plan.

By 2000, as Wal-Mart became the largest retailer in the country, its health insurance drew heightened scrutiny. Labor groups like the United Food and Commercial Workers, which has members in grocery chains that compete with Wal-Mart, called attention to the company’s meager coverage. The evidence was compelling: Wal-Mart workers routinely showed up in large numbers on state Medicaid rolls from Georgia to Washington.

Encouraged by the passage of the California law in 2003, dozens of states considered bills requiring Wal-Mart to spend more on employee health benefits. None of the laws remain on the books.

In the fall of 2005, Wal-Mart made its first stab at responding to its critics, introducing a health plan with premiums as low as $11 a month.

But even that attempt was undercut when, a few days later, The New York Times disclosed a company memorandum proposing ways to reduce health care spending by hiring more part-time workers and discouraging unhealthy people from working at Wal-Mart. One suggestion would have required cashiers to gather carts as exercise.

A combination of embarrassment, political necessity and internal pressure led to changes inside Wal-Mart’s headquarters. Among those weighing in was Bill Clinton, a close Wal-Mart observer from his days as governor of Arkansas; he urged Mr. Scott to look beyond the motives of his critics and focus on making the company a better employer.

In April 2006, Mr. Scott replaced M. Susan Chambers, the author of the health care memo, with a high-profile colleague, Linda M. Dillman, who ran the formidable information technology division. Ms. Dillman said the assignment gave her pause. “Is this a good thing or a bad thing,” she recalled asking herself. “Did I make somebody mad?”

But she said Mr. Scott emphasized how important her task was, telling her, “We need you to go make a difference in health care.”

Ms. Dillman began by surveying Wal-Mart’s workers, researching the health plans at the nation’s most progressive employers and reaching out to top health policy experts.

The new advisers did not mince words. “You can do better by your employees,” Mark D. Smith, chief executive of the powerful California Healthcare Foundation, told Wal-Mart executives at one meeting.

But in wide-ranging conversations with federal officials like Dr. Julie L. Gerberding, director of the Centers for Disease Control and Prevention, and executives like Michael J. Critelli, the executive chairman of Pitney Bowes, best known for making postage meters but also a leader in employee health care, Wal-Mart’s executives began revising how they thought about benefits.

Wal-Mart “went through an evolution that we went through 17 or 18 years ago,” Mr. Critelli said. Pitney Bowes had tried to shift more health costs onto employees, only to find that after a certain point, “it gets dysfunctional,” he said.

He and others persuaded Ms. Dillman to think of health benefits as an investment in the work force rather than as a cost.

If workers “are healthy, they will do a better job at work, they’ll be more productive, they’ll be happier, nicer to our customers,” Ms. Dillman said, all of which results in less absenteeism and turnover, a longstanding problem in retailing. Mr. Scott, meanwhile, met with several state governors, including Kathleen Sebelius in Kansas, a Democrat.

Mr. Scott “sees this as a collaborative effort,” Ms. Sebelius said. “We’re delighted to have him at the table.”

Wal-Mart also engaged in an all-out effort to win over its critics. Executives sought out policy analysts like Len Nichols, a health economist at the New America Foundation, which supports universal coverage, asking him, among other questions, “What would the liberals say?”

“They just bombarded me with paperwork,” said Ron Pollack, executive director of the advocacy group Families USA, who receives frequent e-mail messages from the company about its changes.

And in a truce that would have been inconceivable several years ago, Mr. Scott held private conversations in late 2006 with Mr. Stern, the powerful union president, that culminated in a public agreement this year to seek universal health coverage.

“I will assume good intentions, though the details will help decide if that is true,” Mr. Stern said. These developments were only possible because Wal-Mart began to improve its health plans.

Last year, it cut the waiting time for part-timers to become eligible for coverage, from two years to one. Nearly half of Wal-Mart’s part-time workers are now eligible, compared with just 30 percent in 2003, according to internal company data. The number of part-timers enrolled in company plans has more than doubled, to about 11 percent.

For 2008, all employees can choose from an array of plans, which the company hopes will allow even more workers to find one that suits their needs. Individual deductibles range from $350 to $2,000, and employees can choose plans with health care “credits” to use for routine care. Those credits are largely paid for through higher premiums.

The company eliminated onerous fees like $150 monthly for covering a spouse and cut out separate deductibles, like an additional $1,000 for a hospital stay.

A family can pay as little as $250 a year in premiums if it is willing to have a $4,000 deductible and be responsible for as much as $10,000 in medical bills, roughly the same plan that cost them $1,500 a few years ago.

Better coverage costs more: a plan where the family pays a $700 deductible and is responsible only for up to $4,000 in medical bills costs nearly $7,000 a year.

Several critics contend that the company’s low-wage workers still cannot afford a plan offering significant coverage. “It’s optics — it looks pretty,” said Charles Rader, who negotiates benefits for the United Food and Commercial Workers.

And Wal-Mart’s insurance still pales in comparison to that offered by Costco, considered the gold standard in retailing because an employee pays just a few hundred dollars a year for generous individual coverage. But Wal-Mart is catching up to retailers like Home Depot and has in some ways surpassed Target, which makes part-timers wait two years to qualify for coverage.

Wal-Mart, which earned $11 billion last year, has not abandoned a corporate philosophy that demands low costs to ensure low prices. It contributes a fixed amount to cover an employee, so workers make up the cost of better coverage. “If Wal-Mart goes out of business because of health care, we won’t have accomplished anything in terms of helping people,” Ms. Dillman said.

The company hopes to save everybody money by promoting healthy living for workers. This year, it introduced a 24-hour telephone medical hot line operated by nurses from the Mayo Clinic and a program that encourages exercise and smoking cessation.

Jan Bennett, who works at a Wal-Mart in Broomfield, Colo., weighed 280 pounds and suffered from diabetes before enrolling in a test program last year. With peer pressure as motivator, Ms. Bennett, 50, cut out fried foods and carbohydrates.

She said she lost 76 pounds and no longer needs to take at least one $30-a-month diabetes drug. “I have the support system of everyone in my store,” Ms. Bennett said.

Overall enrollment in Wal-Mart’s health plans has inched upward, from 44 percent of its total work force in 2004 to 48 percent in 2007. Of the remaining workers, the vast majority receive health coverage through another source. As the sign-up period for next year’s plans ends, enrollment for Wal-Mart plans continues to rise steadily, Ms. Dillman said.

Among the converts is Katrina Wagner, who works in Tulsa, Okla. She did not sign up last year, assuming that as a healthy 20-year-old, she did not need insurance. But she found herself staying away from doctors to avoid the $150 to $200 expense.

This year, after store managers bombarded workers with information, Ms. Wagner chose a plan costing about $500 a year with a $350 deductible. “It’s very affordable for me,” she said.

Ultimately, Wal-Mart may have an even bigger effect as it bring its legendary cost-cutting skills to the broader health industry, selling anything from wheelchairs to health insurance for much lower prices.

“If you really turned Wal-Mart loose and had Wal-Mart against the health care providers,” Mr. Nichols, the health economist, said, “it would be a fair fight.”

Posted by Alex Goldschmidt on Tuesday, November 13, 2007

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