Wal-Mart’s impact on health care costs, wages, employment and other indices will be the subject of a conference in Washington DC today. According to an article in Bloomberg, when the nation’s largest employer opens a store, it significantly impacts the local economy, with notable effects on Medicaid enrollment and expenses, the cost of staples (e.g. detergent, food), and wages. (Thanks to Peter Rousmaniere for the heads-up)
As one might expect, there is good and bad news to come. On the positive side, purchasers of goods from Wal-Mart get more for their money. On the negative side, wages drop both locally and in the areas that source the company’s goods; and governmental health care costs increase.
Here is an excerpt from the article.
” Another conference participant, Michael Hicks, an economist at the Air Force Institute of Technology at Wright-Patterson Air Force Base in Dayton, Ohio, studied Wal-Mart’s effect on government anti-poverty programs and found that Wal-Mart increased Medicaid costs an average of $898 per worker.
Medicaid Spending
Hicks found that a 1 percent increase in Wal-Mart’s market share in a state is accompanied by a 1.5 percent increase in Medicaid spending. Wal-Mart insures fewer than half its employees, many of whom cannot afford to pay for their own health insurance. Hicks found that government aid to needy families decreased by 3.3 percent with every 1 percent increase in Wal-Mart’s market share

Paul Krugman, one of the Op-Ed writers appearing in the New York Times, has an interesting take on a solution to the national health insurance crisis (free subscription required). Those who follow Krugman will not be surprised that he is in favor of a national health insurance program. But put aside the ideological constraints and consider the rationale. Here are a few of his points.
1. Life expectancy and infant mortality in the US is lower than in Canada, Britain, Germany, and many other countries.
2. Health care expenditures in the US are 40% higher than the next most expensive country and twice what they are in the UK.
3. Access to elective procedures is better for some in the US compared to some other countries, and worse for others (e.g. the uninsured).
What Krugman misses is the impact of health care on productivity and functionality. He talks about outcomes in terms of life expectancy, and the impact on health maintenance of deductibles and copays, but has yet to make the connection between those issues and what matters to business; revenue and profit per employee.
He also does not opine on his preferred form of national health insurance; single payer as in the UK or multiple insurers as in Switzerland; or funding; tax-based v. employer v. individual v. combination. In my view, that’s smart. Once we figure out that we need a form of mandatory health insurance, then we can argue over the funding of same. But first we need to agree that health insurance should be mandatory.
My bet is within 3-5 years that will indeed be the consensus of American business, a goal of most in the middle class, and growing in popularity among elected officials. The myth is we can’t afford health care coverage for all; the reality is we are paying for health care for the uninsured every day in the form of higher premiums, higher taxes, and reduced productivity and higher Medicaid and Medicare costs.
What does this mean for you?
The sooner we can reach consensus that some form of national health care coverage is the goal, the better for US business, providers, and the middle class.

Wal-Mart is back in the news, and it looks like it will be making headlines for some time to come. The fallout from the release of an internal Wal-Mart memo focusing on employee benefits expenses, health care costs and plans appears to be spreading, with potential problems for the firm pertaining to ADA issues. (thanks to a good friend in the insurance industry for the reference) In response, Wal-Mart has set up a “war room” (free subscription required) staffed by veterans of heated political campaigns to respond instantly to bad news and provide the company’s perspective on issues.
According to the LA Times, the internal memo authored by Susan Chambers, EVP Benefits will raise thorny issues for the company:
“The memo

Managed Care Matters is a year old. Starting with the first day’s posts on the use of oxycontin in workers comp and Coventry’s acquisition of First Health, the blog has covered topics ranging from international pharmaceutical pricing to the investment strategies of Ohio workers comp officials. We are up to just under 200 individuals signed up to receive posting notifications. Almost 5000 unique users visited last month, perusing the 320 entries posted to date. Over 120 comments have been posted to date, enriching the debate, educating me, and providing perspective sorely needed in today’s health care debate.
These are busy days for managed care bloggers. Proposals to cut Medicare and Medicaid by Congressional Republicans hit the nightly news shows, interrupted by ads for the $800 billion dollar Medicare prescription drug program passed by these same elected officials.
Mergers and acquisitions still happen, although the decline in frequency is balanced against the increase in the size of the deals.
Workers comp executives are indicted for illegal campaign contributions, bribery, and outright theft.
Managed care firms find themselves the subject of scathing audits alleging overbilling and lousy services.
Consumer directed health plans grow in popularity, while costs keep rising.
Health plan profits zoom, as medical inflation moderates and premiums climb.
Hurricanes affect the entire industry, forcing drivers in Alaska to help pay for wind damage in Alabama.
Huge companies, beneficiaries of state tax subsidies, are forced to offer health plans to low paid workers after news reports indicating 65,000 of their employees are covered by Medicaid.
I have enraged a few along the way (one executive at a workers comp managed care firm was heard to say he would rip my head off the next time he saw me) and look forward to continuing to perform that needed chore when appropriate. Hosting Managed Care Matters has made me more thoughtful, better read, and busier than ever.
Thanks for the insights, challenges, and news items, and please, keep it up.

More details are emerging about Wal-Mart’s internal debate on health care and benefits for employees (free subscription required). An internal memo from Wal-mart’s head of benefits notes that costs can be reduced by hiring younger workers, ensuring all workers get some physical exercise, and hiring more part time workers.
The memo was in response to the company’s soaring benefits expense, which has jumped 15% annually since 2002, driven in large part by a $1.4 billion increase in health care costs over that period. Wal-Mart, which employs 1.33 million people, provides insurance for less than 45% of employees, and 46% of their children are either uninsured or on Medicaid. Medicaid insures 5% of the company’s employees, or about 65,000 people (and probably more of their dependents).
Here are some interesting excerpts

The Senate Finance Committee has passed legislation designed to cut $10 billion over five years from Medicaid and Medicare programs. The vote was along party lines, with Republicans in favor and Democrats against the cuts.
The changes, which now have to be considered by the Senate Budget Committee and then the full Senate before passing on to the House, would reduce reimbursement to physicians for drugs dispensed ($6.4 billion), increase funding to incent health plans to participate in medicare programs (no $ figures provided) , and require pharmaceutical manufacturers to increase the rebates paid to the federal government by $1.4 billion.
Additional funds would be set aside for Katrina victims’ health care.
The House is considering a package that would cut $11 billion from Medicaid alone, even after adding $2.5 billion for Medicaid services for Katrina victims.
What will result is likely to be some cuts in Medicaid and Medicare, as well as the potential for increased costs for wealthier Medicare eligibles.
The last would have seemed highly unlikely jsut a few months ago, but the Republican base is outraged by the lack of financial discipline it perceives on the part of Republican leadership. The Washington Times notes:” Sen. John McCain (R-Ariz.), one of the group’s leaders, said, “I am totally confident that the Republican base is upset and angry about the fiscal indiscipline that we practiced here in the Congress and the mortgaging of our children and our grandchildren’s futures”
What does this mean for you?
Tweaking around the edges of Medicare and Medicaid will do nothing to address the underlying cost drivers, so the problem persists…

WalMart has introduced a health insurance program that is more affordable for its 1.2 million workers. In what appears to be at least partially in response to criticism from regulators, consumer affairs and labor advocates, and reports in the media, the plan provides coverage for as little as $11 a month (individual premium contribution) for a $1000 deductible program.
Fewer than half of Wal-mart’s workers are presently covered by their health insurance; the company’s major competitor, Costco, not only pays workers significantly higher wages and also succeeds in covering more than 80% of them.
According to the New York Times;
“Wal-Mart said that under the plan, monthly premiums would cost between 40 percent and 60 percent less than those for any existing Wal-Mart insurance policy, and that individuals could visit a doctor three times before paying a deductible, an arrangement aimed at encouraging workers to seek preventive care. In the past, workers have had to pay a deductible before their insurance kicked in.
Those who participate will pay a $1,000 deductible, the maximum under Wal-Mart’s insurance for 2005. Monthly premiums will be, on average, less than $25 for an individual, $37 for a single parent and $65 for a family. The $11 premium, for individuals, will be available in a handful of areas, Mr. Fogleman said.
But the plan is unlikely to cover a complicated illness or expensive hospital stay during the first year, when there is a $25,000 insurance cap. (The cap is lifted for the second year.) Out-of-pocket payments range from $300 for prescriptions to $1,000 for hospital stays.”
Critics note that older workers will not be as well-served under the plan than younger healthier workers.
I would note that Wal-Mart’s decision to provide cheaper, well-designed coverage deserves commendation. They will likely face criticism from the equity markets and some analysts, and others will complain, noting Wal-Mart’s long delay in providing affordable health care or question the plan design. Regardless, the company has put together a good program at an affordable price.
Kudos to Wal-Mart.
What does this mean for you?
For taxpayers in Florida and other states where large numbers of Wal-mart employees are covered under Medicaid, potential relief from the added tax burden. For other large employers with low-paid workers, more push to provide health care.

Just when I started thinking I may be getting into too much detail in some of my blog posts, I read Matthew Holt’s latest on consumer-directed health plans, and some of the following comments from everyone on the entire political and ideological spectrum. Boy, am i superficial.
Net – I agree w Matthew – the folks who believe consumer directed health care will significantly effect overall health care costs also believe in the Easter Bunny.
The Easter bunny solves their problem (sweet tooth) without any harm or cost to them. CDHPs do the same, by making consumers better decision makers about their health care without addressing the fundamental underlying causes of health care inflation. Simple solutions for simple minds.
For the bazillionth time, the people who spend the most on health care, and drive health care inflation, will blow through their deductibles and copays faster than a detailer can pitch an ED drug. Sure, the rest of us are going to pinch pennies, including the poor elderly who may skip taking their hypertension drugs every other day to save money. But we don’t drive up health care costs – sick people do.
It is truly scary when ideologues get involved in things about which they know nothing – like the advocates of CDHP.

Another insightful view of the debacle at GM and Ford is offered up the The Economist, (subscription may be required) which notes:
“GM says that $1,500 of the price of every new vehicle it sells goes towards health care for past and present employees. The firm’s commitments are shockingly vast. It pays the health insurance of some 1m retirees and their dependants as well as its current 200,000 American workers and their families. The deal with the UAW will provide some respite. Though not all details of the deal have been disclosed, the carmaker said it would result in a cash saving of $1 billion a year and would slice $15 billion off the firm’s health liabilities towards its pensioners.
(Details of the health care deal emerged yesterday, indicating that for the first time GM employees and retirees would have to pay part of their monthly premiums, along with deductibles and hospital co-pays)
Rick Wagoner, the chief executive, called it “the single biggest cost reduction in a single day in the history of GM”, though these cuts alone seem unlikely to be enough. Analysts’ estimates of GM’s unfunded obligations (before the cuts) are around the $70 billion mark, most of them in relation to retirees’ health costs. And the firm has promised to fund a new plan for employees affected by the cuts, costing $3 billion, delivered in three instalments beginning in 2006. So it still has a mountain of cost-cutting to climb

The Senate is progressing rapidly on a plan to reduce Federal spending, with potentially significant effects on Medicare and Medicaid. Although Sen. Grassley (R-IA)’s efforts appear to be somewhat short of the support needed to pass, there is an air of expectation that compromise will result in something significant happening soon.
According to BusinessWeek, there are significant differences even among Republicans, with conservatives including Kyl (R-AZ) favoring maintaining the $7 billion funding to encourage pharmaceutical firms’ participation in the Medicare Part D program (not what one would typically think of as a fiscally conservative stance). More moderate GOP Senators led by Snowe (R -ME), appear to be more concerned with not cutting Medicaid and Medicare, which are targeted for reductions of $10 billion in the draft legislation.
Among the key provisions of the legislation as of yesterday were:
– a 1% increase in physician reimbursement (instead of the 4.3% decrease slated to go into effect on 1/1/06)
– increase in funding of $1.8 billion for Katrina-related expense for several affected states
– allow families with incomes up to 300% of the poverty level to buy into Medicaid for disabled children
The rock and hard place dilemma continues, with senators attempting to cut expenditures while funding Katrina efforts, the new Part D program and increase physician reimbursement. How that will pan out is anyone’s guess. The National Governors’ Association is working hard to prevent any cuts in Medicaid, the Senate is somewhat ambivalent, while the House Republican leadership has committed to cuts of $50 billion in the overall budget despite the reluctance of several committee heads and numerous Representatives to sign on to what could be politically dangerous.
Polls indicate respondents (by a significant majority) are not in favor of cutting governmental health programs.
Meanwhile, Florida has been issued approval by HHS to make significant changes to the State’s Medicaid program. In brief, the changes include a significantly greater role for managed care entities; authorization for participating health plans to vary the plan of benefits; and the ability for recipients to “opt out” and receive subsidies to buy insurance on their own.
Driven by annual Medicaid cost increases averaging 13% over the last six years while state revenues were growing 6%, the waiver changes the basis for funding from a “defined benefit” to a “defined contribution”. The federal government’s contributions will be based not on what is needed to cover the expenses of a pre-defined set of benefits, but on an amount agreed upon by the State and HHS.
This is a big change.
What does this mean for you?
As goes HHS, so goes the rest of the commercial world. There will be impacts on cost-shifting, provider reimbursement levels, and uninsurance rates.