Maryland Orders Wal-Mart to Provide Health Coverage

Maryland’s overwhelmingly Democratic legislature overrode a veto by Republican Governor Bob Erlick and passed a law requiring Wal-Mart to pay at least eight percent of its payroll on health care.

The Maryland legislature passed a law Thursday that would require Wal-Mart Stores to increase spending on employee health insurance, a measure that is expected to be a model for other states. The legislature’s move, which overrode a veto by Gov. Robert L. Ehrlich, was a response to growing criticism that Wal-Mart, the nation’s largest private employer, has skimped on benefits and shifted health costs to state governments.

The vote came after a furious lobbying battle by Wal-Mart and by labor and liberal groups, and is likely to encourage lawmakers in dozens of other states who are considering similar legislation. Many state legislatures have looked to Maryland as a test case, as they face fast-rising Medicaid costs, and Wal-Mart’s critics say that too many of its employees have been forced to turn to Medicaid.

Under the Maryland law, employers with 10,000 or more workers in the state must spend at least 8 percent of their payrolls on health insurance, or else pay the difference into a state Medicaid fund. A Wal-Mart spokeswoman said the company was “weighing its options,” including a lawsuit to challenge the law because it is close to that 8 percent threshold already.

It is unclear how much the new law will cost Wal-Mart in Maryland – or around the country, if similar laws are adopted, because Wal-Mart has not publicly divulged what it spends on health care.

While the law is crafted generically, Wal-Mart is the only private employer in Maryland with anywhere close to 10,000 employees.

Even the liberal Washington Post editorial board understands the absurdity of this law:

The Maryland bill is a legislative mugging masquerading as an act of benevolent social engineering. It is true that skyrocketing health care costs and the growing ranks of uninsured workers represent a burden on the state’s health system that other corporations in effect help subsidize. But Wal-Mart employees, like the employees of other large retailers that employ many low-wage workers, are only slightly more likely to collect Medicaid benefits than the national average. And unlovable as it may be, Wal-Mart serves low- and middle-income people, both by creating entry-level and part-time jobs for people who might otherwise be unemployed and by saving its moderate-income customers a staggering amount of money.

The legislation has prompted imitators in 30 states. Where it passes, no one should be surprised by unintended consequences. Wal-Mart and other targeted firms may shift jobs or planned facilities elsewhere. Many low-wage younger workers may still opt out of health coverage even if offered a more generous plan. In trying to address the national problems of health care and uninsured workers, lawmakers in Maryland and other states could inflict on themselves a new set of problems while failing to solve the underlying one.

Quite right. One imagines that Wal-Mart will be less eager to build stores in Maryland or keep open those in less profitable locales. To the extent that they are paying salaries above the minimum wage, they will be less likely to provide pay raises.

Wal-Mart is a business, not a social welfare program. It hires primarily people with few marketable skills and makes its profits by selling high volumes of merchandise with small markups over wholesale. Its ability to pass on added regulatory costs to customers is limited by the market. This is especially true when said regulatory costs are borne only by them.

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James Joyner
About James Joyner
James Joyner is Professor and Department Head of Security Studies at Marine Corps University's Command and Staff College and a nonresident senior fellow at the Scowcroft Center for Strategy and Security at the Atlantic Council. He's a former Army officer and Desert Storm vet. Views expressed here are his own. Follow James on Twitter @DrJJoyner.

Comments

  1. DC Loser says:

    Wal-Mart is a business, not a social welfare program. It hires primarily people with few marketable skills and makes its profits by selling high volumes of merchandise with small markups over wholesale. Its ability to pass on added regulatory costs to customers is limited by the market. This is especially true when said regulatory costs are borne only by them.

    Funny how Costco, which is essentially in the same business, has no problems with a unionized workforce, giving great benefits, including health insurance to all its workers, and still makes a ton of money in Maryland and all other states.

  2. James Joyner says:

    I don’t understand Costco’s business model that well but do know that they’re a membership club. So, they collect substantial dues from their customers and thereby not only take in that money but provide a strong incentive to do as much shopping there as possible to make the dues worthwhile.

    And, of course, Wal-Mart workers who are unsatisfied with their wages and benefits are free to seek work elsewhere–including at Costco. Presumably, by paying higher wages and benefits, Costco has the ability to attract better workers.

  3. DC Loser says:

    And so does Sam’s Club, which belongs to Wal Mart? The question then is – does Sam’s have the same benefits package for its employees as Costco?

  4. Herb says:

    From the comments I read, I do not doubt that every employee at wal mart has the choice to seek employment elsewhere where wages and benefits are much better. However wal mart does not always locate their stores where employment is readily available. I know of two stores in Indiana where employment is good, but wages are not that great. A person seeking employment has but two choices, either to work or not to work, If one chooses the latter, than he can choose to eat and seek shelter somewhere or go on the welfare rolls. If one is in desperate need of work and seeks work at wal mart, then he is at the mercy of wal mart and accepts their miserly wages and benefits or starve. Wal Mart takes full advantage of this situation and pays employees wages that one has trouble making ends meet with. What happens is a person gets into a situation where it’s work, move to another area, seek other employment where wages are as poor as those at wal mart or just plain starve.In other words, a person gets into an “employment rut” where he doesn’t have the money to move, cant afford to change jobs and doesn’t want to starve. Has anyone here ever been in a situation like that. If not, look around to some small towns around the country where wal mart ls located and take notice of everyday life there. It’s awful easy to say “look elsewhere” if you have never experienced living in a job rut environment.

    I have been there, done that and moved my family sixteen times to other areas of the country in eighteen years in order to get jobs that provided higher wages. It was not easy, but I had the knowledge, experience and expertise to do it. I consider myself lucky, but there a lot of people that just could not do what I did.

  5. Jane Galt says:

    As it happens, I do know something about Costco’s business model–namely, that its target demographic is much wealthier and more mobile than the Sam’s Club/Wal-Mart demographic. We might call it the “Target/Costco” demographic. Costco’s product mix is substantially higher end than that at Sam’s Club, allowing it to charge a premium that can be passed onto its more affluent customer base, which though it is shopping at a warehouse club, is nonetheless substantially less price sensitive than the SC/WM base. To put it more crudely, Costco customers may like a bargain, but they don’t clip coupons, and they don’t know the price of orange juice and diapers at every supermarket within twenty miles of their house.

    On a macro level, this means that the social value, in the form of extra consumption utility, created by lower prices at Costco is substantially less than that created by lower prices at Wal-Mart.

    In short, your statement is somewhat akin to saying “Funny how Saks Fifth Avenue, which is essentially in the same business, can afford lavish benefit packages for its employees. Obviously, so could the dollar stores, if they weren’t all greedy bastards.” If you look at Wal-Mart’s annual report, you’ll see that their annual margin is about 3.6%–good for a supermarket, but it doesn’t leave much room to dramatically increase benefit spending without also increasing prices.

  6. JimT says:

    If rising health care costs are the reason for this, why not hammer the health care/insurance industry? Why should Wal-Mart (or any other large corporation) bear the burden of rising health cost? Maybe Wal-Mart can make a direct deposit into a HMO’s or Hospital’s bank account.

  7. Anderson says:

    Okay, Wal-Mart’s lost Herb; I think it’s over.

    Seriously, MD is an interesting test case. I’m familiar with W-M closing one store & building another outside the city limits to escape taxes. But a whole state, even a small one?

    And if the 30-odd other states follow suit, what are they going to do? Close down everywhere but 3d-world states like MS and AL?

    As for pay raises, it’s quite possible that the workers need health benefits more than higher pay. Oh, I know, “people should be able to make their own choices about how to allocate their money,” but let’s leave the fantasy world of economics: if these people were making such great choices, most of them wouldn’t be working at Wal-Mart.

    Btw, isn’t it odd that “conservatism”—with its traditionally pessimistic view of human nature—is arm-in-arm with free-market economics & its utopian figure of the Rational Actor, a character straight out of liberalism?

  8. DC Loser says:

    To put it more crudely, Costco customers may like a bargain, but they don’t clip coupons, and they don’t know the price of orange juice and diapers at every supermarket within twenty miles of their house.

    You wanna bet on that? We are Costco shoppers, but for our basic necessities and the occasional luxury indulgence. I DO know the price of milk at every supermaket within a 10 mile radius, and I DO know that the Wegman’s nearby has milk that’s even cheaper than Costco. And we DO clip and use coupons. I have a Wal-Mart, Target, Costco all within two miles of each other near my house and shop at all three. Each has its strengths and weaknesses. But it WalMart wants to play in my neighborhood with the other two than why can’t it pay the same as the other two?

  9. James Joyner says:

    But it WalMart wants to play in my neighborhood with the other two than why can’t it pay the same as the other two?

    The question is Why do they have people lining up to work their despite lower wages and benefits? Presumably, either their competitors are paying too much or getting first dibs on employees. One would think people in your area would work at Target if they’d get paid better, no?

  10. Bithead says:

    I suppose we might look at GM and FORD to see what Unions do to a business.

  11. James Joyner says:

    Wal Mart takes full advantage of this situation and pays employees wages that one has trouble making ends meet with. What happens is a person gets into a situation where it’s work, move to another area, seek other employment where wages are as poor as those at wal mart or just plain starve.

    If things are as bad as you say, I’d say WalMart is providing one hell of a public service. After all, without WalMart, all those people would be starving. It’s like the people who bitch about Nike paying 35 cents a day or whatever in Third World countries with 50% unemployment and an average annual wage of $40.

  12. Sgt Fluffy says:

    Wal-Mart should close all Maryland stores, they would be forced to close any way over time because of the cost incurred by forcing them by the point of a gun to pay out. Wal-Marts only crime is they are not unionized.

  13. Mark says:

    Walmart does not have to close ALL of its stores, but it would be interesting to see if they decide to close enough stores and facilities in Maryland to get their employee count under 10,000 workers.

  14. Steven Plunk says:

    When will policy makers realize the health care crisis is a problem of costs. Creating new ways to pay those costs only serves to put more money into a broken system.

    Why can’t somebody come up with a plan to control the costs?

  15. Anderson says:

    Why can’t somebody come up with a plan to control the costs?

    Because people keep getting sick?

    Such a plan would be interesting. I would guess free or near-free primary care, to get any problems ID’d early. And maybe a tax on fatty foods? (I’d written “fat,” but that conjured up a “fill in your weight in pounds” line on the 1040.)

  16. Ron says:

    When will policy makers realize the health care crisis is a problem of costs. Creating new ways to pay those costs only serves to put more money into a broken system.
    The fundemental problem here is that controlling costs involves reducing control, and government is in the business of making more government.

    The only answer I can see is to keep government from getting big. Of course, that didn’t happen. Like O’Roarke said “The mystery isn’t how Washington works, it’s how to make it stop.”

  17. Richard Gardner says:

    A few clarifications on Costco –
    Slightly unionized – 13-18% (sources vary) of the workforce is unionized, and most of those are from the acquisition of Price Club. However, Costco provides its employees a benefit package on par with that most union employees receive, without the overhead of a union.
    Costco’s profits are almost equal to the revenue from the memberships.
    Sam’s Club benefits from a shared logistic chain with WalMart, while Costco does not have any similar arrangement (but does have purchasing power).

  18. D.C. Russell says:

    When you cut through all the smoke and B.S., several simple facts remain.

    Maryland’s Demcratic legislators, who claim to be friends of working people, for higher corporate taxes, and for equal protection of the laws, have done just the opposite of what they claim to stand for.

    They have acted to reduce employment opportunites for their constituents.

    They have acted to raise consumer prices, both at Wal-Mart and at other companies who compete.

    They have acted to reduce corporate and sales tax revenues.

    And they have passed a discriminatory bill that is the antithesis of treating everyone equally under the law.

    When all is daid and done, it will be clear that Maryland’s Democrats have done far more to harm the vast majority of their millions of constituents than any good they may have accomplished for a few thousand.

  19. McGehee says:

    Because people keep getting sick?

    Define “sick.”

    When people bill their medical insurance for routine doctor visits, they’re the ones driving up the costs.

    You don’t expect your auto insurance company to pay for your every-3,000-mile oil change, do you?

  20. Herb says:

    Anderson:

    What in the world are you talking about.

    I think you read every other word.

  21. Just Me says:

    I think the legislature is just jumping on the “Wal-mart is evil” bandwagon.

    In reality Wal-Mart is a pretty good employer for people with similar education and experience levels.

    Shoot Wal-Mart here pays more for a starting cashier with cheaper benefits than my job (I teach reading in my local school district). I don’t get the benefits through my employer, because I would be writing the district a check every month for the balance. And my job requires at least two years of college.

    Maybe the state legislature should actually do some research, and see just what people get paid, and how much they pay for their benefits rather than listening to the unions trying to get Wal-Mart unionized.

  22. anjin-san says:

    So Wal-Mart is a business, not a social welfare organization and should not provide its employees with health insurance?

    Ok how about Chevron? Or any other corporation in America? How about it Bushites, are you ready to renounce your benefits in the name of free-booting capitalism?

  23. spencer says:

    Jane Galt — you give data on Walmart’s margin, but you provide no data on turnover. The grocery industry is structured as a low margin, high turn over business –as is WMT other businesses. If you margin is x, and you turn your business once a week rather then every other week your profits will be much higher. So providing data only on margins without also providing data on how turnover at WMT compares to its competitors does not give us sufficient information to reach your conclusion, even though you are probably right.

    The interesting thing I always have trouble understanding about the WMT model is how they achieve the returns they do with over 50% labor turnover every year. Given that labor turnover is so expensive, it seems that it should be to their benefit to try and reduce turnover with slighly better benefits. I wonder why they believe and act otherwise? Costco has very low labor turn over and that is one of the reasons they can pay better wages.

    For most membership organizaations like Costco they get their profits from the membership fees and so operate the rest of the organization at essentially break-even — somethoing WMT can not do.

  24. Duhgee says:

    This is a BS law. What is so magical about %? Why not 8.8738476% or 7.8472895%. What does that number have to do with anything? And how about the 10,000 employee number? Why not 9,873, or 10,018? Does justice really come in rounded up numbers? Doesn’t this make companies strive to stay under the 10k mark? What about the benefits? Couldn’t the benefits be loaded up with blood-lettings, leach therapy, clitoridotomies, coffee enemas, etc and leave out doctor’s visits?

  25. floyd says:

    sadly, companies without a realization of their moral obligations to their workers and communities, must inevitably be shown their legal obligations. a poor substitute for conscience.