Wal-Mart Supports Mandatory Health Coverage (Out of Kindness, I Suppose)

Michael Tomasky is stoked that Wal-Mart has come out in support of government’s mandating business provide health insurance for all employees. His explanation, however, is curious:

There’s got to be a fascinating story behind the “why.” Wal-Mart would never acknowledge this, but there seems to me little doubt that all the pressure campaigns over the years, the documentary films exposing the company’s dubious practices, and all that kind of thing, led the company to a posture in which it decided it has to change its image.

A simpler alternative explanation:  Wal-Mart is already providing health insurance for its employees at enormous expense and would love to have its competitors forced to do likewise.

Big firms routinely lobby for government regulations that increase barriers to entry into their business and make it harder for others to compete with them.  That Wal-Mart can do that in this instance while coming off as altruistic is an added bonus.

Update (Steve Verdon): In the comments some are wondering if perhaps this is overly cynical. Frequent commenter Odograph notes that the popular perception is that Wal-Mart has a reputation for not insuring its employees. The problem is that this ignores the current political climate. We have a Democrat president, and the Democrats control both the House and the Senate, and the latter with a filibuster proof majority.

Now, you are a Wal-Mart executive do you suggest the company sit on the side lines in the upcoming health care reform debate or do you try to shape the debate to get the best deal you can? I think the latter is the most likely. So, if you think health care reform is coming why not go ahead and try to get the best deal possible? How about a mandatory requirement that Wal-Mart’s competitors also have to provide health care coverage to employees. Wal-Mart is a big company with a huge work force. Such a work force is likely diverse enough so that on average Wal-Mart’s health care costs will be lower than a smaller competitor. If this is the case, then the mandatory health care requirement could drive Wal-Mart competitors out of business. Less competition means that Wal-Mart has more market power. Not just as a seller, but also possibly as a buyer as well.

Now, lets jump in the way back machine to the late 1800s. How did John D. Rockefeller make his fortune? One factor was getting very good deals from rail roads for shipping his oil and kerosene. In one scandal that came out not only was Rockefeller getting rebates for his product, but his competitor’s products as well. Rockefeller had agreed to act as an enforcer for the rail roads in forming a cartel to raise freight prices. Try to chisel on the cartel and Rockefeller would not ship oil and kerosene on your rail road. These deals helped allowed Rockefeller to undercut his competitors and eventually buy them up. And at the same time the price of kerosene dropped from 56 cents in 1965 to 26 cents by 1870. Hmmm, gobbling up competitors and lowering prices…hmmm geee that sounds familiar.

This is a pretty clear example of rent seeking to me. If the health care reform/regulatory bus is about to leave the station, as America’s largest employer do you sit in the station or get on and try to direct which way the bus goes? Of course the latter.

UPDATE (James Joyner):  Cato’s Michael Cannon says a lobbyist told him this was happening a year ago.

“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.

And Wal-Mart and Target can each absorb the blow more easily than a mom-and-pop or a regional startup.

UPDATE (James Joyner): Megan McArdle observes,

Regulation has a very high fixed cost for compliance; the larger the firm, the more dollars/employees over which to amortize the fixed cost.  Meanwhile, market leaders have disproportionate bargaining power, and tend to get better rates from suppliers than smaller competitors.  Finally, a high fixed cost means either that it’s harder to initially enter the market, or (if there are exemptions for the smallest firms) harder to grow.

On the other side, there is regulatory capture.  Wal-Mart is always going to have a seat at the table when employer mandates are discussed, because Wal-Mart is the nation’s largest private employer.  Target and Macy’s probably won’t have a seat at the table.  So Wal-Mart can influence the rules in ways that benefit Wal-Mart at the expense of the competition.  This is partly because the regulators often cycle into jobs at the firms they regulate, but also simply because the regulator’s attention is finite, so being consistently at the table allows you to shape their views over time.

Steve Bainbridge examines in some detail the degree to which “Wal-Mart has been suckling at the government teat for decades, transferring costs to the tax payer whenever possible.

FILED UNDER: Economics and Business, Government, Health, , , ,
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. odograph says:

    James, your “alternative explanation” is contrary to the facts as I learned them: that WalMart excelled at keeping employees “part-time” and below the bar for “full-time” benefits.

    I’d imagine the story here is (a) WalMart’s current part-time to full-time ratio, (b) the part-time to full-time ratio of WalMart’s competitors, and (c) how this bill impacts the two modes of employment.

  2. A simple test of Tomasky’s theory is to show the campaign that the left was waging on Walmart on the health care issue, then look at all the other issues the left was pressuring walmart on. Of course if you find that there was no campaign by the left against walmart on the health care issue and they other campaigns hadn’t moved walmart on the other issues, then the most likely explanation is that the left is not the source.

    As far as rent seeking goes, I agree that walmart wanting to level the playing field may indeed part of the source. It also may be that they see that they could move some of their costs to the government.

  3. Hoodlumman says:

    It also may be that they see that they could move some of their costs to the government.

    Which really means us since gov’t is funded by us.

  4. James Joyner says:

    James, your “alternative explanation” is contrary to the facts as I learned them: that WalMart excelled at keeping employees “part-time” and below the bar for “full-time” benefits.

    Recall, though, that Maryland and other states have passed laws specifically requiring big box stores to provide coverage. They’re essentially aimed at Walmart and don’t apply to its smaller competitors.

    It also may be that they see that they could move some of their costs to the government.

    That was my first thought as well before I read what Walmart was advocating. That would explain support for socialized medicine, not mandatory provision by business.l

  5. PD Shaw says:

    I remember the Nation used to hammer Ted Kennedy back in the early 90s for essentially meeting with big corporations and passing laws to mandate their practices for everyone.

  6. Eric Florack says:

    Right on the money with this one, James.

  7. Billy says:

    A simpler alternative explanation: Wal-Mart is already providing health insurance for its employees at enormous expense and would love to have its competitors forced to do likewise.

    An even simpler alternative explanation: Wal-Mart sees an opportunity to profit directly from a system in which everyone is insured. I do believe Wal-Mart is in the business of providing pharmaceuticals to low-income communities, often in a de facto monopoly capacity. If everyone has insurance, Wal-Mart has increased sales.

  8. B Carter says:

    Recall, though, that Maryland and other states have passed laws specifically requiring big box stores to provide coverage. They’re essentially aimed at Walmart and don’t apply to its smaller competitors.

    I recall Mayrland and that was overruled by the 4th circuit as a violation of ERISA.

  9. just me says:

    James, your “alternative explanation” is contrary to the facts as I learned them: that WalMart excelled at keeping employees “part-time” and below the bar for “full-time” benefits.

    Pretty much all retail stores excel at this. Also a lot of people who work in retail do so as a second job or are doing so to supplement income, and aren’t looking for insurance coverage.

    Also, I know from experience (not specifically at Wal-Mart but other retail places through high school and college) that turn over is very high. A person who is a hard worker and wants to be full time will usually be promoted quickly through the ranks, because the company wants to keep them.

  10. It also may be that they see that they could move some of their costs to the government.

    That was my first thought as well before I read what Walmart was advocating. That would explain support for socialized medicine, not mandatory provision by business.

    Or that walmart sees this as the camel’s nose that would lead to socialization. Anyone who believes that Obama comes up with a health care proposal that doesn’t end up with the taxpayers paying the tab is probably still believing Obama’s various promises not to do signing statements, to balance every spending increase with a budget cut, etc. In short, Obama is a liberal and thus will ultimately expect the magical tax fairies to pay for all the ‘goodness’ he can dream up. He has already run up more debt in one year than 6 years of W.

  11. James Joyner says:

    I recall Mayrland and that was overruled by the 4th circuit as a violation of ERISA.

    I missed that! Good to know.

  12. jimT says:

    and Philip Morris’ endorsement of cigarette regulation was just as altruistic…

  13. Davebo says:

    Wal-Mart is already providing health insurance for its employees

    Well, for 46% of them at least.

  14. Steve Verdon says:

    Anyone know Tomasky’s e-mail I want to send him a note that I’ve got a pony for him.

    Lets think it through. Are we going to get health care reform? Probably. So, does Wal-Mart sit on the sidelines or do they get involved and try to get the best deal possible? I’m going to go with the latter. So, they figure they are going to get hit one way or the other…how best to take those lemons and make lemonade? Why not make sure your smaller competition takes the hit too. You’re big, have lots of employees and as such can have an insurance pool that is much more diverse than a smaller competitor. Could you get a better deal? Probably. Woo-hoo now you have less competition, and that means more market power both as a seller and possibly as a buyer. The latter could be key. Try reading about how Rockafeller made his fortune and built up his near monopoly in the oil industry–hint it involves rail roads.

  15. PD Shaw says:

    About 20% of Wal-mart’s employees are part-time. The larger complaints about Wal-mart are that they have a high deductable ($1k per person; $3k per family) and long eligibility requirements (6 months for full-time; 12 months for part-time).

    I don’t know that any of this is unusual for the retail sector, but usually Wal-mart gets compared to other Fortune 500 firms, for which it compares unfavorably.

  16. PD Shaw says:

    Here are some numbers:

    Of Wal-Mart’s 1.3 million workers, 47.4% are covered by its health plans, up from 46% a year earlier, a Wal-Mart spokesman said.

    Another 43% have health care coverage through another source, such as spouses, Medicare, the military or another employer, Wal-Mart said.

    That leaves 9.6% of Wal-Mart employees without any coverage

    Wal-Mart said Thursday that 76.3% of its workforce were eligible for health benefits in the most recent open-enrollment period.

    That beats the average of 59% of workers in the retail sector who are eligible for benefits, Wal-Mart said, citing a 2006 Kaiser Family Foundation survey.

    USA Today

  17. G.A.Phillips says:

    Well, for 46% of them at least.

    I lost my good job now I make 8 bucks an hour, I do what I have to to get by,my company does not give me health care, so the **** what, thats my problem…… ****, go to the emergency room then work out a payment plan…..while you look for a better job….If things are relay bad find someone who cares about you and ask for help……

  18. PD Shaw says:

    That leaves 9.6% of Wal-Mart employees without any coverage

    That’s from a 2007 article. Today’s Wall Street Journal reports that only 5% of Wal-mart employees lack any coverage.

  19. Maybe Wal-Mart is angling for all the Government Motors dealerships.

  20. Snort. Pehaps using Wal-Mart as the primary health care provider in the US is the only way these “savings” President Obama keeps going on about can actually materialize.

  21. odograph says:

    Re. the Updates, I find it mind boggling that anyone would conjecture (sans data?) that Target pays less per employee for healthcare than WalMart now.

    Second, to one up you on cynicism, what if WalMart thinks it can lobby for higher benefits for full-time employees, knowing that it has fewer full-time employees?

    Anyway, I asked for those part-to-full time ratios in my first post. Those are what would convince me, if anyone has them. (Surfing the web I see a number of ’06 stories about WalMart making a conscious move then to more part-time workers.)

  22. Steve Verdon says:

    Re. the Updates, I find it mind boggling that anyone would conjecture (sans data?) that Target pays less per employee for healthcare than WalMart now.

    Forcing your competition to have higher costs via the coercive power of the government is a no-brainer. Wherever it is true, it will workout in Wal-Mart’s favor.

    As for data, lets see…one well known “robber baron” used a similar tactic to great effect. But its just history, not a ratio or anything.

    meh.

  23. G.A.Phillips says:

    Forcing your competition to have higher costs via the coercive power of the government is a no-brainer. Wherever it is true, it will workout in Wal-Mart’s favor.

    Crap, so Omaba bails out target because their to big because if they fail we would only go to wall-mart and thats evil, and then…….

  24. Steve Verdon says:

    By the way, the notion of regulatory capture mentioned in the update referencing McArdle is old news. It was first put forward by George J. Stigler decades ago. There is plenty of evidence out there suggesting that when a firm gets behind a regulatory proposal one should display healthy skepticism of their new found enlightenment and beneficence.

  25. Taxes? Health Care? The Deficit? What will Lefty do?

    … Where he got the bread to go, there ain’t nobody knows. All the Federales say they could have fixed it any day, they only let it go so long, out of kindness, I suppose.

    With apologies to Townes Van Zandt.