Wal-Mart Trying to Cut Health Costs by Encouraging Fit Workers

I had resisted clicking on the NYT story, “Wal-Mart Memo Suggests Ways to Cut Employee Benefit Costs” several times today because my reaction was, “Well, yeah.” I mean, they’re a for-profit enterprise with over a million employees; I’d sure hope they’re looking at controlling the most expensive benefit outlay.

Still, given the amount of interest it sparked, I gave it a looksee:

An internal memo sent to Wal-Mart’s board of directors proposes numerous ways to hold down spending on health care and other benefits while seeking to minimize damage to the retailer’s reputation. Among the recommendations are hiring more part-time workers and discouraging unhealthy people from working at Wal-Mart.

In the memorandum, M. Susan Chambers, Wal-Mart’s executive vice president for benefits, also recommends reducing 401(k) contributions and wooing younger, and presumably healthier, workers by offering education benefits. The memo voices concern that workers with seven years’ seniority earn more than workers with one year’s seniority, but are no more productive.

To discourage unhealthy job applicants, Ms. Chambers suggests that Wal-Mart arrange for “all jobs to include some physical activity (e.g., all cashiers do some cart-gathering).”

The memo acknowledged that Wal-Mart, the world’s largest retailer, had to walk a fine line in restraining benefit costs because critics had attacked it for being stingy on wages and health coverage. Ms. Chambers acknowledged that 46 percent of the children of Wal-Mart’s 1.33 million United States employees were uninsured or on Medicaid.

A bit cold, perhaps, but reasonable. And, while the motives are far from altruistic, Wal-Mart will encourage better health and improved educational opportunities for 1.33 million people. That’s largely a good thing. (Although Nathan Newman thinks it may be construed as discrimination against the obese, who may or may not be a protected class under the Americans with Disabilities Act.)

Kevin Drum‘s take on the piece actually reinforced my original view:

I can’t really blame Wal-Mart very much for this. Corporate healthcare costs are a big deal, and it’s only natural that an HR executive would look for ways to reduce them. Attracting healthy workers and discouraging unhealthy ones is an obvious strategy.

Quite so. His political analysis of this is, not surprisingly, somewhat different from mine:

And that’s the problem. In fact, it’s the whole point behind the discussion of perverse incentives in America’s current disjointed healthcare system. In any system that doesn’t cover the entire population of a country, each individual insurer has an incentive to cherry pick only the healthiest workers and leave the sick ones to someone else. This problem is rarely stated as baldly as it is in the Wal-Mart memo, but it’s always there. Our entire system is built around an incentive to make sure that it’s always someone else who’s responsible when someone gets sick.

While I’m substantially less sold than Kevin on the workability of a single payer government system, he’s right as far as this goes.

My current employer just changed health care providers again–this is approximately an annual event–in an attempt to cut costs. Basically, I switch to a better plan (Blue Cross-Blue Shield) but with either less choice (an HMO) or a somewhat increased cost (the PPO option costs a nominal amount; the old plan was free). Fortunately, Kim’s company provides the PPO version at no cost for employees and their families, so I’m good to go. Otherwise, though, I’d have to do a cost-benefit analysis and likely incur greater financial risk.

The flip side of this is that Kim’s company, quite wisely, has made it much harder for good employees to leave, in that they would have to either limit their options to other companies that provide similarly generous benefits or incur greater out-of-pocket costs. Given that they need highly intelligent employees whose value goes up with more experience at the firm, that’s money well spent on their part. Wal-Mart, conversely, has mostly interchangeable employees whose productivity peaks almost immediately and probably decreases rapidly as boredom sets in and salaries go up.

Either way, though, the quality of one’s access to health care services is highly dependent on economic variables, many largely out of the control of individuals.

I’m rather sure “socialized medicine,” with its many downsides, is not a panacea. I grant, though, that the current system is highly problematic.

FILED UNDER: Economics and Business, 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. He's a former Army officer and Desert Storm veteran. Views expressed here are his own. Follow James on Twitter @DrJJoyner.


  1. Dave Schuler says:

    Do most people search for panaceas? Or just for something that’s better than what they’ve got? Or don’t have?

    If there’s a libertarian, market-oriented solution to the problems with our healthcare system that’s politically possible, I’d sure like to see it and I’d like to hear more supporters of the power of the market pitching it.

  2. ann arnold says:

    My husband and I are retired employment and labor lawyers, and during our careers represented companies ranging from very small mom n’ pop to Fortune 5 (not 500, not 100 but 5.) We were both laughing hysterically at the memo. All employers want to avoid hiring disabled employees (any one with a disability is per se not “in good health”) because they use a great deal of health care. It is also unlawful to refuse to hire people because they are disabled – a good policy unless society prefers that those with disabilities just go off in a corner and quietly starve to death living on the average $800 a month that Social Security Disability pays and with no housing available for 2 out of 3 people. It is also unlawful to refuse to hire people because they are older than 40. It is unlawful to deliberately change the job duties in order to exclude people with disabilities from being able to do the job.

    In all our years of practicing employment law, neither of us had ever seen seen a major corporation so deliberately, openly and unabashedly state that it was going to try to implement policies in order to violate the law. To put it in writing reaches new heights of stupid.

    Advising the miscreant company who did such a thing would be simple: shut up; immediately disavow the policies; fire all who suggested it; accept you will lose every age discrimination(references to “coronary disease” and “aging workforce” who they want to replace with college students) and disability discrimination case filed for the next decade; and smile nicely when there is consent decree entered in Federal Court putting all your employment decisions under Court supervision for the next millennium OR ignore this advice, spend 100 times the cost in litigation and still get the same results. So goes the cost of stupidty and greed.

  3. DL says:

    Dare they raise the gay/HIV issue in employment that profiles unhealthy people for rejection.
    HIV can be awfully expensive.

  4. Victor says:

    I honestly don’t understand any of this. Would we prefer that Wal-Mart have no incentive to keep their workforce healthy?

    I mean, this is one of the major advantages of our group health insurance system … employers that attract healthy employees and help them keep that status are rewarded. Employers in dirty industries that chew up workers get hammered. A single-payer system forces employers focused on providing healthy work environments to subsidize employers who aren’t.

    Giving everyone the incentive to stay healthy and keep their workers healthy is a good thing, not a bad thing.

  5. Josh Cohen says:

    I hate the cost-cutting health care changes. For three years I had BCBS PPO, and I could go basically anywhere, to any doctor, without a referral.

    Then, summer of 2004, they changed us to Aetna. They started taking more money out of my paycheck and giving me fewer services (in other words, HMO instead of PPO).

    Last summer, they started taking even more out of my check AND increased our copay.

    I am the health-insurance provider for my family. My wife doesn’t have a full-time job. So I’m stuck.


  6. An Interested Party says:

    “Dare they raise the gay/HIV issue in employment that profiles unhealthy people for rejection.”

    Pardon me. I didn’t realize that only gay people had HIV…