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Wal-Mart Memo Highlights Health Care Risk

October 27, 2005
Related Topics: Latest News

Wal-Mart’s health care coverage does little to shield employees from a financial crisis in the event of a medical catastrophe, according to a purported company memo that has triggered renewed debate about the retail giant’s benefits.

The memo, which a group critical of Wal-Mart said it received anonymously and then posted on its Web site, contains information about employees’ financial vulnerability missing in a version of the document Wal-Mart sent to The New York Times. The newspaper made that version available to the public October 26.

Wal-Mart employees "face significant financial risk when a medical catastrophe occurs," according to a memo purportedly from Wal-Mart that was posted on the site of advocacy group Wal-Mart Watch. "On the Family plan, an Associate must spend between 74 and 150 percent of household income on healthcare (approximately $13,000 to $27,000) before insurance takes over completely. Though few Associates reach this level of spending, those who do almost certainly end up declaring personal bankruptcy."

A Wal-Mart representative could not be reached immediately for comment.

The passage is likely to fuel criticism that Wal-Mart’s health benefits are stingy, even though the company made headlines the same week with news of a new, more affordable high-deductible health plan. Wal-Mart also grabbed the spotlight with a speech from CEO Lee Scott that promised to make the massive company an environmental leader.

Although press coverage of those announcements was largely favorable, Wal-Mart appeared to be back on the defensive when the Times ran a story about the benefits memo. The newspaper said that when asked about the memo received by Wal-Mart Watch, the company provided an "updated copy" that went to its board of directors.

Even the updated version, though, could end up being a black eye for Wal-Mart. The 27-page document focuses largely on ways to hold down the costs of such benefits as health insurance while improving the company’s public reputation. Among the strategies outlined is reshaping Wal-Mart’s workforce to attract healthier people. "Most troubling, the least healthy, least productive Associates are more satisfied with their benefits than other segments and are interested in longer careers with Wal-Mart," the memo states.

The memo also acknowledges that some of the criticisms made of the company regarding its health care coverage are legitimate. "Specifically, our coverage is expensive for low-income families, and Wal-Mart has a significant percentage of Associates and their children on public assistance," the memo states.

It adds: "Five percent of our Associates are on Medicaid, compared to an average for national employers of 4 percent. Twenty-seven percent of Associates’ children are on such programs, compared to a national average of 22 percent. … In total, 46 percent of Associates’ children are either on Medicaid or are uninsured."

Written by Susan Chambers, Wal-Mart’s executive vice president of risk management and benefits administration, the document says that "growth in benefits costs is unacceptable" at 15 percent per year.

Ken Jacobs--deputy chair of the Center for Labor Research and Education at the University of California, Berkeley, and co-author of a report that examined the way Wal-Mart employees relied on government safety-net programs in California--says figures in the memo roughly corresponded with his research.

Jacobs’ report had estimated that Wal-Mart associates relied on public assistance health programs in California to the tune of $32 million annually. He says that the numbers reported by Wal-Mart in its memo would come to a cost of $23.5 million, but that does not include the public cost of adult dependents of Wal-Mart workers or the cost of uncompensated care of uninsured workers and their children.

"The memo does confirm what many people who have studied Wal-Mart have long believed," he says.

Jacobs says a surprising statistic in the memo was that 19 percent of children of Wal-Mart workers are uninsured. That compares with 8 percent for children of workers in large retail in general.

Wal-Mart issued a statement on its Web site regarding the benefits memo: "Every business in America is facing the harsh reality of skyrocketing health care costs. They’re having conversations in their boardrooms just like we’re having in ours. … We at Wal-Mart are working hard to answer that question--because we believe we have an opportunity not just to improve the benefits we offer our own associates, but to be a leader and a driver of change."

--Ed Frauenheim

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