Wednesday, October 26, 2005

Internal Memo: Wal-Mart’s Health Care Problem

The New York Times’s Steve Greenhouse has an amazing story today detailing an internal Wal-Mart memo that discusses the company’s health care benefits and ways to reduce those costs.

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.

Wal-Mart executives said the memo was part of an effort to rein in benefit costs, which to Wall Street's dismay have soared by 15 percent a year on average since 2002. Like much of corporate America, Wal-Mart has been squeezed by soaring health costs. The proposed plan, if approved, would save the company more than $1 billion a year by 2011.
Those of us who have criticized Wal-Mart’s health care coverage can feel pleased that the company is now listening:

Acknowledging that Wal-Mart has image problems, Ms. Chambers wrote: "Wal-Mart's critics can easily exploit some aspects of our benefits offering to make their case; in other words, our critics are correct in some of their observations. 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 public assistance theme is also brought up earlier in the article:

Ms. Chambers acknowledged that 46 percent of the children of Wal-Mart's 33 million United States employees were uninsured or on Medicaid.
And then there is the memo’s point that people who work longer at Wal-Mart are more costly yet not necessarily more productive. It almost sounds like they will be discouraging associates from considering long careers:

Ms. Chambers's memo voiced concern that workers were staying with the company longer, pushing up wage costs, although she stopped short of calling for efforts to push out more senior workers.

She wrote that "the cost of an associate with seven years of tenure is almost 55 percent more than the cost of an associate with one year of tenure, yet there is no difference in his or her productivity. Moreover, because we pay an associate more in salary and benefits as his or her tenure increases, we are pricing that associate out of the labor market, increasing the likelihood that he or she will stay with Wal-Mart."
What this memo demonstrates is that: 1) Valid criticisms of Wal-Mart are starting to reach the company 2) People who cheer Wal-Mart’s job creation must realize that they are often part-time employment that, especially now, will not result in long-term career opportunities and 3) Wal-Mart workers and their children are a burden on public safety net programs and this must be considered, especially by the retailer’s “free-market” supporters.