Last October, various media outlets reported on a leaked Wal-Mart memo, which recommended various ways for the world’s largest company to cut back on its employees’ health-care benefits. At the time, we criticized the all-too-often shallow coverage of the leaked memo and longed for a comprehensive look at the issues underlying Wal-Mart’s health-care problems.
Several months later, our wishes have been fulfilled.
In the current issue of The Atlantic, senior editor Joshua Green provides a detailed portrait of how Wal-Mart’s heath-care woes are impacting the health of the American economy, and vice versa.
“The significance of the [leaked] memo isn’t that a major company is plotting to scale back health-care coverage,” writes Green. “It’s that employer health-care costs are growing so sharply that the apotheosis of American capitalism is frantically digging in its heels merely to slow their rate of growth.”
According to Green, Wal-Mart’s vastness doesn’t shield the company from the escalating health-care costs in this country. If anything, Wal-Mart’s business model makes the problem worse.
“For all Wal-Mart’s size, its business model leaves it more vulnerable than most companies to the rising cost of health care,” writes Green. “Its key to consistently out-competing everyone else on price is low margins and high volume. Wal-Mart doesn’t make a lot of money on any individual sale; it makes huge multiples of small profits on a torrent of sales. … That’s fine if you can keep holding down costs, as Wal-Mart goes to incredible lengths to do. … But one cost that is well outside its formidable power to control is health care. At Wal-Mart that outlay has risen 19 percent over each of the last three years.”
The upshot, according to Green, is that several groups of observers are hoping that Wal-Mart’s health-care problems will eventually force the federal government to step in and adopt some sort of national health-care coverage.
Along the way, Green introduces us to Andy Stern, president of the Service Employees International Union, one of the people who is hoping that Wal-Mart’s problems will eventually precipitate a national solution.
“In Stern’s thinking, if the world’s largest company could be coaxed or bullied into publicly favoring a national health-care policy, here’s how things might play out: a rush of other companies already beset by health-care costs and accustomed to mimicking Wal-Mart would fall in line, putting business on the same side as labor,” writes Green. “Governors burdened with soaring Medicaid costs might also join in. The pressure on the federal government would be overwhelming. Stern, in other words, is seeking to turn the Wal-Mart effect to his own ends, harnessing it to transform health-care policy just as it routinely transforms business policy. It’s an audacious plan.”
Green goes on to suggest that Wal-Mart’s resistance to a national health-care system thus far has less to do with economic rationality than with the business community’s deeply ingrained suspicion of big government.
“What lies at the bottom of Wal-Mart’s angry resistance to what is in its own self-interest are matters of corporate culture that extend to most big businesses,” writes Green. “That won’t be true forever. The sheer economics of the health-care crisis for business is forcing Wal-Mart and other large companies to balance reflexive opposition to government with enlightened self-interest.”
“Still, Washington’s hyper-cautious culture seems unlikely to produce a solution anytime soon,” concludes Green. “Who better to initiate the mother of all cost-saving efficiencies than Wal-Mart?”
In the meantime, Wal-Mart will no doubt continue to struggle against rising health-care costs. And we’ll continue to turn to The Atlantic‘s article for a penetrating explanation that goes beyond knee-jerk Wal-Mart bashing and beyond simple, free-market excuse-making.
Felix Gillette writes about the media for The New York Observer.