Friday, January 13, 2006

Wal-Mart and Health Insurance in Maryland

From Michael Barbaro of the New York Times, we learn that "Maryland Sets a Health Cost for Wal-Mart,"

The Maryland legislature passed a law Thursday that would require Wal-Mart Stores to increase spending on employee health insurance, a measure that is expected to be a model for other states.


Under the Maryland law, employers with 10,000 or more workers in the state must spend at least 8 percent of their payrolls on health insurance, or else pay the difference into a state Medicaid fund.

There are some possible loopholes in this law. The state has put a tax on payrolls--expect payroll growth to lag in coming years, whether from fewer new stores in the state or from lower raises. As it is written up here, the law doesn't seem to distinguish whose health insurance is paid for with the 8 percent--expect the company to contribute more at the margin for higher paid workers than for those most likely to take up Medicaid. The law only applies to firms with 10,000 or more workers in the state. With 53 stores and 17,000 workers in the state, perhaps Wal-Mart would sell some stores to get down below the 10,0000 threshold or try to reclassify some workers, like those who drive the trucks, as being employed by a store in a nearby state.

It will be interesting to see whether the law has its desired outcomes. Another approach the legislature might have taken would be tax any employer (regardless of size) for a portion of the Medicaid payments made on behalf of its employees or their dependents and used the proceeds to lower tax rates on all businesses. This approach of cost-sharing or experience-rating is more like what states do for their unemployment insurance programs.


Arun Khanna said...

Expect a lawsuit from WalMart citing smaller retailers in Maryland who don't spend 8 per cent of payroll on employee health insurance.

Anonymous said...

It seems appropriate for professors to discuss and scrutinize Wal Mart.

Wal Mart is gigantic and powerful. No one in business who is rational and wants to keep a job will criticize or question Wal Mart. Wal Mart is gigantic compared to most companies (even large companies), and Wal Mart controls a huge share of distribution & retail market share in the U.S. Wal Mart can pin many big companies to the ground. If a company smiles wrong at Wal Mart, the company may have to explain big earnings misses to Wall Street.

Wal Mart started in the southern part of the U.S. It is not surprising to me that Wal Mart is running into snags as it expands into other parts of the U.S. Other parts of the U.S. work a little bit different than Wal Mart's home turf.

Wal Mart suffers from the departure of Sam Walton. Some people are truly extraordinary and not replaceable.

Sam Walton was tough on unions, and broke unions. It is unclear how he would handle some of Wal Mart's current growing pains. Some international markets may be more receptive to Wal Mart growth than certain parts of the U.S.

Excluding union relations, Wal Mart may have leaned a little bit toward becoming too flaunting or abusive of its power over other big business. This can and probably has created a subtle backlash against Wal Mart, even among anti-union and pro-business people.

Wal Mart's management has many challenges.

Tom C said...

There are many things we will not let a business do to make money. It looks like consensus is forming that a new "no-no" is,

Thou shalt not pay less than a certain amount, including benefits.

Yes, this is a regulatory power grab, but is based on observation that a big business can have an oversized affect on a market (in this case, for labor) by putting enough companies out of business that for a certain class of employees, they are the only game in town. America has a long tradition of pruning businesses when their model looks like it's growing out of control. This is just a modern example.

Nathan Kaufman said...

"Competitive Advantage Through People: Unleashing the Power of the Work Force"

by Jeffrey Pfeffer

In this book, Wal Mart performance from 1972-1992 was in the top 5 (19,807%). This was not obvious in 1972 ... retail - 19,000%+. Consider Pfeffer's analysis.

You might check to make sure I am not confused.

Tex said...

Over 10,000 employees? In Maryland? Is the NSA covered by this law?

R-Squared said...

I wonder what will the workers choose if WalMart hand out the equivalent amout of cash to workers (and then they can choose to buy health insurance or buy a ipod).