Who Pays for Wal-Mart’s Low Prices?

Low prices. Always low prices. When it comes to consumer goods, America is addicted to them. And with its one-stop-shop product selection and fanatical commitment to low prices, Wal-Mart is the biggest pusher around. We like our “stuff” cheap, and Wal-Mart is the place to get it.

The company that many Americans hate to love is getting loads of unfavorable attention lately. Union and activist groups have successfully derailed its growth plans in certain parts of the country. And a new documentary film casts the company in a decidedly unflattering light. The title of Robert Greenwald’s, “Wal-Mart: The High Cost of Low Prices” suggests, there is more to the cost picture than what one sees on the checkout receipt.

Driving Down the Cost of Employees
Wal-Mart’s single-minded focus on driving out costs applies to everything it does including, as we are now learning, how it treats employees. Recently, a confidential internal memo prepared by a team led by its head of employee benefits and sent to Wal-Mart’s Board of Directors got leaked to the media. The memo presents a rare inside look at the company, and in particular, how it views the tradeoff between costs, employee satisfaction and public reputation.

Not surprisingly, Wal-Mart sees labor as a growing cost to be rigorously controlled. And its juiciest target is health care – the company’s insurance costs are rising at a substantially higher annual rate than its sales (15% versus 11.9%). Refuting its skinflint image, Wal-Mart claims it provides coverage to a greater percentage of its employees than other retailers - 81% of Wal-Mart employees are eligible for health insurance while the retail industry average is 56%. But because it’s expensive – only forty-eight percent of its employees are actually enrolled in its health insurance program. The retail industry is worse though – an average of only 36% of workers are enrolled.

Wal-Mart would like to get more credit for the benefits it already offers workers but admits its health care offering is “vulnerable to at least some of their (critics) criticisms, especially with regard to the affordability of coverage and Associates’ reliance on Medicaid.” The memo acknowledges that 24% of employees and 46% of children of employees have no insurance or are covered by government Medicaid programs.

Is Working At Wal-Mart Hazardous to Your Health?
There’s more sobering news about Wal-Mart’s workforce: “Our workers are getting sicker than the national population, particularly with obesity-related diseases. For example, the prevalence of coronary artery disease in Wal-Mart’s population grew by 6 percent compared to a national average of 1 percent, and the prevalence of diabetes in our population grew by 10 percent compared to a national average of 3 percent.” These statistics are sadly ironic given that the company is the country’s largest seller of the kinds of cheap unhealthy food whose consumption is directly linked to these medical problems.

The memo goes on to note the negative impact of its workers' poor health on Wal-Mart's bottom line. "The cost of an Associate with 7 years tenure is almost 55 percent more than the cost of an Associate with 1 year tenure yet there is no difference in his or her productivity"; it continues, "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.”

Cheap Disposable Employees
Instead of proposing initiatives to help these workers become healthier and more productive, the team calls for redesigning Wal-Mart’s benefits package to better appeal to younger, healthier workers who are paid less and have shorter tenures. It hopes to weed out expensive, unhealthy workers by requiring more rigorous physical activity for jobs like cashier. Should anyone be surprised that a company that has built its business around selling cheap disposable products wants a cheap disposable workforce?

It's Past Time to Reform the Healthcare System
Wal-Mart deserves to be criticized for these types of initiatives but the situation they and other businesses face illustrates how urgently our system of health care funding and delivery needs reform. The premiere quality of our healthcare system is often touted but what good is this if fewer and fewer people can afford it? This is not a new problem and it’s getting worse - when are we going to finally do something about it? Who in business and government is courageous enough to tackle the challenge of making healthcare widely available and affordable? What kind of country – let alone business and workplace environment – are we going to have if large and growing numbers of people cannot afford health care?

I’m not letting Wal-Mart off the hook – it certainly can and should do more. For example, you would think it would use its buying clout to negotiate the best health care deal for workers of any company in the U.S. But there is no denying that our biggest company and many other large corporations are struggling to keep pace with rising health care costs for their workers. Healthcare is the hot potato that no one wants to hold – not businesses, not government, not individuals. We should be collectively trying to solve this problem, instead of seeking to shift the burden to the other guy. Several state governments are now attempting to come to grips with this problem because they, and ultimately the tax payers/voters (us) must foot the bill for the growing number of people who can’t afford health care.

Just as Wal-Mart is evaluating the tradeoffs that best suit its interests, Americans need to start thinking about the bigger societal tradeoffs between price, individual quality of life and collective welfare. What good are businesses with “always low prices” on toothpaste if it means that neither they nor their workers can afford the cost of dental insurance? Are we really in favor of low prices at all costs? What kind of communities, workplaces and environments do we want? It is time for everyone – politicians, business leaders, workers, citizens – to get our heads out of the sand and rethink our priorities. Our health – physical and economic – depends on it.