Current Events Health Insurance

Wal-mart health plan

Wal-mart recently released the details of its new health plan for 2008 (see company press release or the Houston Chronicle article).  Here are some highlights of the plan.

  • Employees now have “50 ways of customizing their health care coverage options…a substantial increase from last year, when most associates had only nine choices.”  However, it seems that the employees will not be able to choose different coverage options (i.e.: what medical procedures are covered), but can only alter their insurance on the dimensions of the deductible/health care credit and thus their premium.  More choices may be good, but it also may create an adverse selection death spiral in which the more generous plans become more and more expensive in the future.
  • All Wal-mart employees will have deductibles (up to $2000 in the case of the cheapest plan), but employees will also receive a health-care credit of $100, $250 or $500.  I believe that that the reason for the credit is so that employees don’t forgo, low cost preventative measures (e.g.: regular doctor check-ups, immunizations) simply because they would have to pay out of pocket.
  • There is no maximum insurance coverage which is good.  Insurance is made alleviate the risk of large-scale medical problems.
  • Their plan offers $4 co-pay for over 2,400 covered generic prescriptions.

The Houston Chronicle reports:

As of the start of this year, 47 percent of Wal-Mart’s 1.34 million U.S. employees were enrolled in company coverage, compared with 46 percent a year earlier and 43 percent at the start of 2005.

Wal-Mart has said most of the remainder are insured through other plans, such as a spouse’s or a second job. That justifies its contention that 90 percent of employees have health coverage.

I am not sure whether this 90% figure is reliable.  It may count spousal coverage, but may also include those on Medicare or Medicaid, which would mean that John Q. Public would be footing the bill for these employees and Wal-mart should not implicitly take credit for providing insurance to these employees.

Is this good?

Having Wal-mart offer health insurance is not an unequivocal good thing.  When Wal-mart offers affordable health insurance plans, that means that Wal-mart will be a more desirable place to work.  The supply of individuals willing to work for Wal-mart will increase and thus the wage of Wal-mart employees will decrease.  In a reality with sticky wages, wages will likely not decrease, but the rate of increase of future Wal-mart employee wages will be lower than the wages of similarly-skilled employees working at companies without health insurance.  Risk loving people will not appreciate that some of their wages are taken to pay for health insurance.  Risk averse individuals–which likely represent the majority of Americans–will fully value the increased health benefits and will not mind a slight wage decrease.  Further, because of Wal-mart’s buying power, they will receive less expensive, more comprehensive health care costs than they would have on the non-group market.