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Health Insurance: The New Competitive Advantage

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Retail giant Wal-Mart Stores (NYSE: WMT  ) has long seen its reputation tarnished by allegations that it mistreats employees. But now, the company is spearheading a government-backed effort to create an "employer mandate," which would force most companies to provide health insurance to employees. Wal-Mart's tack may not be as bizarre as it sounds -- nor as commendable.

Many companies naturally oppose Wal-Mart's position; the National Retail Federation said it was "flabbergasted" by the retailer's move. Despite its historically bitter opposition to unions, Wal-Mart's even joined forces with the Service Employees International Union, sending a letter to President Obama in support of an employer mandate. Politics makes strange bedfellows, indeed.

Quit hogging the covers!
True, Wal-Mart's huge size can help it create big benefits for communities and the environment -- when it decides to do so. But let's apply a bit of healthy skepticism to the idea that Wal-Mart has suddenly taken an altruistic interest in its employees' health.

Wal-Mart says the mandate will only be effective if the government commits to reducing health-care costs for companies, so it's clearly hoping for favorable government intervention. Meanwhile, the Senate Finance Committee is considering an alternate plan that might result in more onerous health care requirements for companies hiring lower-wage workers. By backing "employer mandates" instead, Wal-Mart is rooting for the less costly of the two prospective plans.

Beyond its own bottom line, Wal-Mart may also hope that changes to the law will ultimately give it an advantage over its competitors. Consider Wal-Mart's massive size and annual revenue, then imagine the kind of squeeze an employer mandate for health care might place on smaller rivals' profitability and competitiveness. Bad news for them would be great news for Wal-Mart.

This sort of strategy, known as "regulatory capture," is an effective -- if sneaky -- way to get a leg up on rival businesses. For example, advocates of government regulation of tobacco hailed the recent signing of a landmark anti-smoking bill. But Altria (NYSE: MO  ) lobbied for it, too, since provisions in the law will lock in Marlboro's iron grip on American market share. (Rival Lorillard has reportedly dubbed the bill the "Marlboro Monopoly Act.")

Tobacco's not the only business to benefit from some covert help from Uncle Sam. Witness the former attorney for Monsanto (NYSE: MON  ) who rather conveniently served as deputy commissioner for policy at the Food & Drug Administration when it issued rules about genetically modified foods. And I suspect Google (Nasdaq: GOOG  ) may face trouble from Uncle Sam in the near future. A number of former lawyers for the copyright-loving Recording Industry Association of America have since moved into the Justice Department, and I doubt they're too fond of Google's efforts to loosen laws protecting intellectual property.

Far less noble than it sounds
In my opinion, companies shouldn't need government prodding -- or handouts -- to improve their behavior. (More encouragement from consumers wouldn't hurt, though.) Happier employees do better at their jobs and create more satisfied customers, all of which enhances a company's competitive advantage in the long term. Starbucks (Nasdaq: SBUX  ) , Costco (Nasdaq: COST  ) , and Whole Foods Market (Nasdaq: WFMI  ) have stood out from their retail peers by proactively providing health-care benefits to many of their workers.

When Uncle Sam gets involved, even well-intentioned regulation can fall prey to favoritism toward the powerful and well-connected. That's not true competition, and however much it may boost favored companies' profits, I don't respect it. Despite its altruistic veneer, I think the Bentonville behemoth's being as ruthless as ever -- and hoping the government will lend it a hand.

Do you think Wal-Mart's finally turned toward the side of the angels, or is it just waiting to stick the knife in? Share your thoughts in the comment box below.

Celebrate Independence Day with some related Foolishness:

Wal-Mart, Costco, and Starbucks are Motley Fool Inside Value selections. Costco, Starbucks, and Whole Foods Market are Stock Advisor recommendations. Google is a Rule Breakers selection. The Fool owns shares of Costco and Starbucks. Try any of our Foolish newsletter services free for 30 days.

Alyce Lomax owns shares of Starbucks and Whole Foods Market. The Fool has a disclosure policy.

Read/Post Comments (19) | Recommend This Article (14)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 02, 2009, at 3:58 PM, davejh23 wrote:

    Kennedy (champion of universal healthcare) and Dodd are proposing that employers that don't provide their employees with health insurance should pay a $750 annual fee per employee. I'm certain that Walmart pays much more than this per full-time employee, and I wouldn't be suprised to see Walmart cut all health benefits after this "reform" passes. They may claim that they're just providing another option to Americans without coverage, but this is clearly a plan to put us on a quick path to nationalized healthcare. Walmart will be able to shed billions in costs if this passes. I'm sure Obama will be calling dissenting congressmen next week to say: "don't read it, just vote my way!".

  • Report this Comment On July 02, 2009, at 4:40 PM, madmilker wrote:

    davejh23....the NO BA!!S Congress ain't red...oops! read a dang thig in the past 50 years...why would they start now. Tis is all about "more tax up we the people's" @ss.....sad! the government wus only $2.6 billion in debt from 1776 to 1910(with no INCOME TAX and after tat private bank (FED) showed up in 1913 the dang debt "with a dang income tax" has went to over $12 trillion. Last march i wus in wus back in 68' bad the American people are to busy buying lotto tickets, beer and cigarettes to march again...

  • Report this Comment On July 02, 2009, at 6:31 PM, kurtdabear wrote:

    A company's first duty--a legal one--is its fiduciary duty to its shareholders. Glad to hear how competitive Starbuck's health plan is--too bad McDonald's is eating their breakfast as well as lunch and dinner.

    And realistically speaking, what percentage of employees of McDonald's, Starbuck's, Kinko's, WalMart, etc., are even interested in health benefits? Many are working students or working spouses who are covered on their spouses' plans. (WalMart greeters were old enough to be on Medicare.)

    Before I retired, I worked for an international corporation that paid well and had a good health plan, yet some of my younger unmarried employees opted out of it. They didn't spend enough on medical care in a year to exceed their deductible and cover their roughly 20% share of the group premium. Let's not take people's choices away from them as Canada did when their universal system was losing out to private health care.

    Most people don't need a lot of medical care, which is a good thing because medical care is extremely dangerous. By the most conservative estimate, more people are killed by medical mistakes each year than by guns, cars, planes, and trains combined!

  • Report this Comment On July 02, 2009, at 7:10 PM, 1snottyboy wrote:

    anything that comes from wal-mart, republicans & bad for those of us in the bottom

    98%...nuf said

    look at the mess were in today.

  • Report this Comment On July 02, 2009, at 11:10 PM, dc46and2 wrote:

    How is it that providing "health benefits" to employees is a good thing? No one ever seems to question this, but I think they should.

    Health care doesn't magically become less expensive just because your employer pays for it. People confuse "insurance" with "health management plans." The former appears cheap because they only cover expensive, but rare services. Since the latter must cover all expenses for average people, it's mathematically impossible for it to be less expensive than the average cost of the services provided to the average person.

    The cost of that "health management plan" is still born by the employee, either through higher prices in the stores they shop at, or more directly through lower wages. I believe many businesses get tax credits for providing health plans, so you pay for it with your taxes too.

    The impression that employer provided health care is "free" actually makes it more expensive! People will consume more health care products and services when there is no apparent cost. They will not shop around to find the best price for what they need. Even if an individual uses his benefits wisely, they will never profit from it; they must still pay for all the other people's indiscretion. Even if you decided not to participate in the plan, you are still paying for it.

    These employer provided "health management plans" destroy the free market in health care just as surely as government run health care plans. If these plans truly lower costs, then why don't people just purchase them directly? Why do they need to have their employer involved? The only logical explanation why the employers must be involved is to conceal the true costs.

  • Report this Comment On July 03, 2009, at 12:05 AM, MKArch wrote:


    There is a very simple reason why employees opt for employer plans instead of individual plans and that is the insurers charge significantly higher premiums for individual policies than they do group plans.

    Obama's plan is back door national health care, create a non profit national insurance plan that private for profit insurers can't compete with and will kill them off, nationalizing health care by default. Of course national health insurance will be cronically underfunded so that Obama and the Democrats can have their cake and eat it too. Long term it will be a disaster for future generations stuck with the bill in addition to all of our other underfunded entitlement programs.

    The problem with health care is politicians and lawyers have made it tough for insurers to say no. It will be virtually impossible for a politicians running a national insurance to say no and just as impossible for the politicians to pay for yes to everything.

    The Obama/ Democrat plan is the exact opposite of what is needed, the health care industry desperately needs market forces to bring costs down. I don't remember the politician that said it and it was a bit crude but mostly right "Old people have an obligation to die". We just can't afford the highest standards of care for everybody all the time.

  • Report this Comment On July 03, 2009, at 2:58 AM, jrj90620 wrote:

    As long as most healthcare expenses are borne by a third party we can expect the healthcare industry to continue to overcharge and capture more of the total wealth of the country.A better idea would be for everyone to pay the first $5-10K in medical per year and insurance only come into effect for catastrophic cases.

  • Report this Comment On July 03, 2009, at 3:46 AM, dc46and2 wrote:


    I agree with you. People are always going to pick whatever appears cheaper, but I'm saying the "lower premiums" are an illusion. Aren't the group plan premiums lower because the employer is subsidizing it? If it were not so, then why must the employer be involved at all? Why couldn't everybody who wanted a "health care plan" just form a "group" with all their friends to get the lower premiums?

    My point is that one way or another, whether he realizes it or not, the average working Joe is still paying in full for his health care. Everyone clamours about how everyone needs employee health care plans, but where is the advantage? All I see are illusionary "savings" with a lot of real disadvantages.

    Lomax praises Starbucks and Costco for giving employees health care benefits, but doesn't explain why this is a good thing. Wouldn't the employees be better off getting a raise and using the money to provide for their own health care however they saw fit?

    MKArch, I think you might enjoy this:

  • Report this Comment On July 03, 2009, at 9:48 AM, TMFLomax wrote:

    Wow, thanks for all the great comments and feedback on this. I hope they keep coming. But I'm especially appreciating the ones that actually question the assumptions we all tend to make about health insurance (which certainly does leave a lot of room for improvement, it's not a great model in some ways although it does tend to make us feel more at ease to have it or think people have it) and come up with some other ideas and arguments.

  • Report this Comment On July 03, 2009, at 10:01 AM, MKArch wrote:


    I am self employed and can tell you from personal experience that I had to put my wife on the books as my employee in order to qualify for group coverage as individual policies for each of us were about twice the group policy rate. Whether it's better for employees to pocket the insurance money and pay for their own medical expenses I think it's a nice theory but in reality they will spend the money and be reliant on the government if they get hit with significant medical expenses. Insurance in some form is a necessary evil. I just find it ludicrus to think the government is the most efficient provider.

    I also have some anecdotal evidence about the cost of lawyers and politicians meddling in health care. I had my own individual policy in early 1990's and was seeing 20%-25% a year increases to my premiums however that was about the time HMO's were starting to gain widespread acceptance as a more affordable option and for a brief period of time they were able to bring the cost increases down to single digits by dictating to the doctors what procedures they thought were necessary and would pay for. Of course the lawyers and politicians trotted out the cases that fell through the cracks and forced the insurers to pay for everything and once again premiums hit double digit increases.

  • Report this Comment On July 03, 2009, at 2:55 PM, dc46and2 wrote:


    I don't doubt your personal experience, but do you believe that by manipulating your books, the actual cost of your health care was reduced? Surely the cost must remain approximately the same, so why did the premium drop by 50% when the "employer" got involved?

    Besides health care, I have many necessary expenses such as food, clothing, rent, and utilities. My employer can't wave a magic wand and make any of those costs drop by 50%, so what is special about health care?

  • Report this Comment On July 03, 2009, at 3:49 PM, MKArch wrote:


    I know it for a fact. When I went out on my own I had an insurance agent over to discuss my options and he told me that all insurance companies charge significantly more for indvidual policies than they do for group policies and if I had just one employee I could qualify for a group plan. I asked him if it would work if I employed my wife and he told me it would.

    So every other week I write my wife a check from my business account that she deposits to our joint personal account in order to keep health care cost down. It's been a while since I discussed this with the agent so I'm guessing at the double cost but it was a huge difference in that neighborhood. BTW my wife is my office manager and her primary task is to write herself checks and take care of all of the paperwork involved in reporting employee earnings and paying the various employee taxes.

  • Report this Comment On July 04, 2009, at 8:20 AM, APotOfGold wrote:

    I am a 50 yr old, nonsmoking female & I pay $140/month for a $5000 deductible HSA plan through Golden Rule. FAR less than the over $500/mo I would have to pay to get in an employer's plan (full cost).

    Right now this is the way for me to go...because I'm HEALTHY.

    The problem is if I start having health problems...will they drop me? If I am in an employer's plan I can't be dropped. That is a bigger advantage if health care is needed.

  • Report this Comment On July 04, 2009, at 8:13 PM, freebrd06 wrote:

    As many have gone before me, I worked for 5 years + 11 months at Walmart.

    While I wasn't happy all the time (who is) I found their Health Insurance to be very good. For a part time employee (28 hours per week or less) Health insurance began 3 months after the start date.

    I don't see how much better it can get other than the Government pitching in some money to Walmart.

  • Report this Comment On July 04, 2009, at 8:26 PM, freebrd06 wrote:

    To jrj90620

    I have an anual income of $9,732.XX.

    At what point do you propose my payment for

    catastrophic illness would come in?

    Oh, I get it, those who can't pay shouldn't

    worry anyway. We'll all die one day or


  • Report this Comment On July 05, 2009, at 3:10 PM, dc46and2 wrote:


    I guess I'm not being clear enough or perhaps I'm using the wrong terminology. In my last post, when I said "premium," I meant what you paid to your insurance company. When I said "cost," I meant what the insurance company paid to the health care providers for your care.

    I understand that your premium dropped 50% when your wife became your "employee," but I think you still consume health care products and services at the same rate as you would have if you were on the individual plan. The cost to the insurance company is the same in both cases, so why is there a huge difference in the premium? I'm not saying you are wrong, I'm trying to understand why this is the case.

    It's clear that the insurance companies, many in the government, and author of this article would prefer that everyone signed up through their employer. I want to know why. You replied that it's because of the lower premiums, but it seems to me that the premiums are set arbitrarily and don't reflect the underlying costs. Your own experience is a striking example of the disconnect between premiums and the material costs.

    It's obvious that individuals will always select the plan with the lower premium and may never consider why that premium is lower. But when congress wants to make employer sponsored health care mandatory nationwide, it becomes absolutely necessary to consider why.

    Taking the broad view of society in general, the only thing that matters is the material costs--the energy, resources, and labour that are devoted to health care. If these costs are not lowered, then the difference in premiums is irrelevant.

  • Report this Comment On July 05, 2009, at 4:07 PM, dc46and2 wrote:


    It is a fact of nature, that we must produce in order to consume, and we must consume in order to stay alive. The productive members of society may devote some of their surplus production to the maintenance of those who cannot produce enough for themselves, but the latter group must always remain a minority.

    No one has said that this minority, who cannot afford their own health care, should be left to die. We are considering how the majority, who MUST pay for their health care, should go about paying it. Make no mistake, health care is not free, and it cannot be made free no matter what any politician may say. We will pay for it through our taxes, through a premium paid to an insurance company, directly from our pocket to the health care provider, or by some combination of those methods.

    I agree with jrj90620 that the best method is for normal people (in the financial sense) to pay for their normal health care costs out of pocket. They would also pay a small premium for insurance which would cover extraordinary expenses that a normal person cannot afford.

  • Report this Comment On July 07, 2009, at 3:29 AM, mhoff149 wrote:

    There are two aspects to the pricing of group policies. From an insurance company's point of view it is less risky to insure multiple people as opposed to an individual. The risk is now spread over more people.

    I believe a second important part involves the insurance companies ability to raise premiums. An individual policy cannot be raised on an individual basis based on past claims. Individual policies must be raised equally on a class basis. Group policies can take into account the previous claims history and raise premiums accordingly.

    Some companies have focused on wellness programs and smoking cessation programs to promote a healthier workforce thereby lowering their health care costs. I am not sure how cost effective these strategies have been.

  • Report this Comment On July 07, 2009, at 7:34 PM, dc46and2 wrote:


    Thanks for shedding some light on this subject. It makes sense that the risk goes down as more people are insured. But what is the difference in risk, between insuring a "group" of 100 people and insuring 100 "individuals" who have not been organized into a group?

    There is a common belief, that everyone will be better off with employer-sponsored group health insurance vice an individual plan. They imagine that this is a legitimate way to reduce the material costs of health care. This belief is so strong, that many in Congress want to make it mandatory. I fail to see the advantage in doing this.

    Suppose you take a large number of people who are on individual plans and transfer them to an employer-sponsored group plan. The risk, number of claims, etc. for the insurance company will be exactly the same as before since it's the exact same people. Unless the insurance companies wish to go bankrupt, the average premium must stay the same.

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