Wal-Mart Enters the Health-Care Fray

Some good news for seniors on Medicare and Wal-Mart (NYSE: WMT  ) investors is bad news for Wal-Mart's competitors: The retail giant has partnered with health-care benefits provider Humana (NYSE: HUM  ) to provide an extremely low cost Medicare Part D prescription drug plan.

The plan
The plan, called the Humana Wal-Mart-Preferred Rx Plan (PDP), will provide coverage at a monthly premium of less than $15. The stand-alone plan is offered at one price throughout the country, and according to the joint press release, could help typical Medicare Part D recipients save an estimated $450 per year, starting in 2011. Copayments for prescription generic drugs could be as low as $2 if customers use a preferred retail location, and generic prescriptions delivered using Humana's home delivery program may require no copayment at all.

Big-box competitors Target (NYSE: TGT  ) and Costco (Nasdaq: COST  ) will also need to create programs similar to Wal-Mart's at this low cost in order to keep their own prescription drug customers. When Wal-Mart introduced its $4 prescription drug pricing for generic drugs just a few years ago, the other retailers had to be quick to match. Look for a similar scenario to occur with Medicare Part D this time around.

Wal-Mart wins again
As Wal-Mart's health and wellness division president Dr. John Agwunobi said, "We know every dollar counts, especially when you live on a fixed income. We believe no one should have to choose between buying their groceries or their medications. Financial health is a fundamental part of a person's well-being. "

Clearly, Wal-Mart is striking the right chord with the plan. It definitely benefits the company as well as the 18 million Americans who rely on Medicare Part D, especially if it draws new customers into Wal-Mart locations around the country. And even if margins will be small for Wal-Mart, the company is used to dealing with a low-margin environment, and is better equipped than its competitors to succeed in it. Wal-Mart can offer such competitive prices because of the sheer volume of business they are capable of doing at low costs. While other smaller pharmacies can attempt to match this deal, the margin squeeze will definitely be much greater on these companies bottom line.

Humana also doesn't see the deal as a loss leader for their company. Humana Pharmacy Services vice president William Fleming said that the company expects margins for the program of around 5%, which equals the average for all of the company's Part D plans, and sees it as a good way to increase its Part D membership ranks.

What the future will bring
It will be interesting to watch as competitors begin to respond to this new prescription drug plan. The details of how the new health-care reform bill is affecting businesses are still developing. As usual, Wal-Mart has struck early with a low-cost option, even if it isn't particularly innovative.

How do you think Wal-Mart and Humana's competitors will respond the new Medicare plan? Let us know in the comment box below.

Editor's note: A prior version of this article incorrectly included BJ's Wholesale among retailers that sell prescription drugs. The Fool regrets the error.

True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.

Fool contributor Andrew Bond owns no shares in the companies listed. Costco is a Motley Fool Stock Advisor selection. Wal-Mart and Costco are Motley Fool Inside Value recommendations. The Fool owns shares of Wal-Mart and Costco. Try any of our Foolish newsletters today, free for 30 days. The Fool has a disclosure policy.


Read/Post Comments (12) | Recommend This Article (31)

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 October 05, 2010, at 3:03 PM, Glick wrote:

    Health Care: Walmart. Just got new rates for Health Care Premiums for Walmart Associates for 2011. My coverage for 2010 was 79.90 every two weeks. 2011 is 142.90 for every two weeks. 123.00 a month increase x 12 months = 1512.00 year increase for same coverage. Health Care Reform or ripoff? Many Associates will cancel there policies, will not be able to afford them on meager hourly rates.Any suggestions?

  • Report this Comment On October 05, 2010, at 4:09 PM, BigAl777 wrote:

    Bj's Wholesale club got out of the pharmacy business two years ago!

  • Report this Comment On October 05, 2010, at 7:16 PM, jm7700229 wrote:

    Well, Glick, the biggest part of the "health care reform" package was shifting cost to the insurers. Kids are now covered to age 26 automatically. Free, right? Preexisting conditions are no longer excluded. People with cancer, MS, and so forth, previously heavily subsidized by government programs, are now in the insurance pool -- at the same rates as healthy people. And of course, no more underwriting or risk pricing. The bestpart is that people don't even need to buy insurance until they get sick -- just buy a plan on the hospital steps as you go in for that bypass surgery. And of course, all the new mandated coverages, all of which must be free, because the government tells us so.

  • Report this Comment On October 05, 2010, at 8:47 PM, stopthelies1 wrote:

    BTW, many insurance companies raised rates long BEFORE any heath care reform was passed and your rates saw no change because it was paid for in advance as insurance always is. 1000s of people were dropped just because the insurers wanted more money, 26% was not enough for them. They just like big oil, they want more money. Dont you ever wonder why even if they find oil in the USA it never gets cheaper??? It never will either . It will always cost what it costs from Arab or any foreign country. Insurance went up because they felt like raising the prices because they are greedy pigs.

  • Report this Comment On October 06, 2010, at 3:20 AM, savie35 wrote:

    Greed and the Forbes 400 is the power that drives these people. what the people should say we will give you $10 for any prescription. and no more. let the items pile up in their warehouse.

  • Report this Comment On October 06, 2010, at 4:44 AM, robtracy1 wrote:

    I am an insurance agent. I sell health, life, disability, LTC, and Medicare Advantage, Part D, Med Sups, and will be a marketing partner with Human at Walmart Stores to support this new program. stopthelies, while obviously passionate in your hatred for self reliance and like of name calling you are ignorant on the facts and how insurance works. Not to mention your addition of "big oil" into the mix, to me, shows your equal disdain for all things NOT provided by or regulated to death by the government. Firstly, any child covered under ANY group health policy now has coverage until 26. Also now all group policies and individual health policies have no life time maximums. So before, when a client wanted to save a few dollars, they could dial down the lifetime max to 3 5 or up to 25 million dollars. Now they have no choice hence no savings. If the companies based the rates on a max of 3,5, or 25 and now that number is unlimited sure they are going to raise rates. The no pre-existing clause doesn't take effect until 2014 and that's when its going to hit the roof. Everybody's rates will go up, but, remember, all rates are proposed by the Carriers to the States Insurance Commissioners for "Approval" those rates must be actuarially sound by state regs and then approved for their increases. So the state actually already controls the pricing. But companies can always pull from a market they can't be profitable in, and they do. savie35's comment about a ten dollar cap on scripts is childish. It would never work. For every good drug that gets approved and marketed in the US 3 others never are. So companies have to recoup their R&D costs for 4 drugs in one marketable product. That's why its expensive. Not to mention the Lawyers who are constantly suing Drug makers for big bucks that drive up costs. Ever watch late night TV or daytime TV? Ton's of adds for "sue big pharma". Also America subsidizes the rest of the worlds cost because all the other countries will only pay certain prices for their drugs so when drug companies create new drugs they rely on America's wealth in order to cover the R&D costs so the drug can be marketed at all. There is a valid reason why this stuff is so expensive and most of it has to do with greedy lawyers and socialist health care systems "price controls".

  • Report this Comment On October 06, 2010, at 6:56 AM, JBKirtley wrote:

    Regarding Obamacare, I opposed it (and Medicare part D) because they contained bad business concepts - but they are now the circumstances under which we live and practice. So, this year I added by 23 y.o. grad student back onto my plan - I'm already purchasing the spouse + dep children option - at no additional charge. My rates did go up, but only $14 per paycheck. Losing the 23 y.o. premium returns $56 and change to my budget, the premium is before tax and I can bump my 401K contribution a little bit with it. The way I see it, in the end, the government gets less and I get more.

    Also, Walgreens did not fall in line with Wally World with $4 prescriptions, opting for a pay in "Prescription Savings Club" which collects enrollment fees and allows then to negotiate for rebates from manufacturers. Humana's plan with Wal-Mart may look smart on the surface but the first persons to line up will be the ones with the biggest drug bills. Since Wal-Mart is notorious for "skinning" it's business partners - anyone remember Murray bicycles, now defunct - I will not be surprised to find in a year or two that Humana has created a revenue eating monster that it can't put back in its cage.

  • Report this Comment On October 06, 2010, at 9:26 AM, jac553010 wrote:

    I like Robtracy 1's explanation. as a 27 year Insurance industry executive this is my 2 cents.

    Insurance employee's people. Take out the profit, reduce the people. Insurance companies are 'for profit' and pay dividends to share holders, take outthe profit, take out the dividends.

    Now as a person, I have great distain for government that 'forces' citizens to buy a product. Be warned, government has found a way to 'tax us' and not call it a tax. Forced insurance coverage.

    If we choose NOT to have insurance, we should have the right to sign an affidavit that states, I HAVE CHOSEN NOT TO BE INSURED, DO NOT PROVIDE MEDICAL SERVICES TO ME, IF YOU EXPECT TO GET PAID FOR THOSE SERVICES.

    See People die every day. People with insurance, people w/o insurance. In America we have the right to pursue happiness, and that happiness doesn not have to include medical insurance or health services.

    Obama took our right to choose how we live our life, and replaced itwith a mandated 'tax' by another name, Health insurance premiums. This is the biggest rippoff of the American Citizen since the founding of the Social Security system.

    :) Have a Nice day!

  • Report this Comment On October 06, 2010, at 10:29 AM, Glick wrote:

    Added note to my posting yesterday. Walmart also is not going to have profit sharing with employees starting 2011. Still have 401k plan and they will match up to 6%. That's it. Stores will have MyShare of Profits, if store has a profit.the reason lot of employees work for Walmart is the Profit sharing each year. Not any more.

  • Report this Comment On October 11, 2010, at 2:46 AM, frog25rider wrote:

    BEWARE THE TIGER !!

    If you sign up with Humana/Wal mart you are probably signing up for a medicare advantage plan. This will automatically restrict your provider base, Your favorite doctor will very likely NOT be in this network... as many medicare recipients found out the hard way AFTER having signed up 2 years ago in the first Humana/Wal mart foray. Not too much fun having to leave your favorite doctor because they (Humana) willl not pay an equitable fee to the doc.Also if you need DME (wheelchair,walkers, etc.) you must use

    Humana's contracted providers which may not be very convient. BTW ,, once you sign up , you can't change for one year,,,,BE CAREFUL OF YOUR CHOICE..

  • Report this Comment On October 12, 2010, at 7:22 AM, GoPro wrote:

    @robtracy1: you should get you facts right: "greedy lawyers" are costing the system very little as a whole, around 2.4% percent. I'm sure that you'd be the first one to call the lawyers if you or your family were harmed by malpractice.

    Regarding the so-called "socialist health care systems price controls", just consider this: health care premiums went up 120% beetween 1999 and 2007 (while wages went up 29%), way before Obamacare was on the radar. And you complain about price control?

    @jack553010: it's not so much about the people who do not want to have coverage as it is about people who want it but cannot afford it. My daughter works McDonald. I checked their so-called health plan: they wanted $40/month for a maximum of $2000/year of coverage. Thank good for Obamacare, now she is covered.

  • Report this Comment On October 21, 2011, at 4:29 PM, lumpysand wrote:

    It's ironic that Wal-Mart has started this relationship with Humana to offer better pricing for Medicare part D to seniors. At the same time, Walmart is rolling back healthcare benefits for employees. Wal-Mart is cutting back part time employees healthcare benefits and increasing premiums for many of its full time employees.

    It seems to me Wal-Mart and Humana are just taking advantage of a still over priced, and over marketed pharmaceuticals/industry in this country.

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