Avoiding the Wal-Martization of Healthcare

Corporate Research E-Letter No. 66, July-August 2007


By Philip Mattera

One of the most memorable sequences of Michael Moore’s film Sicko documents Ronald Reagan’s role as a paid propagandist for the American Medical Association in the early 1960s, denouncing proposals for publicly financed health coverage for the elderly—the program that became Medicare—as a dangerous move toward “socialized medicine.” This scare tactic, which had previously been used very effectively in derailing the national health plan proposed by President Truman, is good for a laugh among Sicko viewers who might be tempted to think that redbaiting in social policy is a thing of the past.

Yet only weeks after the opening of the film, cries of “socialized medicine” are once again being heard across the land as conservative Republicans in Congress and on the Presidential campaign trail use the phrase to denounce legislation that would expand the State Children’s Health Insurance Program. SCHIP bills (in different forms) have nonetheless passed the House and the Senate, but any compromise measure that comes out of Congress is facing a veto threat from President Bush. It appears that Bush has not himself used the phrase “socialized medicine,” but he has expressed essentially the same idea in arguing that SCHIP expansion would lead to an “undermining of the private health care system.”

As usual, Bush is pointing to the wrong culprit. Private insurance is being undermined not by legislators trying to extend public coverage to children in families of modest means but rather by employers who are increasingly reluctant to provide the kind of coverage on which the U.S. healthcare system has been based since the Second World War.

Corporate America is desperately trying to offload its healthcare obligations, though it has not yet figured out the best way to do this. Some businesses are shifting more of the cost burden onto individual workers, some firms quietly nudge their workers into taxpayer-financed programs, and yet others are trying to get unions to take responsibility for certain costs. Wal-Mart is encouraging other employers to follow its lead in pushing workers into risky health plans with high deductibles and limited benefits. Despite all this, some are looking to big business to take the lead in national healthcare reform. The result could be substandard care for all.


Healthcare coverage in the United State evolved in a very different way from the rest of the industrial world. The sort of state-sponsored social insurance that emerged in Europe was defeated during the Progressive Era and again after the Second World War. In between, the New Deal legislation of the 1930s focused on unemployment and old-age insurance rather than medical coverage. What emerged instead was a system in which a large majority of the population became covered through employer-provided insurance.

This was not a manifestation of pure business paternalism. The first major move toward private health coverage came as a result of pressure from unions, which took advantage of 1940s decisions by the National War Labor Board that made it advantageous for companies to spend more on benefits rather than wages. This continued after the war ended. In 1946 the United Auto Workers negotiated a pathbreaking health plan with General Motors, and the Congress of Industrial Organizations passed a resolution calling for “security through bargaining.”

Rather than resisting the trend, much of the business world embraced it—for its own ends. Non-union companies set up voluntary health plans as a way of removing one of the chief selling points for unions, while unionized companies found it cheaper to enhance benefits than to boost wages. The upshot was that workplace coverage soared. The number of Americans with private group hospitalization insurance soared from about 11 million in 1940 to about 100 million in 1960. The latter figure represented about 70 percent of the population, a level that held for the next two decades.

This system of depending on employers to provide coverage for the vast majority of the population performed reasonably well—at least for those who had a decent job or were a dependent of someone who did—until healthcare costs began escalating and employers began cutting back. For the past quarter-century, business has been steadily downgrading the quality of coverage, both by asking employees to shoulder more of the costs (through endlessly rising co-pays and deductibles) and by using so-called managed care to restrict the amount of treatment available to workers and their families. This story has been told in countless articles, books and now in the film Sicko, but there is a new wrinkle.


A growing number of companies are asking some of their employees to roll the dice when it comes to their medical and financial well-being. Employers are offering low-wage workers the opportunity to enroll in health plans with greatly reduced employee premium costs, but the catch is that these plans are of little help in the event of a major illness or accident. Often called “mini-medical” or “limited-benefit” policies, they cover a limited number of doctor visits and as little as $2,000 in hospital costs.

A variation of this are high-deductible plans coupled with health savings accounts—a Republican-favored arrangement that got a boost from tax advantages written into the 2003 Medicare prescription drug bill. This approach often appeals to those who are healthy, single and young, but there is evidence that participants in such plans skimp on checkups and other primary care, thus increasing the risk of more serious and costly problems in the future.

The leading proponent of high-deductible health coverage is Wal-Mart, the country’s largest private employer. Around 100,000 of its workers have signed up for plans that include deductibles as high as $6,000. A company vice president, Tom Emerick, gives lectures on the system to business groups. In May he told the Dallas Morning News: “The greatest incentive for health and wellness is high deductibles. We’ll tell anybody in America how we did it and how it works.”

Deterioration of coverage prompts many workers to opt out of the health plans offered at the workplace, while many others are ineligible to participate because of a waiting period or part-time status. These groups, along with those workers unfortunate enough to be employed at firms that offer no coverage at all, make up the growing portion of the workforce that no longer gets enjoys health coverage provided by the boss. According to a March 2007 report by the Employee Benefit Research Institute, the percentage of workers participating in health plans offered by their employer dropped from 68.4 percent in 1988 to 62.7 percent in 2005.


Rather than improving their benefits to draw these workers back into the fold, some employers quietly encourage their low-wage employees to seek out coverage from publicly funded health programs. There have been numerous reports that Wal-Mart, in particular, routinely urges eligible workers to sign up for Medicaid, SCHIP and similar programs. The legislators who enacted these programs could not have imagined that taxpayers would end up funding coverage for employees of a company with $350 billion in annual revenues. About two dozen states have disclosed lists of those companies with the most employees (or their dependents) getting healthcare at public expense, and Wal-Mart is always at or near the top.

Not all companies are seeking to offload their healthcare costs onto workers or the government. Some major industrial companies have come up with a different solution to the problem: they want unions to take over. The Wall Street Journal reported earlier this year that Detroit automakers, eager to shrink their role in health coverage, had proposed to the United Auto Workers that the union take over responsibility for managing the coverage provided to retirees. The idea, reportedly being given serious consideration by the UAW in the current national contract negotiations, would not let the companies off the hook entirely. They would make substantial contributions to health trusts that would be run by the union.

Yet the question is whether those contributions would be sufficient to handle future medical costs. It is understandable that the UAW would want to protect benefits if the auto giants ever ended up in bankruptcy, but there is a good chance it could be left holding a very large bag.


There are limits to the extent that companies can shift healthcare costs by squeezing workers, pushing them into government programs and saddling their unions with responsibility. Some large corporations are moving into the policy arena to press government for broader solutions. Safeway CEO Steve Burd has become what he calls  a healthcare evangelist, pushing for universal coverage. Companies such as Wal-Mart, Intel and temp agency Manpower Inc. have joined with the Service Employees International Union and the Communications Workers of America in a coalition called Better Health Care Together, which calls for “quality, affordable health insurance coverage” for “every person in America”—though it declines to specify what form that coverage would take.

Although it is fashionable these days to court corporate involvement in addressing large problems such as global warming, letting business take the lead in healthcare reform seems particularly unwise. Chief executives will invariably push for market-oriented alternatives that put profits before the needs of people. Can there be any doubt that Wal-Mart, for instance, is going to promote a national health program that looks at lot like the substandard coverage it is foisting on its own employees?

Employment-based health coverage had a good run in the United States, but now the system is in decline. Trying to revive it in a barebones, discount-store form is no solution. Now is the time to consider alternatives to private insurance altogether. “Socialized medicine,” or at least socialized insurance, may not be such a bad idea after all.