Human Capital & Careers

Now Wal-Mart Memo Proposes Benefit Cuts

Following reports of a plan by the retailer to cut employee health-insurance payments, news emerges of an internal Wal-Mart memo proposing greater ...
Stephen TaubOctober 27, 2005

In order to slow the rising cost of employee benefits, Wal-Mart will propose strategies to its board of directors that include setting high health-insurance deductibles, hiring more part-time workers, requiring physical activity for all jobs to discourage unhealthy job applicants, and reducing 401(k) contributions.

The news follows by only a few days Wal-Mart’s announcement of a plan that enable some employees to pay as little as $11 per month in health-insurance premiums, or between 40 percent and 60 percent less than under the company’s current plan.

In an internal memo, M. Susan Chambers, executive vice president for benefits at Wal-Mart, proposed that the retailer move all its employees into “consumer-driven” health-benefits accounts, Specifically, she mentioned the combination of a health savings account — a portable pre-tax fund containing employee and, often, employer contributions — and high-deductible coverage.

The memo was sent to Wal-Mart’s board of directors, which will consider the proposals in November, according to The New York Times. The plan, if approved, would save the company more than $1 billion each year by 2011, the Times noted.

Wal-Mart, like most companies, is concerned about the impact of increasing health-care costs on its earnings. The retailer’s benefit costs grew from $2.8 billion in 2001 to $4.2 billion last year. In 2004, the company reported sales of $285 billion and earned $10.5 billion.

Less than 45 percent of Wal-Mart employees receive company health insurance, which costs the company $1.5 billion each year — an amount that translates into $2,660 per insured worker, according to the Times. According to the memo, 5 percent of Wal-Mart employees are on Medicaid. The company’s employees earn an average of $17,500 each year.

In the memo, Chambers suggested that the company reduce 401(k) contributions from 4 percent of wages to 3 percent. The memo also called for lowering company-paid life-insurance policies from the current level of an employee’s yearly earnings to $12,000. Additionally, the memo proposed that employees pay a higher amount for their spouses’ health insurance.

The memo expressed concern that employee tenure at Wal-Mart is on the rise. “The least healthy, least productive associates are more satisfied with their benefits than other segments and are interested in longer careers with Wal-Mart,” the memo stated, according to the report.

Further, Wal-Mart employees “are getting sicker than the national population, particularly in obesity-related diseases,” including diabetes and coronary artery disease. The memo also said Wal-Mart workers tended to use emergency rooms too often and use prescriptions and doctor visits too infrequently. In order to discourage unhealthy job applicants, the memo recommended requiring activity for all positions, such as cart-gathering for cashiers.