does walmart’s benefits reversal signal the future of health benefits?

October 26, 2011

in health care

walmart reversed an earlier decision last week and announced it would no longer cover spouses or provide health benefits to future part-time employees. at the same time, the news coverage reported that walmart will apply a tobacco surcharge and reduce its funding of employees’ health savings accounts. these accounts are coupled with high-deductible health plans and help employees cover some of their out-of-pocket expenses.

walmart’s decision got a lot of press, but as at least a few articles notedwhat walmart’s doing is not atypical. i pulled a few charts from the kaiser family foundation’s employer health benefits 2011 annual survey to prove the point (click on each to view a larger image). as this chart shows, employers frequently don’t offer part-time workers health benefits.

those employers who continue to offer benefits to part-timers are facing the same rising health care costs all companies are seeing. and those cost’s are more frequently being shared with employees. in this chart, you can see that the average annual premium for an individual is $5,429.

 knowing the trends and averages helps put reported stories like this in perspective:

“Tammy Yancey, a $9.50-an-hour gas attendant at a Sam’s Club in Pinellas Park , Fla., complained that she would no longer be able to afford health insurance from the company. Ms. Yancey, a smoker, said her premiums would jump to $127.90 every two weeks—or $3,325 a year—up from $53.80 at present, when she earns $12,000 a year from her job.”

tammy yancey’s costs are rising, yet her premiums are still under the average individual’s.

tobacco surcharges are also not news. a study by hewitt (now aon hewitt) found that 64% of companies impose or plan to impose a tobacco surcharge. some companies have already gone beyond surcharges and stopped hiring tobacco users altogether. it’s yet to be seen how well the “stick” will work versus more supportive methods such as creating a tobacco-free workplace, or as in walmart’s case, not selling tobacco while trying to get employees to quit. that presents a situation that’s tough to message.

it’s become common for employers to offer plans with high deductibles. we’re likely to see 73% of employers offer a high-deductible health plan and 47% offering only them.

while painful, walmart’s decision isn’t outside the norm. walmart reversed itself in response to changing economic times. they have tighter margins and tons of people knocking down their door for a job. employer interest in being an employer of choice waxes and wanes depending on where we are in the “talent wars.” and right now, the war’s being fought by employees, not employers.

so the bigger question is not whether what walmart’s done is “right.” it’s whether walmart’s decision signals anything unknown about the future of employer-provided health benefits? will more employers move to part-time and contract workers as a way to manage rising health care costs? will they continue to rewrite their eligibility rules? will employers consider the $153 billion in lost productivity because of health conditions while they pare back health benefits?

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{ 6 comments… read them below or add one }

Bob Merberg October 26, 2011 at 8:38 am

Interesting stuff, Fran. For now, I’ll leave it to others to comment on employers dropping medical coverage — which I’ve touched on previously in comments on your blog.
Regarding tobacco surcharges… Most employers will frame them as incentives for non-tobacco-users. Of course, one can argue this is simply spin and manipulative. As you know, there’s a whole movement, codified into HIPAA and now PPACA, that allows employers to give “incentives” for wellness programs or even biometric values, but these incentives (when realized through premium discounts) can also be said to be surcharges on those people who don’t obtain them. So who’s to say whether these are surcharges (sticks) or incentives (carrots)? (Not me).
I passionately believe that a health-oriented employer’s number one responsibility and strategy for employees who use tobacco is to provide them with resources and support. I blah blah-ed about this recently on @lruettmann’s blog at http://thecynicalgirl.com/smoking/ .
But I found it interesting that you use tobacco-free environments as an example of support. While I think tobacco-free environments continue to gain favor (especially among non-tobacco users), and I do believe that before long most workplaces will have tobacco-free environments, it still seems to me that most people (especially smokers) do not view tobacco-free environments as a form of support. In fact (I’d like to cite data, but I don’t have any handy), I think most tobacco users view tobacco-free environments as the embodiment of antipathy toward tobacco users.
One other comment: Talking about tobacco surcharges, you note that it remains to be seen whether the “stick” will work. Some of that depends on how you define the objectives of the surcharge (or the policies about not hiring smokers). Knowing you and your commitment to employee health, I might guess that you view the measure of effectiveness as being tobacco cessation. But I don’t think that’s how most benefit managers view it. They offer a health-care-premium tobacco differential because they believe tobacco users should pay more for health insurance. In their minds, it’s not that much different from life insurance companies’ age-old practice of charging more to insure tobacco users. Few people have objected to this life insurance strategy, and until recently no one viewed it as an important method of promoting tobacco cessation.
I’d be interested to hear more about your view on the relationship between tobacco-free environments and support for tobacco users. Sorry for going on so long, on a bit of tangent.

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fran October 26, 2011 at 11:15 am

hi bob. no worries about “going on so long.” you always raise great points.

on the tobacco-free workplace, i don’t have data on how tobacco users feel about tobacco-free workplaces. what i do know is that more than 70% of current smokers want to quit. (this is from treating tobacco use and dependence: quick reference guide for clinicians, 2000.) the difficult part is quitting and staying that way. in that way, providing a tobacco-free workplace is supportive and not punitive. as you noted, public sentiment is behind this too (http://www.freerangecomm.com/2010/08/thinking-about-going-tobacco-free-at-work-public-sentiment-backs-you-up/). i’d rather see employers go tobacco free at work and offer fully paid programs and products to help people quit than not hire tobacco users.

with the surcharges, point taken. i think surcharges make sense, much as it could make sense to offer a more expensive health plan and let employees buy up if they want. what i meant when i wrote about not knowing whether the surcharge stick will work is that i’m still figuring employers want their employees to quit…not just pay a higher premium. tobacco use is so well connected with other diseases — it makes a tobacco user a likely higher user of health benefits.

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Janet McNichol October 26, 2011 at 10:32 am

One of the other things I find interesting about these decisions is the impact they have on your pool of candidates overtime. You institute a tobacco free environment and you don’t attract smokers. You offer a gym and lots of exercise classes and you attract people that workout. It’s hard to measure, but another way wellness initiatives have a positive ROI.

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fran October 26, 2011 at 11:15 am

targeted selection?

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Lee October 27, 2011 at 3:47 pm

Great Points, but I’m fixated on the spousal part. Do you mean legal dependent spouses who support the family with part-time/ non-benefit employment? These families are now left to find coverage for the spouse outside the bread winners employment?

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fran October 27, 2011 at 4:44 pm

lee, thanks for your question. walmart changed the eligiblity for spouses of any employee. so if i worked there, my husband wouldn’t be eligible for walmart’s health benefits. i can’t find a recent report that covers the trend in spouse eligibility, but articles like this (http://cnnmon.ie/uFW7oA) show that employers are interested in moving spouses off of their health plans—or having them pay more for the coverage.

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