February 24, 2006

Wal-Mart to Expand Health Plan

By MICHAEL BARBARO

Wal-Mart Stores, facing a raft of state bills that would require it to increase spending on employee health insurance, plans to ease several longstanding — and heavily criticized — restrictions on who is eligible for benefits, the company said yesterday.

Wal-Mart said that for the first time it would permit part-time employees to enroll their children in the health insurance plan, and it pledged to reduce significantly the waiting period before a new part-time employee is eligible for benefits, though it declined to specify the reduction.

The new eligibility rules are intended to increase the number of employees who can participate in the insurance plan, but it is unclear how significant the impact will be because Wal-Mart gave little detailed information about its plans.

Even with the expanded plan, Wal-Mart's workers, whose average pay is less than $20,000 a year, will still pay monthly premiums and hefty annual deductibles.

The changes, which Wal-Mart's chief executive, H. Lee Scott Jr., plans to announce formally on Sunday before a meeting of the nation's governors, underscore how big a political and public relations threat the health care issue has become for the company, the nation's largest private employer.

Wal-Mart insures fewer than half of its 1.3 million employees in the United States, and it has come under fierce criticism from those who say its benefits are skimpy and result in the cost of health care being shifted to state governments.

In the last two months, the Maryland Legislature has passed a law that would force Wal-Mart to expand its benefits, and a dozen other states, including California, Colorado and Rhode Island, are considering similar bills. Wal-Mart originally planned to announce the new benefit rules later this year, but it rushed the news out this week before the governors' meeting in Washington.

The new eligibility requirements are notable because currently only full-time workers can have health coverage for their children, and part-time workers were required to wait two years before enrolling. Full-time workers must wait six months.

Wal-Mart also said it would expand the use of in-store clinics to treat employees and nonemployees. Such clinics, which the company set up in Arkansas, Oklahoma and Indiana as a test six months ago, are intended to provide routine, nonemergency care for conditions like strep throat or an earache.

So far, Wal-Mart has nine clinics. They are operated by third-party medical providers who rent space from the company, much like hair salons or banks do. By the end of the year, there will be 59 clinics, a Wal-Mart spokeswoman, Mona Williams, said. On average, she said, visits to the clinics cost about $45, with some clinics accepting insurance.

Wal-Mart said it would make a new health care plan, with premiums as low as $11 a month for an individual, available to half of its employees by next year. Under the plan, which was introduced this year in several regions, the premiums are $9 more a month for children.

Wal-Mart said it had to go through tough negotiations with doctor networks to get such low premiums, making it impossible to roll out the program to all of its American workers in one year.

That low-cost benefit, known as the Value Plan, allows for three generic prescriptions and three doctor visits before a deductible kicks in — $1,000 for a individual employee and up to $3,000 for a family. It is unlikely to cover a complicated illness or expensive hospital stay during the first year, when there is a $25,000 insurance cap. In addition, out-of-pocket payments range from $300 for prescriptions to $1,000 for hospital stays.

Ms. Williams said Wal-Mart was "trying to make our plans more relevant, accessible and affordable."

Asked how many workers were expected to enroll in the health insurance plan after the changes in eligibility, she said, "We think these enhancements are a step in the right direction for associates, but don't yet know how they affect" enrollment.

Wal-Mart has said its new Value Plan has encouraged more workers to sign up for health care. But its records show that the percentage of workers who have enrolled in a company health insurance plan has increased only slightly in the last year. As of January 2005, Wal-Mart insured 45.8 percent of its workers. Today, it insures 46.2 percent, or about 615,000 out of 1.3 million.

Over all, Wal-Mart said, 75 percent of its workers have some form of health insurance, either through Wal-Mart, a spouse or a previous job. The remaining 25 percent have no insurance.

Wal-Mart has never said how many of its employees' children rely on company insurance, but an internal memo written by M. Susan Chambers, Wal-Mart's executive vice president for benefits, disclosed that 46 percent of them were uninsured or on Medicaid.

Wal-Mart declined to say how much the changes would cost, a number that investors will be eager to learn, given Wal-Mart's no-frills business model, which emphasizes low labor costs. Ms. Williams said the plan was factored into Wal-Mart's profit forecast for 2006, which the company announced this week.

Without such details, it is unclear whether the latest changes will move Wal-Mart employees off state Medicaid rolls and onto Wal-Mart's insurance plans, a change state legislators have pushed for with their proposed legislation. It is also unclear if these changes will increase the percentage of Wal-Mart's payroll devoted to health care, another focus of the proposed state laws.

News of the changes drew carefully parsed praise from leaders of health care groups like the Center for Studying Health System Change, a nonpartisan foundation in Washington. Paul B. Ginsburg, the center's president, credited Wal-Mart for trying to expand health care offerings at a time when many employers are pulling back on spending.

But he added that Wal-Mart was "clearly focused on what it can do to look better without it costing them a lot more money."

Helen Darling, president of the National Business Group on Health, a nonprofit organization that represents large employers, said Wal-Mart's investment in retail health clinics, a relatively new concept, "is a very big development.'

"If this takes off, it will have an impact on everyone. A lot of other organizations will jump into it."

The changes to Wal-Mart's health insurance plan represent a victory for the retailer's critics, particularly organized labor and the two groups that have pushed it to raise wages and benefits, Wal-Mart Watch and Wake Up Wal-Mart, both formed in 2005.

The groups have tried, with apparent success, to turn Wal-Mart into a symbol of what is wrong with American health care, leading to the legislation in numerous states, which is directed squarely at Wal-Mart.

Several of those bills have already suffered setbacks and only a handful have a chance of becoming law, state leaders say, but the bills have touched off a discussion about the future of employer health care plans.

"That debate," said Ron Pollack, executive director of Families U.S.A., a health care consumer-advocacy group, "is long overdue."