Company pushes consumer-driven health plan even as it looks to cut other benefits

Executives at Wal-Mart Inc., the biggest retail company in the U.S., are pondering ways to cut employee benefits costs, even as they move to beef up a health care plan widely criticized as stingy.

The top benefits manager for Wal-Mart, Bentonville, Ark., has proposed significant cutbacks in company benefits spending, including reduced payments to 401(k) accounts and lower levels of group life insurance.

In a memorandum to the company board first reported in The New York Times, the retailer’s executive vice president for benefits argued the company was forced to move in the face of benefit cost increases averaging 15% annually since 2002. In that time, Wal-Mart’s benefit costs grew from $2.8 billion to $4.2 billion, according to the executive, Susan Chambers.

Chambers proposed changing eligibility requirements for health care insurance to allow more employees and dependents to enroll. To help pay for that and reduce benefit costs overall, Chambers also proposed a number of measures, including:

==Charging higher premiums for spousal coverage;

==Increasing educational efforts to help beneficiaries use more cost-effective care;

==Lowering life insurance coverage to a maximum $12,000 payout;

==Adding health care cost-control programs such as utilization review and case management;

==Offering a choice of alternative benefits packages such as discount cards and paid time off.

==Adding health clinics to stores, a move the company already had planned to offer customers, but which could also reduce emergency room use by Wal-Mart employees.

Two days before the memo came to light, Wal-Mart told employees it planned to switch them in January to a consumer-driven health plan.

The plan would carry an annual deductible of at least $1,000 for individuals and $2,000 for families, covered in part by a health care savings account, to which the employee would contribute tax-free.

Wal-Mart told employees it would also contribute to their HSAs.

The new plan would charge monthly premiums ranging from $25 for individuals to $65 for a family–40% to 60% less than what employees contribute to the company’s existing plan. Wal-Mart’s hope is that significantly more employees would sign up for the new plan.

Wal-Mart has 1.2 million workers, of whom around 568,000 belong to its current health care plan, paying biweekly from $17.50 for individual coverage to $70.50 for family coverage, according to company documents.

The new plan would offer three doctor visits to employees before they would have to pay the deductible, a feature that Wal-Mart says could encourage many to get preventive care.

Otherwise, the plan would carry a $25,000 cap, applicable only in the first year, and employees would pay up to $300 a year for prescriptions in addition to the deductible.

The key to overall benefits savings is to have most employees participate in the HSA plan, Chambers’ memo said.

“Otherwise, only the healthiest enroll, and there is very little cost reductions because healthy people spend so little on health care,” Chambers pointed out.

Paul Devore, chief executive of Financial Management Services Inc., Encino, Calif., sees Wal-Mart’s health care insurance changes as a way to take the edge off criticism by labor organizations and other groups that its health care insurance plan was out of reach for most employees.

“It’s a way to increase the number of people covered by medical insurance,” Devore says. “Now a single mother can have the insurance she needs. It’s not intended to replace the existing health insurance plan for core employees but to add benefits for those otherwise not able to be under that plan.”

Devore also sees Wal-Mart’s move as a sign “the whole movement to consumer-directed health care is beginning to take off.”

Because of their high deductibles, such plans push employees to make more decisions about their health care, he notes.

The proposed cutback in life insurance could add up to substantial savings for the retailer in aggregate, he says, even though the insurance cost per employee is modest.

Devore says his own company’s surveys of employers found the benefits employees care most about are medical insurance, vision care and dental.

“Interest in life insurance tends to be low,” he says.

But he expresses doubts about Wal-Mart’s proposed health care maximum payout of $25,000, even if it would apply only for one year.

“It seems like a high maximum, but it’s almost window dressing. If someone has small bills, they can handle it,” Devore says. “And a lot of Wal-Mart employees use government health care plans. But a $25,000 limit can lull someone into thinking they have good insurance. They’ll find $25,000 is nothing if someone gets sick. That’s really pretty bare.”

One Web site that has been critical of Wal-Mart’s health benefits says the new plan would “hurt workers more than it helps.”

Wal-Mart Watch, sponsored by labor unions and other activist groups, says HSAs “are aimed at saving money for the employer while threatening the care of low-income and less healthy workers.”

Chambers, Wal-Mart’s benefits manager, also proposed the company limit its contribution to the profit-sharing and 401(k) plan to 3% of wages rather than the current 4%. Doing so would bring the plan more in line with offerings of other retail chains “and would save Wal-Mart a substantial sum of money,” Chambers said.

Moreover, rather than contribute to employee 401(k) accounts with no strings attached, as it does now, Chambers suggested the company only match employee contributions up to the 3% limit.

Among her more surprising proposals was that the company redesign jobs to make them more physically demanding and “attract a healthier, more productive work force.”

For instance, she suggested the company offer educational benefits to appeal to students, generally a healthier work force.

The memo did not address the prospect such tactics might be considered illegal on the basis of age or disability bias.

Devon Herrick, a senior fellow with the National Center for Policy Analysis, Dallas, says, “it’s a great idea to make employees more active.”

While the proposals could “run off” less healthy job applicants, “it also gets the workers you already have to be more healthy,” Herrick observes.

As for high-deductible health plans, Herrick says the average Wal-Mart worker can’t afford “a Cadillac in their driveway any more than a Cadillac health plan. Not every worker can afford every level of benefit.”

A CDHP, he says, “is much better than nothing.”

At press time, Wal-Mart had not responded to a call seeking comment.