Walmart's New Promise: Always Low Benefits ... Always

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Walmart's New Promise: Always Low Benefits ... Always Starbucks, Costco, Whole Foods, Walmart. For years, these companies offered some of the very few modest-paying retail jobs at which part-time workers could hope to at least get access to affordable health insurance.

This list got shorter by one name last week: Walmart (WMT).

On Friday, the nation's largest employer (1.4 million workers and counting) announced it was rolling back is health benefits for part-time workers. These were benefits that Walmart expanded just a few years ago in response to criticism that by underpaying workers -- and refusing to provide them with access to health insurance -- the company effectively shifted much of its labor costs to the federal Medicaid program.

Under the new plan, Walmart will no longer provide health insurance for employees who work fewer than 24 hours per week. Those who work from 24 to 33 hours per week can still get coverage for themselves and their children -- but their spouses must now seek their insurance elsewhere.

Passing on Costs to Workers

Even those lucky few employees who get to keep their coverage aren't going to like the new plan very much. According to Walmart, spiking insurance costs (expected to rise as much as 40% for some plans in 2012) necessitate cutting costs for even those plans that remain in effect. So beginning in 2012, Walmart will slash its contribution to workers' health-care expense accounts by half.

Henceforth, Walmart will subsidize employee health-care costs by just $250 (and remember, that's $250 that has to last the entire year); benefits for family members will be cut to $500. Employees who've seen details of the plan say that in some cases, the deductible alone on Walmart's new plan (i.e. the amount that comes out of pocket before insurance even kicks in) could amount to 20% of a worker's annual pay.

Aside From That, Mrs. Lincoln, How Was the Play?

Pretty miserable news, right? Here, sit down and have a smoke. Take a moment to calm down.

No -- on second thought, don't. One new provision in Walmart's plan is that tobacco users are going to see their insurance premiums nearly double. (And in some cases, more than double.)

Still, it's not all bad news. The plan does include a grandfather clause. And no, that's not a jibe at Walmart's famously elderly greeters.

The plan "grandfathers in" employees who were working fewer than 24 hours per week before the change, so that they get to keep their benefits even after the changes take effect for new employees. (Just don't get any bright ideas about finding a better job elsewhere. You might get laid off -- and don't come crawling back to Walmart looking for a restoration of your benefits.)

Round Up the Usual Suspects

If I might gaze into my crystal ball for a moment, I suspect a lot of conservatives will rush to blame Obamacare for Walmart's move. Don't. The fact is, Walmart's amended health-care coverage will begin in 2012, but many of the most expensive provisions of President Obama's health care reform law -- requiring insurers to cover pre-existing conditions in children, for example -- don't go into effect until 2014.

Liberals -- don't go blaming greedy insurers, either. This isn't a profit-grab by the insurance industry. Fact is, while they fluctuate from year to year, operating profit margins at UnitedHealth Group (UNH) today are still right about where they were back in 2002 -- and net profit margins are about 10% lower. At WellPoint (WLP), operating profit margins are neck-and-neck with 2003 levels. If the insurers are using Obama's health care reform law as an excuse to rake in extra profits, they're certainly hiding it well.

So Who's Really to Blame?

If one had to identify a single culprit in Walmart's move ... it would be Walmart itself. Consider: As the Dow Jones Industrial Average surged higher, annual revenue at Walmart recently hit an all-time high.
Net profits, too. The company's net profit margin (3.9%) is at its highest level in more than a decade. To top it all off, earlier this month Wal-Mart confirmed to its shareholders that after two straight years of quarterly declines in year-over-year same-store sales, it began growing sales again at its stores last quarter.

In short, Wal-Mart is starting to look like it's finally got its act together. It's growing sales, expanding profit margins, and raking in bumper profits as a result. And now is the time it decides to squeeze the little guy for a bit more margin? Now it cuts benefits for the employees who helped engineer the turnaround?

Maybe this is just the populist in me talking, but it all seems a bit ill-timed, a bit greedy to me. It's almost enough to make you want to run off and Occupy Wall Street. Or at least ... occupy Bentonville.

Motley Fool contributor Rich Smith owns no shares of any companies named above. The Motley Fool owns shares of Wal-Mart Stores, Costco Wholesale, Starbucks, and UnitedHealth Group. Motley Fool newsletter services have recommended buying shares of WellPoint, Starbucks, UnitedHealth Group, Wal-Mart Stores, and Costco Wholesale, creating diagonal call positions in UnitedHealth Group and Wal-Mart Stores.


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