Wal-Mart's benefits come under fire

Wal-Mart's benefits come under fire
Janet Adamy, CONTRA COSTA TIMES, Oct. 19, 2003

When Pamela Robasciotti was a cosmetics department manager at Wal-Mart, she had to borrow money from her boyfriend or parents to pay for the $25 inhalers she uses to control asthma attacks.

On a wage of $9.27 per hour, every expense stretched her pocketbook. But the prescription cost seemed particularly unfair. Robasciotti already paid about $130 per month for Blue Cross HMO health care coverage.

"They take $130 a month out ... plus the pay wasn't really good," said Robasciotti, a 45-year-old Gilroy resident who worked in the town's Wal-Mart for more than six years. "I just got tired of it."

Robasciotti illustrates Wal-Mart Stores Inc.'s tough approach to benefits, an approach that has its employees paying more for health-care than most workers across the country, including their peers at other large retailers. It's a key part of the Wal-Mart cost-cutting model that has helped the retailer grow into the largest company -- and employer -- in the world.

But Wal-Mart's health insurance strategy is acquiring a growing number of critics. A San Jose assemblywoman claims health benefits are so unaffordable that workers instead sign up for government health care at the urging of the retailer. And perhaps the most visable opponents are the 70,000 striking Southern California grocery workers, who blame the retail giant for forcing their traditional grocery employers to phase out one of the best health benefits packages in the retail industry.

A new law could drastically change Wal-Mart's strategy in California. The retailer will have to pay for a greater chunk of health care premiums under the sweeping health insurance expansion bill that Gov. Gray Davis signed earlier this month. The cost could prompt Wal-Mart to scale back its ambitious growth plans in the Golden State, curb hiring at existing stores or automate jobs, industry observers say.

"Wal-Mart picks its battles strategically," said Gary Giblen, director of research at C.L. King & Associates, a New York investment research firm. "They're going to focus less on an area where they're competing less advantageously."

Research shows that Wal-Mart spends less money on health care coverage than retailers and non-competitors. Wal-Mart spent an average of $3,500 per worker for health benefits in 2002. That's compared with $5,646 per worker for all employers and $4,834 per worker in the wholesale and retail industries, according to Mercer Human Resource Consulting.

Nearly 80 percent of Wal-Mart workers in California have coverage through an HMO. On average, they pay $106 per month for the insurance premium.

That relatively high cost becomes even more expensive considering that Wal-Mart's hourly wage is at the low end of the industry. Wal-Mart will not give exact wage figures, but workers at Bay Area stores say the starting salary ranges from about $8 to $8.25 per hour, although it can go higher if a worker has special skills or experience. By comparison, the lowest paying job at Safeway, Albertson's and other unionized traditional grocer chains starts at $8.39, and Costco starts workers at about $10 per hour. Most importantly, workers at those stores move up the pay scale more quickly than Wal-Mart employees.

Wal-Mart officials say it's unfair to compare Safeway Inc. and Albertson's Inc. store workers to Wal-Mart workers ("associates" in Wal-Mart's parlance) because the retail giant isn't a direct competitor with the traditional grocers. But the only significant difference in the work forces is that Safeway and Albertson's workers are members of the United Food and Commercial Workers, which gives them more leverage to maintain their pay and benefits.

Unionized California grocery stores cover the entire cost of health care premiums for all store workers. These employees pay a $10 co-pay to see a doctor. Branded prescriptions cost them $6; generics cost $3. On top of the $106-per-month premium fee that the average Wal-Mart worker contributes, they also pay $15 for doctor visits, $5 for generic drugs and as much as $25 for branded prescriptions. Wal-Mart has been successful in keeping unions out of all its stores.

At Costco, which is partially unionized, workers pay for 8 percent of their total health care costs, while Wal-Mart store workers chip in about one-third of the cost. A new full-time Costco worker can sign up for benefits in half the time that a comparable Wal-Mart worker can. For part-time workers, Costco employees get their benefits in one-fourth the time.

Wal-Mart does offer health insurance with a monthly premium as low as $26 per month for an individual plan. But under that coverage, the worker pays up to $1,000 per year before the plan starts paying for part of any medical charges.

"Our argument is that our coverage is intentionally planned for those kinds of catastrophic issues," said Bob McAdam, Wal-Mart's vice president of government relations.

Wal-Mart officials say that although their health benefits package may not be as good as some competitors, they do offer a profit-sharing plan, a company-funded 401(k) and ample opportunities for advancement.

More than half of store workers in California subscribe to Wal-Mart's health benefits. McAdam said 40 percent get benefits from other sources including parents or spouses.

But Assemblywoman Sally Lieber, D-San Jose, has a different theory on how those workers are getting their health costs covered. In July, Lieber unveiled Wal-Mart employee hand-outs telling workers how to use an employment verification service when applying for social services like Medicaid, food stamps and temporary assistance to needy families. Lieber called it proof that the retailer is asking the state and federal government to make up for what she calls "poverty" level wages and thin benefits.

"We have been in the worst budget crisis that California has faced since the Great Depression," Lieber said. "In that context, we can't keep large, wealthy corporations on the dole."

The pages in the worker information hand-out explain how to use the Work Number, an employment verification service. If a worker wants to rent an apartment or borrow money, the landlord or lender uses the service to check that the person indeed works at Wal-Mart.

Wal-Mart spells out that workers can use the same service to apply for government assistance. One part of the handout details how a social service caseworker can verify an employee's income and work status to determine whether they'd qualify for assistance.

Lieber said she is working on legislation that would require Wal-Mart to reimburse the state for allegedly providing health care and public assistance to its workers. But so far, there's no evidence this is actually happening.

Lieber has not documented any cases of Wal-Mart workers leaning on social services because of insufficient pay or health benefits. In nearly a dozen Times interviews with current and former Northern California Wal-Mart store workers, only one provided examples of workers using a social service. But that alleged use of food stamps could not be proven.

And whether telling workers how to apply for social services constitutes encouragement is a matter of interpretation. Wal-Mart's McAdam called Lieber's allegation categorically false.

"The fact that it contains that particular reference does not mean we are encouraging them to do that," McAdam said.

Regardless of whether Lieber's allegations have merit, industry experts say it's clear that Wal-Mart workers are squeezed by the pay and cost of health benefits. Former Lafayette resident Martin Levitt consulted with Wal-Mart in the 1970s to help it prevent unions from forming. He later switched sides and now serves as a labor adviser in Las Vegas.

Health insurance is "not a provided benefit," Levitt said. "It's so expensive that the vast majority of Wal-Mart and Sam's Club employees can't afford it." When faced with criticism of its policies, the retailer justified them by saying it was providing jobs, Levitt said.

Wal-Mart's hard-line stance on benefits costs are a key part of its financial success. Industry experts say that labor costs account for two-thirds of a grocer's overall costs. Mark Husson, a food and drug analyst for Merrill Lynch Global Securities, called Wal-Mart's low worker costs its main competitive advantage.

"Wal-Mart is soon going to be the lowest common denominator in the food business, and everyone has to move towards that level," Husson said.

That's already starting to happen. Two years ago, Northern California members of the United Food and Commercial Workers saw their doctor visit and branded prescription drug co-pays double when they renewed their contract with Safeway and Albertson's. UFCW grocery workers went on strike in Southern California because three major grocery chains wanted to shift $1 billion in health-care costs to workers, according to the union. Safeway, Albertson's and Kroger Co. want workers to start paying $5 to $15 per week for insurance that was once free for them.

Many companies are starting to pass health-care costs onto workers because of the soaring price of health insurance. But California grocers are clearly shifting the costs in reaction to Wal-Mart. The retail giant has plans to open 40 supercenters selling fresh groceries in California over the next several years.

The new health-care law could take away part of Wal-Mart's labor cost advantage. SB2 would expand health care to more than 1 million working Californians by requiring companies with 50 workers or more to offer insurance or pay into a state fund that provides it.

Although the bill was aimed at small companies, it impacts Wal-Mart because it requires employers to pay for 80 percent of health-care costs. Right now, Wal-Mart covers about two-thirds of those costs. The measure also requires Wal-Mart to cut about 90 days off its benefits qualifying period for full-time workers and about one year and nine months off for part-time workers.

Wal-Mart said it could not estimate how much the changes would cost the company in California, where it employs 53,000 workers. But industry experts say that they could be significant enough to shift the company's California strategy.

"It could make a big difference in the degree that they expand in California," said Giblen, the supermarket analyst. The retailer could try to get around the cost by hiring fewer workers, having existing employees work more hours, and using machines instead of people for some jobs, he said.

The California Chamber of Commerce lobbied fiercely against the bill, arguing it would kill jobs in the Golden State.

"It imposes a new multibillion-dollar mandate for doing business in the state of California," said Richard Costigan, vice president of governmental relations for the chamber. "It imposes something on Wal-Mart and any other company that's not required in the 49 other states."

But Wal-Mart's McAdam said the law won't deter its interest in growing in California. It's also unclear whether Wal-Mart would be subjected to the measure. Opponents of the law are investigating whether federal laws would exempt Wal-Mart from the mandate because it operates across the country and insures itself. The law doesn't take effect until 2006.

Although politicians have put Wal-Mart's health benefits in the spotlight, local workers say the insurance is not a big topic of conversation at their stores. Plenty of workers say they consider the health costs fair and the coverage ample.

One sales associates said she thinks the $50 per month she pays for her PacifiCare health plan is completely reasonable. After six years working in an East Bay Wal-Mart store, the worker earns $11.25 per hour. The worker did not wish to be identified because Wal-Mart employees are not allowed to speak with the media without corporate authorization.

She said she was not aware of workers opting out of benefits because they're too expensive or leaning on social services.

"Why are people saying that they're outrageous? Because they're not," the worker said. "They're really not."

Robasciotti, the former Wal-Mart employee, now has a measure of comparison. Two years ago she left her Wal-Mart management job to work in a Safeway deli department in Morgan Hill. She moved up to become a manager at the in-store Starbucks, earns $13.50 and pays nothing for her benefits. Now Robasciotti is trying to encourage Wal-Mart workers to form a union of their own.

"It's just changed everything," said Robasciotti. "My dad tells me, 'You should have done this seven years ago.'"