Adverse Selection at Wal-Mart

Wages for low-wage workers have been flat in recent years but health care costs have been increasing.  For a company like Wal-Mart, which pays many of its workers modest wages but does offer a reasonable health insurance plan, this is an invitation to adverse selection.  As the value of the wage component of the Wal-Mart benefit package has declined relative to the value of the health insurance component Wal-Mart has attracted more workers who want the job for the health benefits, i.e. sicker workers.  Reed Abelson writing in the NYTimes notes:

The Wal-Mart work force reflects a growing fear of many employers that the
people who work for them are increasingly at risk for health problems. Many of
Wal-Mart’s employees are obese, the company says, and a result is rapidly rising
numbers of cases of diabetes
or heart
disease. The prevalence of these diseases among Wal-Mart employees is
increasing much faster than the national average, it says.

"The low-income population generally is not as healthy and does not engage as
much in preventive care," said Diane Rowland, executive director of the Kaiser
Commission on Medicaid and the Uninsured. A risk that a company like Wal-Mart
faces, especially when it competes with smaller retailers that offer no
insurance at all, Ms. Rowland said, is attracting too many workers who want the
job primarily for the health coverage.

Wal-Mart’s health care costs are rising faster than their revenues.  Other companies are trying to shift some of the cost of health care onto their workers but Wal-Mart’s workers are already paying more than the national average so Wal-Mart may try to reverse adverse selection by adjusting their work and benefit package.  An internal memo suggests that:

…the company could require all jobs to include some
component of physical activity, like making cashiers gather shopping carts. It
also recommends redesigning and expanding benefits to appeal to a different type
of worker, someone more interested in buying a home, say, than in getting health
insurance.

Wal-Mart will probably be pilloried for this sort of thinking but you can hardly blame them when the workers are engaging in almost the identical actions in reverse.  The more fundamental problem is the tying of insurance to work, a problem for which I am afraid there no win-win solution.

Comments are open.

Addendum: Rey Lehmann offers excellent commentary.