Shed the unhealthy, Wal-Mart memo says

Plans to save on health care at the largest private employer are leaked.

Published October 27, 2005

Wal-Mart Stores Inc. silenced many critics this week by reducing the cost of health insurance so more of its low-income employees can afford coverage. Now an internal memo sent to the company's board of directors has surfaced that outlines in blunt terms how the discount store giant may pay for it while still cutting costs.

Under discussion are strategies to woo more younger workers less likely to run up big medical bills, ease out veterans more likely to need more health care and add physical tasks such as cart-gathering to cashier job descriptions to weed out the sedentary.

"It will be far easier to attract and retain a healthier work force than it will be to change behavior in an existing one," the once confidential memo reads. "These moves would also dissuade unhealthy people from coming to work at Wal-Mart."

The ideas suggest that Wal-Mart, which has recruited and retained an older work force than its competitors since the days of Sam Walton, is thinking about developing a work force more like Target's.

With 1.3-million workers, Wal-Mart is the nation's biggest private employer. It's also the largest in Florida with a payroll of 92,000 people. In the Tampa Bay area, 71 percent of all adult shoppers bought something in a Wal-Mart store in the past 30 days and 30 percent shopped at Sam's Club, according to the 2003 Scarborough Report.

The memo concludes that Wal-Mart workers with seven years on the job are no more productive than those in their second year despite costing far more ($19.52 versus $12.36 in pay and benefits an hour) to employ. Recommendations include passing out discount coupons to workers to buy healthier food, and putting clinics staffed by physicians in stores for shopper convenience - and to keep employees from taking as much time off from work to see a doctor.

Written by Wal-Mart's executive vice president for benefits, the 27-page memo summarizes a broad study taken to the board of how the world's largest retailer can rein in its health care bill that soared 19 percent to $1.5-billion in 2004. But the memo also discusses how making its health coverage more accessible and affordable to more low wage, part-time employees will repair a public reputation that has been attacked by organized labor, some politicians and other critics. Critics single out Wal-Mart as the biggest private employer of workers who still need government-financed welfare in the form of Medicaid. One of the main reasons: those who do opt for Wal-Mart health coverage are confronted with a $2,000 deductible.

As a result, 19 percent of Wal-Mart workers have no health insurance compared with 10 percent of all workers. The memo confirms that 27 percent of Wal-Mart workers' children nationally rely on Medicaid for health care, compared with 22 percent of all workers nationally.

Wal-Mart's employee benefits drew mixed reactions from shoppers Tuesday who nonetheless said they will keep shopping there if prices remain cheap.

"I feel people know what the benefits are and aren't when they go to work. If they are not happy with the benefits, they can find another place to work," said Gerald Brauer, a 73-year-old Seminole Wal-Mart fan who has seen little turnover or unhappy workers at a St. Petersburg store where he shops.

Amber Perrigo, 48, of St. Petersburg cautioned the company, which had earnings of $10-billion in 2004, should do better by its workers.

"Like they don't make enough money, Wal-Mart and Sam's Club?" she said.

While the memo reflects the benefit issues discussions that are echoing around the boardrooms of most big corporations, this one offers a candid, behind-the-scenes look at the decisionmaking backed by studies, employee surveys and steering from the gurus at McKinsey & Co., the management consulting firm.

Susan Chambers, the Wal-Mart benefits executive who wrote the memo, said the focus was to better serve employees, not cut costs.

"We are investing in our benefits that will take even better care of our associates," she told the New York Times, which broke the story. "Our benefit plan is known today as being generous. This is about redirecting savings to another part of their benefit plans."

Her memo, which outlines $1-billion in projected benefit expense cuts, was obtained in the mail anonymously and distributed to the press by Wal-Mart Watch. The union-backed coalition has taken on the retailing giant as it tries to penetrate major union retailing markets in California and the Northeast.

The memo was released as Wal-Mart's top brass this week was in the middle of an annual three-day presentation to securities analysts and business reporters at its headquarters in Bentonville, Ark. The company used the forum to unveil several un-Wal-Mart-like initiatives, including pressuring Congress to increase the minimum wage, tackling an ambitious program to conserve energy and launching an effort to shift away from petroleum-based packaging materials. The centerpiece, however, was Monday's announcement that Wal-Mart will cut health insurance premiums and may reduce deductibles by half while making coverage available to more of the company's army of part-time workers.

While many retailing experts had called the health insurance changes a PR coup, the release of Chambers' memo outlined the ugly flip side.

"Wal-Mart's CEO had the gall to come and spin Wal-Mart as a company changing," said Paul Blank, director of the Wake-Up Wal-Mart campaign. "It is simply appalling that Wal-Mart's senior management would write a memo suggesting not to hire certain workers because they may be unhealthy or obese."

In Tampa, the memo also struck a familiar chord at the Wal-Mart Workers Association, a union-backed group that has been advising dissident Wal-Mart workers. Many veteran Wal-Mart employees locally have complained that a new scheduling policy effort has forced them to quit or take cuts in pay if they cannot make themselves available to irregular shifts at different times of the day. Wal-Mart said there was no change in policy, only a new emphasis on enforcing it.

"The bottom line is there has been a tremendous shift as veteran full-time workers are being forced to choose between part-time status or not working at all at Wal-Mart," said Rick Smith, director of the workers association. "It's forced a lot of turnover. This damning memo confirms what we've been hearing."

Staff writer Sharon L. Bond contributed to this report. Mark Albright can be reached at albright@sptimes.com or 727 893-8252.