Reference no: EM132224289
Questions: In the case “Heath Benefits at Walmart,” Walmart struggled to provide affordable healthcare insurance for its employees, given the high cost of this coverage. Has Walmart fulfilled its obligation to its employees? Please build two ethical arguments, one asserting that Walmart has fulfilled its obligation, and another stating that it has not. How might Kant argue that this case is unethical? How might a utilitarian argue that this case is unethical? What might a follower of virtue ethics say about this case?
Case: Walmart, the world’s largest private employer with 1.3 million store workers or “associates,” has long been criticized for its low level of health benefits. Conditions at Walmart: Walmart reported in 2005 that only 43 percent of its associates received company-sponsored health insurance. Approximately 27 percent of its workforce had not been employed long enough to be eligible for health benefits, although many would eventually qualify. Of the remaining 73 percent who were eligible, only 60 percent chose to enroll in Walmart’s health insurance plan. Some of those not enrolled had health insurance from a spouse or parent, a previous job, the military, or some other source. Walmart estimated that in 2005, 75 percent of its associates had health insurance of some kind, but that the remaining 25 percent were completely uninsured. The lack of health insurance extended to the children of Walmart associates. Among these dependents, 27 percent relied on government-funded health care (Medicaid and the State Children’s Health Insurance Program), and 19 percent of associates’ children had no health care benefits at all. Prior to 2006, only full-time associates could obtain coverage for children. In total, only 54 percent of the children of Walmart associates were enrolled in a Walmart health insurance plan. Medicaid was the principal source of health care payments for 4 percent of Walmart associates (compared with 5% of workers nationally). When adult workers and their children rely on government programs and hospital emergency rooms, the cost of health care is transferred from employers to taxpayers. The criticism of Walmart focused on not only the numbers covered by health insurance but also the cost of insurance to employees, which deterred many associates from enrolling. Walmart offered several health insurance plans with different premium costs and levels of coverage. However, on average, associates with Walmart health insurance spent 8 percent of their income on health care, including premiums, deductibles, and out-of-pocket expenses. This figure is nearly double the national average. Associates with coverage for a spouse spent, on average, 13 percent of their income for health care. In 2005, Walmart sought to make insurance more affordable by introducing a Value Plan, with premiums as low as $11 a month. The $11 premium was available in only a few states, however. • For most workers the costs were, on average, $25 for an individual, $37 for a single parent, and $65 for a family. • The plan had a deductible of $1,000, although three doctor visits were allowed before the deductible was applied. • In addition, the insured were required to pay $300 out of pocket for drugs and $1,000 for a hospital stay before insurance took over payment for these items. Thus, in a year, a family paying $780 for insurance might have to pay $2,300 in deductibles and out-of-pocket expenses. Critics questioned the value of the Value Plan for Walmart associates, most of whom earn less than $20,000 annually. Obstacles for Walmart: Walmart and other retail employers face a number of obstacles to providing health benefits. • First, in 2005, approximately 20 percent of the company’s workforce consisted of part-time workers, and many others were new hires. Generally, the health benefits costs are the same whether a worker is full- or parttime. This factor increases the total cost to employers with a large percentage of part-time workers, if they are offered health benefits. • Second, worker turnover, which is typical in retail, increases the number of workers employed over the course of a year. Enrolling workers who leave after a short period of enrollment imposes an administrative burden on employers and provides little benefit for employees. Most employers deal with this problem by imposing waiting periods before workers can enroll in a health insurance plan. At Walmart, full-time employees were eligible after six months of employment, and part-time employees, after two years. However, the longer the waiting period is, the larger will be the number of uninsured workers. • Third, the design of the health insurance plan affects the number of workers who enroll. Plans that cover most costs with few deductibles and co-pays require large premiums, which tend to discourage low-wage workers from enrolling. Low premiums boost enrollment by low-wage workers but may create financial hardship when serious illness or injury leads to considerable out-of-pocket expenses. Consequently, Walmart and other retailers who want to maximize the enrollment percentage must consider such questions as whether to offer health insurance for part-time employees, how long to make the waiting periods for fulland part-time workers, and what trade-offs to make between the cost of premiums on the one hand and the amount of deductibles and co-pays on the other. Generally, the trade-offs will be different for industries with a lowwage, heavily part-time workforce than for those with highly paid full-time employees. Because the retail industry employs a workforce with different characteristics than many other industries, the question also arises whether the health benefits offered by Walmart should be compared with its other retail competitors or with all employers. Critics generally cite figures from all industries, while Walmart and other retailers contend that they should be compared only with each other. For example, the 60 percent of eligible associates who participate in the Walmart health insurance plan is only slightly below the 63 percent figure for all retailers, but significantly below the 83 percent national average. And the 73 percent of associates who were eligible for health insurance in 2005 is less than other large employers (79%) but well above the 61 percent average in the retail industry. The cost of health benefits at Walmart, as at most companies, is substantial and increasing. In 2005, Walmart spent $1.5 billion on health insurance, which is $2,660 per insured associate. From 2002 to 2005, this cost rose 19 percent each year. This increase was due not only to rising health care costs but also to greater utilization of health care services by associates, which was increasing at a rate of 10 percent per year. Among the factors contributing to this increase in utilitzation were that the Walmart workforce was aging faster than the general population and was becoming less healthy, due mainly to diseases related to obesity. In addition, Walmart associates tended to utilize health care inefficiently, in part by skimping on preventive medicine and relying too much on emergency rooms and hospital services. Compounding these problems was the fact that the least healthy associates were more satisfied with their benefits and more inclined to stay with the company. Walmart’s Response: The challenge facing Walmart in 2005 was twofold: to reduce the rate of increase in health benefits and to spend the money available in the best way. This task fell to Walmart’s vice-president for benefits, M. Susan Chambers, who produced a confidential memo with a number of controversial proposals. The memo proposed that the waiting time for part-time employees to be eligible for health insurance be reduced from two years to one and that the waiting time for all new employees be changed from a fixed period of time to the number of hours worked. Another proposal was to assist new employees in finding private health insurance until they were eligible for the company’s plan. The problem of inefficient utilization of health care services was addressed by proposals to educate associates about health care and health insurance and to avoid emergency room visits by putting health clinics in stores. The memo also proposed to cut costs by reducing enrollment of spouses, hiring more part-time workers, and discouraging unhealthy people from working at Walmart. The percentage of workers enrolled in the company’s health insurance plan would not be affected if spouse coverage—which is an expensive option—were made less attractive. Increasing the percentage of part-time workers would decrease the enrollment in the company’s health insurance plan. Additional cost savings would be realized if already insured full-time associates worked longer hours, since this would reduce the total number of full-time associates required. Workers in poor health could be discouraged from applying for a job or, once hired, from remaining at Walmart if some moderate physical activity were incorporated into all jobs. For example, ordinarily sedentary checkout clerks might also be required to gather shopping carts in the parking lot. The memo observed, “It will be far easier to attract and retain a healthier work force than it would be to change behavior in an existing one.” In April 2006, Susan Chambers was replaced as vice president for benefits, and her successor was told by Walmart CEO H. Lee Scott, Jr., “We need you to go make a difference in health care.” The eligibility waiting period for part-time workers was reduced to one year, and for 2008, associates could choose from a broad range of more affordable plans to suit many different needs. Walmart claimed at the beginning of 2008 that the percentage of eligible employees enrolled in a company plan was 50.2 percent and that 92.7 percent of its eligible associates were covered by some form of health insurance. Walmart announced a study of why 7.3 percent of eligible associates declined to enroll. Critics complained that the company’s health insurance was still too expensive for low-wage workers. However, Walmart’s health benefits were now more generous than most of its competitors in the retail industry, though they continued to lag behind the health insurance offered by most major American employers.