Pick Pocketing with an Invisible Hand; How Wal-Mart Uses the American Economy to Rob Healthcare Providers

By, Josh Koster

It’s ironic that the most medically advanced county in the world has a healthcare system doomed to fail. Malpractice lawsuits are at an all time high, and settlements are even higher. The baby boomers are growing older, and the burden of paying for their Social Security will fall on the shoulders of a comparative few. Meanwhile, nonprofit organizations are fast becoming martyrs as they are slowly crushed by the overwhelming social responsibility created and abandoned by an industry built to heal people Moreover, we cannot turn to socialism because socialist countries need a capitalist superpower to fund medical innovation. Thus, we are left without a tested solution. This project began as an attempt to fix all that.

I figured that Stella was a perfect medium to devise and assess a new healthcare structure that met everyone’s needs. Of course, the problem with our current system ended up being one of the few things bigger then the ego necessary to attack it, and within a few weeks I had chosen the much more modest task of trying to educate others.

It was a natural choice to model the burden generated by something as innocuous as the retail sector because its apparent irrelevance to healthcare often causes it to be overlooked. I choose to pick on Wal-Mart because as the largest private employer in the world, it is not only an industry leader in labor practices but also an effective microcosm of the larger problem infecting our entire service-based economy.

With only a cursory glance, Wal-Mart appears to be a model employer. It offers an average salary just below eight-fifty an hour and has a healthcare package available for employees who work less than forty-hours per week. The problem is they also only permit the majority of their employees to work thirty-two hours each week. This practice not only allows Wal-Mart to avoid paying overtime to someone who picks up an extra shift, but it also enables them to pass roughly half of their labor costs on to society. The logic goes something like this:

The average Wal-Mart employee makes eight-fifty an hour, thirty-two hours per week, for fifty-two weeks each year. This gives him an annual net income of 14144, which is fifteen hundred dollars below the 2004 poverty line for a family of three. Unfortunately, the average family size in that economic bracket is actually closer to four: 2.4 dependants for each 1.14 providers in a household of 3.54. Since these employees are eligible for government aid, the tax payers end up unwittingly subsidizing the Low Price Leader. Here’s where it gets bad. Most doctors will not treat Medicaid patients because the government does not pay enough money to cover their costs. Ergo, patients are forced to seek treatment at care centers with open door policies such as emergency rooms.

The current consensus in the healthcare industry is that at least forty percent of Medicaid treatment is unnecessarily rendered in such facilities for—at a minimum—ten times what it would cost elsewhere. According to the model (which generated less then 1% error on the figures which were verifiable) this leaves society paying 45% of the cost of employing a Wal-Mart associate when only the explicit and opportunity costs associated with healthcare are factored in.

Unfortunately, this problem is magnified by a good economy. Since Wal-Mart caters to a low income clientele, they are never short of customers. Good economic times widen the gap between rich and poor, while a weak economy only builds their customer base. Thus, the man-hours of labor needed for Wal-Mart to operate are unaffected by the unemployment rate. However, just as the last person picked for kickball is always the worst on the team, those still seeking work during a strong economy are markedly less efficient, causing Wal-Mart to hire more people into poverty to do the same amount of work.

So what are the solutions? What success has this model been? My first intuition would be corporate governance. However the problem is too deeply rooted in the structure of both our economy and our government for that to be effective. It would be like parachuting with an umbrella. It is possible, however, that this counterintuitive problem has an equally counterintuitive solution; subsidizing Wal-Mart directly would lower premiums and, in so doing, eliminate the opportunity costs associated with Medicaid. Though in the end, this model has taught me that I do not have an elegant solution to this problem, just a phenomenal teacher who helped me to appreciate its complexity. Thanks Jim.

Josh Koster may be contacted via email at: MysteriMachine@aol.com