by the numbers: the “wal-mart law”

the day before governor o’malley’s inauguration, the fourth circuit struck down the “fair share act,” which would have forced all employers with 10,000 or more maryland employees to spend at least 8% of their payroll on health insurance.

the act is also known, affectionately, as the “wal-mart law,” because its namesake comprises one-half of the companies it covers (which – if you didn’t catch that – number all of two). that, and everyone hates wal-mart.

our new governor has taken up a firm “waffle” position, his spokesman going only so far as to say, “we continue to believe that fairness is critical to making health care more affordable.” attorney general doug gansler has until april to appeal the decision, and my bet is that he’ll ride it for all its worth.

the act’s momentum owes itself to the popular sentiment that wal-mart is in some sense “at fault” for swelling medicaid rolls, because it “forces” employees onto subsidized health insurance, foisting insurance costs onto taxpayers.

but consider this: if our legislature suddenly decided to give everyone $100,000 a year, would you really blame employers for cutting salaries across the board? of course you wouldn’t – but that’s precisely what’s happening, here. our government is giving away health care, and yet it’s somehow the employer’s fault for not buying something that’s free.

you have to understand that benefits like health insurance are just a slice of the compensation pie that employees could cash out, if given the option. let’s say wal-mart is willing to pay someone $20,000 annually. it would then be equally willing to foot the bill for $5,000 of insurance and pay $15,000 in cash. but when paying that much for insurance, it would be crazy to pay anything more than $15,000 in cash, since that would bust the $20,000 cap. wal-mart’s only decision is how to divide the $20,000 pie, and if it can get a good deal on insurance, it will offer it because it can cut labor costs and increase profits.

the underlying problem at work, here, is that medicaid is a good deal, even when a better healthcare plan is available. let’s say wal-mart offers a plan worth $5,000, whereas medicaid is only worth $3,000. the employee will nevertheless want to take medicaid’s $3,000 and pocket the $5,000 in healthcare “savings.” and since the cost is no longer coming out of wal-mart’s pocket, it can pay out the full $20,000, bringing the employee’s total compensation to $23,000 of cash plus medicaid, rather than the $20,000 salary that includes private healthcare. the same holds true even if the group policy has cheaper rates – which it probably would – simply because it has rates, whereas medicaid is always free.

things work the same way when we zoom out. wal-mart may be willing to spend $1 million on payroll for all employees, who will then receive $150,000 in medicaid. all the “fair share act” would do – by forcing healthcare spending up to 8% – is reduce wages to $926,000 and benefits to $74,000. and even if there is a minimum wage, the act would just cause wal-mart to switch away from investments in labor, to investments that replace labor with robots.

leaving its employees on medicaid is just wal-mart doing what it does best – finding a cheaper product and passing on the savings.

so what’s really great about the “fair share act” is that it actually makes poor people poorer, by putting tax dollars back in your pockets and forcing them to buy health insurance they don’t want.

who saw that one coming?