California Bill Takes Aim at Walmart’s Billion-Dollar Benefits Subsidy

Alamy We’ve written recently about the controversy surrounding U.S. megabanks and the subsidies they receive from the federal government because of their perceived status as too big to fail. But Wall Street firms are far from the only private enterprises on the dole: Walmart (WMT), one of the world’s most valuable companies, costs U.S. taxpayers thousands of dollars per American employee annually, according to a report by the Democratic staff of the House Committee on Education and the Workforce.

Now, the nation’s most populous state is trying to stop Walmart from sticking the public with part of the bill for its employees’ health care. As Rick Ungar of Forbes reports:

Legislation is now making its way through the California legislature — with the support of consumer groups, unions and, interestingly, physicians — that would levy a fine of up to $6,000 on employers like Wal-Mart for every full-time employee that ends up on the state’s Medi-Cal program — the California incarnation of Medicaid.

Ungar says the bill “has a very good chance of becoming law,” since Democrats have supermajorities in both houses of the state legislature. (In order to pass in California, the proposed legislation needs a two-thirds vote in the Senate and the Assembly.)

The attempt to rein in corporate capitalization on state assistance to the working poor comes as the Affordable Care Act is set to expand Medicaid eligibility in 30-odd states. According to Ungar, “Walmart has responded by cutting employee hours — and thereby wages — even further in order to push more of their workers into state Medicaid programs and increase Wal-Mart profits.” He points out that federal law penalizes companies that employ more than 50 people without providing health care coverage to those who work more than 30 hours a week; also docked, up to $3,000, are companies whose workers purchase their own health insurance on an exchange using government subsidies.

But, curiously, the federal government takes no financial action against a company when its workers become eligible for Medicaid. Or maybe, Ungar notes, that isn’t so curious:

“Think that this ‘oversight’ had anything to do with Wal-Mart’s early support of the Affordable Care Act?”

As the nation’s largest private employer, Walmart’s backing was important to the controversial legislation’s fortunes. And the law wound up containing a loophole that lets big companies tilt their hourly workers onto the Medicaid rolls with no penalty.

To calculate the $5,815 per employee subsidy figure, the Democratic staffers looked at numbers from Wisconsin’s Medicaid program, which reports enrollment by employer. As of the end of 2012, Walmart had the most workers on BadgerCare+: 3,216 employees. And people on the state’s Medicaid program receive other forms of government help as well: food stamps, childcare subsidies, housing assistance, and so on. It all adds up to an annual cost to the public of $904,542 for one Walmart Supercenter in Wisconsin. That figure doesn’t include employees who are eligible for BadgerCare+ but do not enroll, though they do use other public assistance programs, so the cost of one 300-employee store could be as high as $1,744,590 per year.

The authors acknowledge that “extrapolating taxpayer costs for Wal-Mart stores in other states based on the Wisconsin data is difficult”: The state has a significantly lower-than-average poverty rate, but its Medicaid eligibility standards are more inclusive than others’. And a Walmart spokesman made this very objection to CNNMoney, saying “the report uses data from a single state to overgeneralize.”

But while the amount of the subsidy may vary among states, its existence isn’t in doubt. According to The LA Times,

In 2004, UC Berkeley issued a report that found Wal-Mart workers’ dependence on public programs in California, such as Medi-Cal and food stamps, cost taxpayers about $86 million annually. Nationwide, it estimated, the cost of public assistance to Wal-Mart workers could be as much as $2 billion annually.

And that’s poised to get larger as the safety net expands under Obamacare. As more states push back with legislation like California’s, companies are responding with accusations of job-killing. But it’s certainly possible to run a profitable retail business that offers better benefits. As The LA Times notes, Costco (COST) provides health insurance to 88 percent of its workers, and guarantees enough hours to qualify for benefits to any employee who wants them — unlike Walmart, which says it covers more than half of its 1.4 million workers. It has even been argued that low wages, thought by many to be an engine of profit, are in fact costing Walmart “a fortune.”

What seems clear is that “always low prices” carry costs unseen on your receipt.

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