NCPA - National Center for Policy Analysis


July 6, 2009

Recent press reports, including a front-page story in the Wall Street Journal, announced the news that Wal-Mart has signed a letter to President Obama endorsing the idea of an "employer mandate" -- a requirement that employers offer health insurance to their employees.  Why would Wal-Mart -- the nation's largest employer -- endorse such an idea?  Simple: It would cripple many of their competitors, says Robert Book, a health economist with the Heritage Foundation.

Wal-Mart's large size enables them to extract low prices from manufacturers, and that - combined with efficient, computerized inventory operations enables them to undercut - and sometimes drive out of business -- small "mom-and-pop" retailers.  An employer mandate to provide health insurance would enhance Wal-Mart's cost advantage, says Book: 

  • Wal-Mart has 1.4 million U.S. employees and can negotiate a health insurance contract for them all at once.
  • As a large multi-state employer, they can self-insure and provide coverage under federal regulations contained in the Employee Retirement Income Security Act of 1974.
  • Self-insurance exempts Wal-Mart from costly compliance with most state health insurance regulations.
  • Wal-Mart's small competitors that have less than 20 employees often pay more than twice as much per employee for the same insurance coverage, and small employers must comply with sometimes-onerous state regulations.

Ultimately, the employer mandate would impose much higher costs per employee on small retailers than it would on Wal-Mart.  They would have to charge higher prices to compensate, which would put them at a substantial competitive disadvantage.  Many of these small retailers would be forced out of business, says Book.

Supporting the employer mandate is just another way large business can harness the forces of government to hobble their smaller competitors, explains Book.

Source: Robert Book, "There's A Very Good Reason Wal-Mart Supports an Employer Mandate," Heritage Foundation, July 1, 2009.

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