There’s A Very Good Reason Wal-Mart Supports an Employer Mandate

Robert Book /

Recent press reports, including a front-page story in the Wall Street Journal, have 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.

Much ink has been spilled on the effect Wal-Mart has on small retailers. 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. 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 ERISA regulations, which exempts them from costly compliance with most state health insurance regulations.

Wal-Mart’s small competitors have neither of these advantages. Employers with less than 20 employees often pay more than twice as much per employee for the same coverage, and small employers must comply with sometimes-onerous state regulations.

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.

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

(UPDATE: It is not just that the employer mandate gives Wal-Mart an advantage over small retailers. It turns out that Target has lower health benefits costs than Wal-Mart. An employer mandate could reduce or perhaps even erase Target’s cost advantage.)