Walmart (WMT), under pressure from Wall Street to improve its financial performance, today announced that it would end health care benefits to about 30,000 part-time workers who work less than 30 hours per week and will raise premiums for some of its other employees starting next year.
The Bentonville, Ark. -based company, which also is the largest U.S. private employer, follows similar decisions by rivals including Target (TGT), Home Depot (HD) Walgreen (WAG) and Trader Joe's to curtail benefits to some part-time workers. AON Hewitt consultants estimate that health care premiums are expected to rise 6 percent to 7 percent this year, up from the 2013 increase of 3.3 percent, which was the lowest in a decade. On a cost-per-employee basis, that equals $11,176, up 40 percent from $7,983 in 2008.
The company will provide assistance from third party HealthCompare to workers who will lose their health care coverage, which account for about 2 percent of its overall workforce. Walmart workers who will continue to be enrolled in the company's most popular plan will see their premiums increase in a pay period by $3.50 to $21.90 effective Jan. 1. Even at the higher costs, the retailer says the premium is still half the average price that other workers in the sector pay.
"Like every company, Walmart continues to face rising health care costs," writes Sally Welborn, Walmart's senior vice president of global benefits, in a blog post on the company's website. "This year, the expenses were significant and led us to make some tough decisions as we begin our annual enrollment."
Shares of Walmart, which have barely budged this year, rose 0.5 percent, or 0.4 percent or $77.39 in early afternoon trading.
Walmart Chief Executive Doug McMillon is under increasing pressure to improve the retailer's financial performance, which has disappointed Wall Street for a while.
In August, Walmart slashed its earnings outlook for the year and blamed rising health care costs as one of the culprits. Also, U.S. same-store sales at locations opened at least a year, a key retail metric measuring activity, have fallen for six straight quarters.
"It definitely should help with profits next year, but in the grand scheme of things that's not going to be enough to satisfy Wall Street," said Brian Yarbrough, an analyst with Edward Jones who rates the stock as a buy, in an interview. "They want to see positive same store sales in the U.S. of 1 to 2 percent on a consistent basis. ... They have lowered guidance for multiple quarters in a row."
Earlier this year, Walmart said it expected to pay an additional $500 million in health care expenses, greater than the $330 million increase it originally expected. This put Walmart in a bind that the company said it needed to address.
"We tried to put this off as long as possible," said Brooke Buchanan, a spokeswoman for the retailer, in an interview with MoneyWatch.
Nancy Reynolds, a member of OUR Walmart, a union-backed group that advocates for Walmart workers, said in a statement, "Walmart associates are constantly trying to do more with less, and our families are paying the price. ... Taking away access to healthcare, even though many of my co-workers couldn't afford it anyway, is just another example of Walmart manipulating the system to keep workers like me in a state of financial crisis."
Critics of Walmart have long argued that the company's health benefits are inadequate and that high numbers of recipients of public assistance work for the retailer. Walmart rejects this criticism, and notes that its employees pay about 32 percent less in out-of-pocket expenses than other retail employees, and 25 percent less than workers at other companies.
"We are proud of the coverage that we provide to our associates," Buchanan said.