California bill would fine big firms whose workers get Medi-Cal

Legislation proposed in California would fine large employers such as Wal-Mart if workers wind up on Medi-Cal.
(Jae C. Hong/ Associated Press)

For years, politicians and labor unions have pilloried Wal-Mart and other large employers for paying workers so little that many qualify for government health insurance at taxpayers’ expense.

Now critics fear the public will get stuck with an even bigger tab as California and other states expand Medicaid as part of the federal healthcare law. That has California lawmakers taking aim at the world’s largest retailer and other big firms.

Legislators, backed by unions, consumer groups and doctors, are calling for fines that could reach about $6,000 per full-time employee who ends up on Medi-Cal, the state Medicaid program for the poor and others. They say this would eliminate a loophole in the Affordable Care Act that encourages large retailers and restaurant chains to dump hourly workers onto the government dole because there’s currently no penalty for doing so.


The outcome of this California battle could have national implications as other cash-strapped states search for ways to shore up safety-net programs that are bound to be stretched by a massive healthcare expansion.

“There are concerns that employers will be gaming this new system and taking less and less responsibility for their workers,” said Sonya Schwartz, program director at the National Academy for State Health Policy. “This may make employers think twice.”

The state proposal has already cleared key legislative committees. The next hurdle is getting approval from a two-thirds majority of lawmakers in Sacramento.

With the idea gaining momentum, retailers and business groups are pushing back. They say California’s move would set a dangerous precedent and result in fewer jobs at a time when many people are still struggling to find work.

“It’s one of the worst job-killer bills I’ve seen in my 20 years in Sacramento, and that says a lot,” said Bill Dombrowski, chief executive of the California Retailers Assn. “The unions are fixated on Wal-Mart, but that’s not the issue here. It’s a monster project to implement the Affordable Care Act, and having this thrown on top is not helpful.”

It’s estimated that an additional 130,000 workers from large firms will go on Medi-Cal in the next few years, part of nearly 1 million Californians overall who are expected to become eligible and enroll in the government program. Already, about 250,000 people from bigger companies receive Medi-Cal, research from UC Berkeley and UCLA shows, and about 44% of them work in retail or restaurants.

Beyond Wal-Mart Stores Inc., the proposed penalties could touch nearly 1,800 companies in California that employ more than 500 workers each, ranging from farms to major restaurant chains. Those firms would face fines based on 110% of the average cost of health insurance for every employee who is enrolled in Medi-Cal and works more than eight hours a week.

The average annual premium for employee-only coverage was $5,615 in the U.S. last year, according to the Kaiser Family Foundation. The fines would be adjusted based on how many hours an employee works.

The bill calls for the employer fines to be used by Medi-Cal to boost payments for doctors and hospitals treating the poorest patients. That helped win the backing of the California Medical Assn., which says taking on these patients is difficult because the state has one of the lowest Medicaid reimbursement rates in the nation.

The federal law imposes a separate penalty if large employers don’t offer health insurance to employees who work more than 30 hours a week on average. In response, a growing number of employers are cutting some workers’ hours to keep them under that threshold and avoid the expense of providing coverage.

Under the federal law, if those workers qualify for subsidies and buy their own coverage in government-run exchanges, the fines on employers can reach $3,000 per worker. But there’s no federal penalty if a company’s workers become eligible for Medicaid.

California and about 30 other states are looking to expand Medicaid eligibility to 138% of the federal poverty level. That would cover individuals earning up to about $16,000 annually or $32,500 for a family of four.

Labor leaders and consumer advocates are putting pressure on lawmakers, urging them to close this “Wal-Mart loophole” to end what they call a taxpayer subsidy for corporate giants. Wal-Mart, which has 250 stores in California, had $17 billion in net income in its last fiscal year.

“There are a lot of responsible employers who provide healthcare coverage and pay middle-class wages,” said Sara Flocks, public policy coordinator for the California Labor Federation. “They have to compete against Wal-Mart slashing wages and slashing hours. This is a way to level the playing field.”

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.

Wal-Mart, the nation’s biggest private employer, defends its employee health benefits.

“More than 75,000 people make the choice to work for Wal-Mart in California because most know that we offer the opportunity to build a career,” said Delia Garcia, a company spokeswoman. “Our wages and benefits meet or exceed those offered by most competitors, and our healthcare offerings go beyond the eligibility and affordability requirements of the Affordable Care Act.”

Last year the company raised the number of hours its newly hired part-time employees must work to qualify for health benefits: to 30 hours a week, up from 24 hours previously. Overall, Wal-Mart said, more than half of its 1.4 million workers are covered by company health insurance, and the company provides an employee-only plan starting at less than $38 a month with a $2,750 annual deductible.

Nationally, 40% of retail workers had employer health benefits last year, according to the Kaiser Family Foundation, compared with 62% of employees at all firms offering benefits.

The National Business Group on Health, a Washington trade group that represents more than 360 large employers across the country, said that the future of Medi-Cal funding is a worthwhile debate, but that this proposal isn’t the answer.

“This raises the labor costs for so many employers by requiring healthcare to be paid on part-timers that it’s not a practical solution,” said Steven Wojcik, the group’s vice president of public policy.

California and other states have been working to reduce the number of low-wage workers on Medicaid for the better part of a decade by pressuring employers to take more responsibility. Some states have opted for “naming and shaming” — publicly disclosing the companies with the biggest numbers of workers on Medicaid. Policy experts say that practice did spur Wal-Mart, for a time, to upgrade its health benefits.

In Ohio, Wal-Mart leads the state, with 17,679 employees and dependents covered by Medicaid. Fast-food giant McDonald’s and the Kroger Co. grocery chain came in second and third, respectively, state data show. In Wisconsin, Wal-Mart topped the list with 9,207 workers and family members on Medicaid and a related children’s health insurance program. California doesn’t release those details.

Not all retailers put such a burden on taxpayers. Costco Wholesale Corp., which competes against Wal-Mart’s Sam’s Club stores, said it provides health insurance to 88% of its workers and guarantees all employees enough hours to qualify for benefits if they want them.

“We think we get better employees who want to stick around,” said Richard Galanti, Costco’s chief financial officer. “At the end of the day, somebody has to pay for their healthcare.”

Times staff writer Marc Lifsher in Sacramento contributed to this report.