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Published: May, 2005; Vol 1, Num 12

Vetoed MD Bill Heralds New Front
In Health Care Cost Management

Although vetoed by Maryland Governor Robert L. Ehrlich (R), legislation passed in Maryland last month opened a new front in the struggle against the health care cost crisis facing American workers and employers.

The bill would have required all employers with more than 10,000 employees in the state to spend eight percent of payroll on employee health care benefits or make an eight percent contribution to the state’s Medicaid program. By requiring private sector expenditures on health care, the bill directed a blow against large companies with uninsured or underinsured workforces.

“Anything that brings public attention to the health care cost crisis is a benefit to Laborers, their signatory employers and the American taxpayers,” says LIUNA General Secretary Treasurer and LHSFNA Labor Co-Chairman Armand E. Sabitoni. “We welcome the creativity and initiative employed by Maryland health care activists and state lawmakers to bring this issue into public focus.”

Americans for Health Care (AHC), the group that crafted the Fair Share Health Care bill, plans to pursue similar legislation in other states. In Maryland, it touched a raw nerve.

In vetoing the bill, the Governor asserted that it would give Maryland a black eye among national businesses that might consider relocating or expanding operations in the state. Nate Hurst, a government relations manager at Wal-Mart, the state’s largest employer, said his company “will have to rethink its future growth in a state that is willing to pass such a bad business bill.” He said the company’s plan to build a new distribution center will be reconsidered.

However, some businesses supported the legislation. Giant Food, a Wal-Mart competitor, strongly endorsed the bill. Giant Vice President Barry F. Scher said that health care costs account for about 20 percent of the company’s payroll expenses. In contrast, according to Hurst, Wal-Mart’s health care spending runs about seven to eight percent.

With 52 stores in Maryland and 15,000 employees, Wal-Mart is a powerful and growing force in the state’s grocery business. Giant Food, Johns Hopkins University (a non-profit) and defense contractor Northup Grumman Corporation also have enough employees to be subject to the law’s requirements. Unlike Wal-Mart, which by its own admission is borderline at best, all meet the law’s eight percent (six percent for non-profits) cutoff.

At a company-hosted gathering of print journalists at Wal-Mart’s Bentonville (AR) headquarters – which was convened to address a wide range of negative publicity that has engulfed the company in recent years, but, coincidentally, took place during the legislative fight in Maryland – Wal-Mart CEO H. Lee Scott, Jr. asserted that critics fail to take into account the fact that the company’s lower prices are a benefit to workers. “Many of our competitors, let’s face it, would like to continue to be rewarded for operating in ways that are less efficient,” he said.

However, critics noted that Wal-Mart’s efficiency and lower prices are achieved by shifting the cost of health care to others. For instance, in an example cited by the New York Times (November 1, 2004), a survey by Georgia officials found that about four percent of the children (about 10,000) in the state’s health program were children of Wal-Mart employees. Their health care cost the taxpayers nearly $10 million. In another cited situation, a North Carolina hospital found that 31 percent of 1900 patients who described themselves as Wal-Mart employees were on Medicaid, while an additional 16 percent had no insurance at all.

Wal-Mart, a non-union company, did not address the specifics of the Georgia and North Carolina situations, but acknowledged that many of its full-time workers must wait six months to become eligible for insurance and that part-time workers are not eligible for two years. Employees who do become eligible must pay 33 percent of the cost themselves. Typically, the contribution to health coverage by union employees is less than ten percent, and eligibility is usually conferred before six months.

Unions were among the backers of the Maryland legislation. United Food and Commercial Workers (UFCW) Local 400 joined with its signatory employer, Giant Food, in urging passage. The AHC, itself, is a project of the Service Employees International Union (SEIU), the union with the most health care employees.

While Wal-Mart’s Hurst said the Maryland legislation “sets a bad precedent by singling out one employer when it’s a much bigger issue,” Giant spokesperson Schler said, “We believe there should be a level playing field for every employer in the state. When that does not happen, we all shoulder the cost of the uninsured.”

Health care costs are rising sharply, for reasons that are far beyond the control of employers or employees. Annual, double digit inflation is now standard in the health care industry. Employers who provide health insurance to their employees are forced to raise prices to maintain a competitive rate of return for their stockholders. However, competitors who do not provide health insurance to their employees can keep prices low while generating profits and taking market share from those who provide coverage. As investors move money to the companies with higher rates of return, the stock price of those that provide health care drops.

Since most union employers provide health insurance, the union sector, in particular, feels this competitive pressure. In recent years, LIUNA members have felt this bite as their wages have risen only slightly while most of increased employer contributions have gone to sustain health benefits.

Also, because hospitals must recover the cost of care provided to people without insurance, they increase rates across-the-board. Some studies estimate that as much as 30 percent of the fees paid by insured patients actually cover the cost of uninsured ones. Overall, 85 percent of uncompensated health care costs end up being covered by government (actually, the taxpayers), primarily through state-administered and federally-funded Medicaid programs.

“Everyone should recognize that the crisis requires a national solution,” says Sabitoni, “companies that are making record profits should do their part to become part of a national solution.  Good corporate citizens do not drain the resources of their communities by passing the buck to the taxpayers.”

The Maryland bill passed with enough votes to override Ehrlich’s veto, but the legislative session ended before the Governor’s veto was announced. Senate President Thomas V. Mike Miller predicted that the state legislature would override the veto when it opens its next session next January.

Meanwhile, a number of other states are considering similar bills or referenda.