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Commentary: In defense of Wal-Mart

This article first appeared in the St. Louis Beacon: America’s love-hate relationship with Wal-Mart may have reached a zenith this spring when the discount chain won its case seeking nearly half a million dollars from a former shelf-stocker left brain-damaged after a car accident.

The company has found a way out of its public-relations nightmare involving Deborah Shank of Jackson, Mo. But questions remain about how it got there in the first place and what this might mean for the rest of us – Wal-Mart shoppers and people who have similar health care plans. It might be hard to summon much sympathy for a corporation that rakes in billions of dollars annually in profit. But a closer look at the situation might generate a degree of understanding.

Wal-Mart’s health plan covered Shank’s health care expenses to the tune of $470,000 after she was seriously injured eight years ago in a crash with a tractor-trailer. Shank, who suffered brain damage, now lives in a nursing home. Adding to that misery, Shank also lost one of her three sons, Jeremy, just 18, who was killed in Iraq last year while serving in the Army. Jeremy’s father, Jim Shank, 54, has problems of his own. He is still recovering from prostate cancer. He divorced Deborah last year after two decades of marriage to make her eligible for more Medicaid coverage.

Shank’s family had sued the trucking company involved in the accident and won $700,000. After attorney’s fees and other expenses, the remaining $417,000 went into a trust fund for her ongoing care. It has since shrunk to $270,000.

When Wal-Mart won restitution of $470,000 on behalf of its health plan, the reaction across America was swift and vociferous. Though Americans love to shop at Wal-Mart for its low, low prices, the chain has image problems: It has been criticized for paying its workers too little, working them too hard and providing subpar benefits. More recently, Wal-Mart had taken steps to make things better for its employees.

But then last month, the Shank case blew up after years of litigation. The Supreme Court turned down the Shanks’ appeal, and it looked as though they would have to pay up.

Keith Olbermann, the MSNBC commentator, named Wal-Mart one of his worst persons in the world for four straight nights and said he would continue to do so until the company forgave the Shanks their debt.

Clearly, the reaction was intense, but then something interesting happened. Wal-Mart backed down. Yes, it had rules. But they could be changed. So the chain dropped its effort to seek restitution. And all was well or at least better for the Shanks. 

But how about other Wal-Mart employees? And how about the rest of us? Those rules had been put in place for a reason. Were they designed simply to protect corporate profit and placed in the fine print so no one would notice?

As it turns out, Wal-Mart was just one of many companies with these rules. The key provision is called subrogation. It gives health insurance entities and self-insured employers, such as Wal-Mart, the right to recover expenses covered under health plans.

Most employers with more than 1,000 employees are self-insured and pay the health-care claims of employees and family members out of premiums to which both the employer and employee contribute. The amount of the premiums and employee co-pay levels are typically calculated by weighing the number and amount of claims historically filed by the covered group. Premiums levels — including the amount employees will pay in the future — are also based in part upon the plan's ability to collect from employees who get reimbursed for health-care expenses from other sources.

Legal settlements are one such source. In theory, it seems fair and not Worst-Person-like at all. If the health plan covered the original expenses and the employee also got reimbursed from another source, the plan ought to be able to recover those costs. Since the employee has already had her expenses paid by the plan, additional reimbursement could be construed as “double dipping.”

Wal-Mart isn’t exceptional in this regard. Just ask John Vollmer, principal and local health and productivity practice leader at Clayton-based benefits consulting firm, Buck Consultants. He says “subrogation provisions are fairly common in self-insured arrangements.” 

Benefit consultants also point out that, if expenses are not recovered from legal settlements such as Shank’s, the cost of premiums may increase. It could also mean increases in percentage of premiums, co-pays and co-insurance levels paid for by the employee. In effect, any decision not to collect expenses from a settlement can be considered a subsidy from other employees. 

Companies ignore the subrogation rule at their peril. Many carry stop-loss insurance, which carries its own set of rules. This kind of insurance policy will reimburse the employer if an individual claim or total expenses of those covered under the health plan exceed a pre-determined amount.

But stop-loss insurers will often refuse to pay when an employer does not collect from the employee under the subrogation rule. Why? Because the stop-loss premium is based upon an employer collecting expenses reimbursed directly to the employee by third parties.

In that instance, a company may find itself paying the entire claim — driving up costs of the health care plan even further. 

There are also issues under Employee Retirement Income Security Act, the federal law that governs self-insured health plans. Under that statute, self-insured employers must act consistent with the policies that govern their health plans. Any substantive exceptions might result in actions that violate this ERISA provision and expose employers to legal liability.

Exception to a health plan’s stated subrogation policy also raises the issue of precedent. Employers are concerned that, if an exception is made for one employee, others may attempt to challenge subrogation, citing the initial exception. To protect themselves, some employers include “exception clauses” in their policies. For example, such a clause may include allowing employers to waive subrogation collections when future health-care costs exceed a certain amount of money. 

At this writing, it’s unclear whether Wal-Mart will formally change the rules and if so what the new rules will say. We can’t know what it will cost each Wal-Mart worker and how it might affect the price of that flat screen television you’ve had your eye on. But there’s little doubt that the changes will come with a price. Even so, for now we can all feel better about the Shanks and perhaps about shopping at Wal-Mart.

Peter Strauss is president of Health Planning Solutions, a firm that advises the health care industry on strategic and operational health-care issues.