Let Wal-Mart fix US health care

By Jim Jubak

I know who can fix our broken health care system -- and who can't:

• Not presumptive Republican nominee John McCain. He proposes a tax credit of $5,000 per family to encourage us to buy private health insurance.

• Not Democratic presidential candidate Hillary Clinton. She proposes universal health insurance supported by tax credits.

• Not Democratic presidential candidate Barack Obama. He proposes a mix of public and private health insurance with government subsidies to those who don't qualify for government insurance plans such as Medicaid.

I say, let Wal-Mart Stores (WMT, news, msgs) do it. Hold your guffaws. Stifle your impulse to scoff. Control those sputters of rage.

Wal-Mart has done more to expand coverage and lower costs in the past year than any government program to come out of Washington in the past 10 years. And I'd bet the new programs that this company -- known for stiffing its own part-time workers on health care benefits -- has announced in the past year will do more to expand coverage and cut costs than anything likely to come out of a McCain, Clinton or Obama first term.

Government programs, rising costs

The goal, everyone agrees, is to maximize coverage, heighten competition and cut costs. Good goals, all. About 47 million Americans now lack health insurance. Health care costs are rising far faster than general inflation. And health care is on track to consume 25% of U.S. gross domestic product by 2025. That would be up from 16% today and 5% in 1960. (For more on the health care squeeze and the candidates' proposed fixes, see our multimedia package "The Middle Class Crunch.")

If you really think the federal government is up to the task, consider the government's last venture into expanding coverage and cutting costs, the Medicare prescription drug program signed into law in 2003. The program, which went into effect in 2006, was budgeted at $400 billion over 10 years. By the time it had been up and running for a year, the cost estimates had climbed to $800 billion, according to Medicare.

Look at what's happened to costs in another federal program with a much longer history. Of the 44 million elderly and disabled covered by Medicare, 80% have their health bills paid by the traditional fee-for-service program. The other 20% get their Medicare benefits through private health plans that receive payments from Medicare.

These plans, now called Medicare Advantage plans, have been around for decades. And they've recently formed the backbone of many plans to fix U.S. health care by expanding coverage and cutting costs. The theory was that these privately run plans would provide the same services as Medicare at reduced costs -- and then put that money back into new services or reduced premiums or co-pays.

Industry 'consultation' narrows competition

But it hasn't worked out that way. A recent survey by the federal government of the private Medicare Advantage plans found they charge the government 17% more, on average, than it would cost Medicare to provide the same services. From 2009 to 2012, the government projects, the extra costs to the federal government will amount to $50 billion.

• Talk back: Would you trust Wal-Mart with your health care dollars?

What's wrong? Why have programs designed to increase coverage and cut costs been only limited successes or outright failures? Because the competition that was supposed to unleash so many benefits and reduce costs has never really materialized.

These programs, like many government programs in other areas, were written in consultation with or in some cases actually by the drug and insurance industries. That "consultation" made sure any competition introduced wasn't too onerous. So, for example, the federal government -- the world's greatest purchaser of medical products and services -- is prohibited by law from bargaining with drug companies to get lower prices.

Letting Wal-Mart run the health care system would fix many of those problems. It's a company that understands how low prices can build market share and thus increase profits. Furthermore, it's a company with a culture of cutting costs that has shown no compunction in pushing suppliers to the wall over price. The Wal-Mart motto ought to be, "Make it cheaper, or we'll find someone who can." I'd love to see that attitude brought to bear in health care.

My wish isn't pie in the sky either. Wal-Mart has decided it can make money by applying its always-low-prices strategy to drugs and medical services. For example, in 2006, the company first rolled out a program to sell a long list of about 300 generic drugs for $4 a prescription. It added 24 more drugs to the list in 2007.

Broad expansion of a generic program

Then on May 7, Wal-Mart expanded that strategy. Customers can buy a 90-day supply of any of 350 generic drugs for $10. In addition, the company expanded its $4 generic program so it now applies to more than 1,000 over-the-counter drugs, about a third of the OTC drugs the company sells, including generic versions of such blockbuster drugs as Zantac and Claritin. And a 30-day supply of generic drugs for osteoporosis, breast cancer, hormone deficiency and other women's health problems will sell for $9.

By offering a 90-day supply -- exactly the same length of prescription the mail-order drug management companies offer -- Wal-Mart is going right at the heart of the drug management business. At $10 for a 90-day supply, the Wal-Mart price is below the co-pay many of its customers face if they have private or company insurance.

The addition of over-the-counter generics is aimed at another trend: the increasing practice of drug-benefit plans to refuse to pay for such medications. Once you can buy allergy medication Zyrtec without a prescription, some plans stop paying for it -- even though a 20-tablet box can cost $20 or more at the average drugstore.

Think any of these price points is a coincidence? Wal-Mart, I'd argue, has studied this market and knows where the price points and vulnerabilities are.

And Wal-Mart isn't stopping there. In April, it opened the first of its walk-in health clinics in stores in Atlanta, Dallas and Little Rock, Ark. This joint venture with local hospitals will build up the almost 80 clinics already in place in Wal-Mart stores. The goal is 400 co-branded clinics by 2010.

Continued: Lower costs, less paperwork

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