Wake Up and Smell the Health Insurance: The Key to Turning Around Starbucks

Starbucks has been a model among U. S. employers for its social and moral responsibility to its work force since its founding in 1982. Howard Schultz, who founded the company, grew up in Brooklyn, New York in a hard-working family without health insurance, and never forgot the plight of working class people struggling every day to make ends meet. He was determined to build a different kind of company -- one that makes a profit, builds shareholder value, but also has a social conscience integrated back into the company. As he has said in his excellent book Pour Your Heart Into It,

"From the beginning of my management of Starbucks, I wanted it to be the employer of choice, the company everybody wanted to work for. By paying more than the going wage in restaurants and retail stores, and by offering benefits that weren't available elsewhere, I hoped that Starbucks would attract people who were well educated and eager to communicate our passion for coffee. To my thinking, a generous benefits package was a key competitive advantage."

The Starbucks story has been phenomenal. The company went public in 1992 with a market capitalization of $200 million. By 2004 it was worth almost $19 billion. Its worldwide work force grew to about 172,000 by 2007, and all of its employees in the U. S., even part-time, are offered health insurance with generous coverage. From the beginning, the company's consistent policy has been to offer health insurance to all employees working 20 or more hours a week (240 hours per quarter). As a result, Starbucks has had one of the most loyal work forces in American retail business, with a very low rate of attrition.

But the writing was on the wall. In 2004, Schultz acknowledged in an interview with Business Week that the company's biggest challenge to future growth was its health care costs, which by then were costing about $200 million a year for its 80,000 U. S. employees -- more than the total it was spending on green coffee from Africa, Indonesia, and other countries. As Schultz said at the time "This is completely non-sustainable", further noting that companies trying to do the right thing for their employees are paying for the many companies not doing so.

Today, Starbucks is hurting. Caught in this economic downturn, it has been forced to cut thousands of jobs. About 600 Starbucks stores in this country will be closed over the coming year, as well as most of those in Australia. This week, the company reported its first-ever quarterly loss, a net loss of $6.7 million. The company attributes its problems to the economy, increasing competition from fast-food companies such as McDonald's (not known for its health care coverage), and perhaps to its rapid expansion.

All of this is predictable. U. S. employers need a healthy work force, but can no longer afford to provide comprehensive employer-sponsored coverage (ESI). The average cost of ESI is now over $15,000 a year for a family of four, with the employer paying for about 60 percent of that and the employee picking up the rest. All of these numbers keep going up each year by three or four times the cost of living and median wages. As a result, more employers are cutting back on coverage (if provided at all), passing along more costs to their employees, and eliminating retiree coverage altogether (eg., General Motors). It is an open question how much longer employers with a social conscience, such as Starbucks and Costco, can continue to offer coverage.

Fortunately, there is a fix for this problem -- single-payer national health insurance (NHI) along the lines of the Conyers bill (HR 676) in Congress with 93 co-sponsors. Both employers and employees would pay less than they do now for better coverage. By eliminating the waste and inefficiencies of 1,300 private insurers, NHI will save more than $300 billion a year and still guarantee coverage of all Americans. The differences in overhead between private and public financing are striking -- Medicare operates as a single-payer system with an overhead of about 3 percent, compared to an average of 18 percent for commercial carriers and 26.5 percent for investor-owned Blue Cross plans. Under HR 676 employers will pay a payroll tax of about 7.7 percent (less than their average of 8.5 percent now) while individuals will pay an income tax averaging about 2 percent for most taxpayers.

NHI will not solve all of the problems now being confronted by Starbucks and other U. S. employers, but will go a long way to level the playing field in a global economy. We can no longer afford the skyrocketing costs of private health insurance for less reliable and more skimpy coverage each year. Employers and employees alike, as well as our country, will win with NHI.

Howard Schultz has built a legendary company with a social conscience. But the landscape and business environment is changing fast. He can add to his legacy by taking a leadership role in helping other employers to see NHI as an advantage to their future.

_____________________________________________________________________________________

John Geyman is the Author of Shredding the Social Contract: The Privatization of Medicare, Common Courage Press, 2006, and Shredding the Social Contract: The Privatization of Medicare, Common Courage Press, 2006, Use only with permission of the Author.

Buy These Books: http://www.commoncouragepress.com/index.cfm?action=book&bookid=376

Comments

[moAb]

AGREE!!!! Think about this folks...th­e best quality health care in the US is currently being consistently delivered in the ?....the Veterans Administration system of hospitals. What about this...rec­ent Rand Corp study showed that even with outstanding health insurance coverage (so called 'cadillac care') there was a significant chance you would not get all the diagnostic tests and therapeutic procedures­/treatment­s your physician(s) ordered (not that you might consider getting but that your doc(s) thought were required). How about this...tal­k with folks in Britain (like my cousins) and they just shake their heads at our healthcare system. Now I know what some of you will say...heal­thcare is terrible there. It is not. In fact with supplemental forms of insurance things go "swimmingly" as they are prone to say. Same with my friends and relatives in good old Deutschland. Sure the docs don't get to rape you financiall­y...and the hospitals/clinics can't charge you an arm and leg for technical fees. Plus, you are not paying some insurance company for the right to be denied coverage (yes Virginia, they are in the business of risk management, in other words you are a risk and they are managing YOU!). Writer Geyman is dead on right!!!!!

[joebaggadonuts]

Damnit why doesn't everyone see what you are saying, John? The only reason we have employer provided health insurance in the first place is that originally the executives wanted it and the tax man said that if you provide it to executives, you have to provide it to the staff or it isn't a business expense. That evolved into a niche for "health care" executives who saw that they could make lots more money than doctors by providing this insurance and gating care to patients through their employers, making it impossible for the individuals to have a direct say in their own care. As your books note it has ruined the nation and medicine.

[Sundialsvc4]

I think that companies like Starbucks should be highly-praised for trying, and for continuing to try, to provide health insurance. The root cause of the problem I see it is that, unless _everyone_ has some baseline amount of insurance, the cost of _uninsured_ people will continue to eat everybody's lunch. (Or, as the case may be, drink their coffee.)

If you don't have insurance, you don't go to the doctor. You get really, really sick and you get rushed to the hospital for thousands of dollars' worth of treatment that a $5.00 dose of antibiotics might have stopped a few weeks ago.

The Federal Government does not have to "foot the bill," however. Not all of it. A better strategy will be to employ the Government's unique power of leverage. "We will guarantee this..." and "we will decide not to tax you (so mch) if ..." And so on. Everyone in the country gets basic insurance. Everyone in the country can actually go to the doctor early-and-timely.

What Starbucks did, and continues to do, is hugely important: a large block of folks are insured that otherwise would not be. But that baseline-coverage should be uniformly available to everyone, and on-top-of-that companies should be "mightily encouraged" to offer more. That's the best way to save money nationwide in the long run.

[racom]

One of the great problems in this debate is the 'insurance' itself. We do not want health insurance, we want health care. Remove the 'insurance' from our health care and the cost will drop by 25% overnight! Administrative cost for non-insurance medicare is 3 to 5%, our present 'insurance' program has 27 to 33% administrative cost. This is unacceptable, the nurses union of CA is pushing hard for single payer health care, they have it right!

[RightWingMarine]

If health care was too expensive for Starbucks to offer why will it be cheaper to have the government pay for it all?

Why is it the government's responsibility to provide health care to anyone? I have my own health insurance why should I have to pay for yours too? What about people who currently choose to not have insurance because they would rather have the money in their pocket? I did that last year and had no insurance at all. In that case this plan would raise my insurance costs from nothing to 2% This figure of 2% per tax payer sounds fishy. If I'm paying more than 2% of my income on health insurance now why will my health insurance costs decrease to 2% after the government takes over?

What about people who prefer unconventional medicine? Will they get to be treated in that manner? Do you want your tax dollars going to someone who focuses on a crystal and reallocates their chi to treat a brain tumor? What about people who believe that vaccines cause autism? Do you want your money going to vaccinate children and give them autism? Should prolife people be forced to pay for abortions? Should pro-choice people be forced to pay for abstince only education?

[racom]

You just do not read nor understand the issue. Our health care is in private insurance control and their profit is our loss. The government program is proven far superior to the privatized insurance coverage we have in this country. Try to get the politicians, covered by a government program, to give it up, will not happen just because they know they have the best coverage.

[SeriousBlack]

And sorry, that should have been "you had suddenly DISCOVERED you had some type of cancer"

Serves me right for posting when I'm angry.

[joebaggadonuts]

between 30 and 40 per cent of all health care dollars goes to the insurance companies. That means that right now. If the government were the only middle man, it would be cheaper and it would cover all of us and we could move from job to job while staying covered. Check out how they do it in all the developed countries on this planet. costs: way cheaper, benefits: everyone gets them.

As for unusual requests, well you will still be able to get that. The market provides. Don't you trust that?

[RightWingMarine]

It would be cheaper to have the government do it? isn't medicaid and medicare a huge cost to the US taxpayer?

Doctors in CA might prescribe marijuana to their patients. Is the US government going to buy a drug it considers illegal and give it to a US citizen? Do we really want the US government being a drug dealer?

My doctor told me that to treat my depression I should go shopping everyday and wrote me a prescription for US tax dollars. Is this alternative medicine permitted? Where do you draw the line?

[SeriousBlack]

Yeah and what would have happened if during the year last year where you chose not to have insurance (for whatever your reason was, I don't care), you had suddenly decided you had some type of cancer?

BAM. You're scr---d.

Then when you NEEDED health CARE (get the difference between "care" and "insurance", do you, BTW?), you wouldn't. have. been. able. to. get. it. PERIOD.

Wouldn't have been able to get insurance - a little pesky thing called "pre-existing condition". Wouldn't have been able to afford the hundreds of thousands of dollars you would have had to start paying out of your own pocket for the treatment.

All you would have been able to do is go crawl off somewhere to die (despite the fact that with treatment maybe you would have been able to beat the cancer and live many years more).

But you know what, I'm just about tired of answering posts like yours. Whatever, man.

[DallasMike]

Let the Gov't bail them out.

[jmpurser]

Any American company carries a significant competitive disadvantage. That is the American "Health Care System". It's the most expensive and delivers the worst results of any modern nation and our businesses are carrying both sides of that disaster.

Do what you did, get what you got. And what we got is a real mess on our hands.