Will Wal-Mart's Risky Obamacare Bet Pay Off?

Source: Walmart

Walmart Stores, Inc.  wants to sell you Obamacare and other health insurance programs, including Medicare Advantage, but it won't get a penny from DirectHealth, the insurance agency that will be staffing more than 2,700 Walmart stores this fall.

Instead, Walmart is betting that the market for healthcare insurance will prove so confusing this season that millions of shoppers will come to its stores for advice and end up going home with groceries, home goods, and electronics. It's a risky bet, so let's look a bit closer and see if it will work.

Why Walmart's betting big
Walmart is the biggest retailer on the planet because it sells just about everything to just about everyone, but Walmart has a problem on its hands. It's gotten so big that it needs to get creative if it hopes to see its sales continue growing.

Walmart's 4,300 U.S. stores include everything-you-can-imagine supercenters, discount stores, neighborhood grocers, and small format convenience stores. Those stores generate roughly $70 billion in sales in the U.S. every quarter, but revenue is stagnating.  Worldwide, the company's sales inched up just 2.8% year-over-year in the second quarter, continuing a disappointing trend that has sidelined investors and led to an anemic 0.8% return this year.

WMT Revenue (Quarterly YoY Growth) data by YCharts

Setting the stage
As a result, Walmart hopes to attract more customers by tapping into baby boomer demand for Medicare Advantage plans and uninsured America's demand for health insurance.

Roughly 10,000 boomers are turning 65 every day and despite 7 million people signing up for health insurance through Obamacare exchanges during the first open enrollment season, millions remain without coverage. According to a study conducted by Gallup, 13.4% of Americans still lack health care insurance heading into the next Obamacare open enrollment season, which begins November 15th.

Since many of Walmart's shoppers are elderly or uninsured, Walmart has inked a deal with DirectHealth to staff many of its stores with experts that can help customers navigate the complexity of public and private health care insurance exchanges and private Medicare plans, including Medicare Advantage. DirectHealth staffers will be available inside stores between October 10th and December 7th; a period that overlaps with Obamacare's second open enrollment season and the open enrollment periods for Medicare Advantage and individual private health insurance plans.

But before investors get too excited by this opportunity, its unclear to me whether or not advice from in-store insurance agents will bump up foot traffic and front end sales because Walmart's previous attempts to boost sales by offering healthcare services to its customers has proven a mixed bag.

For example, Walmart's move into retail pharmacy prescriptions has been a blockbuster success. Walmart is the fourth largest pharmacy retailer in the country with $18 billion in annual prescription sales. But, its move into healthcare clinics has been -- for the most part -- a flop.

In 2007, Walmart launched a plan for as many as 2,000 in-store health care clinics that it claimed would dominate the market by 2012. Instead, the number of those clinics totals less than 100 today. That's hardly domination given that CVS Health  operates more than 850 MinuteClinics and Walgreen Company runs more than 400 clinics in their stores.

Another failure?
Investors shouldn't bank on Walmart's deals with DirectHealth to move the needle. The program may marginally boost customer traffic and front end sales, but I'd be surprised if it did so in a meaningful enough way to make a significant difference in Walmart's fourth quarter results.

In my view, Walmart should be running this program by itself so that it can control the message and integrate the solution across its other products and services better (much like it did with its pharmacy business). Regardless, it will make sense for investors to keep an eye on Walmart's earnings release next quarter to see whether or not its year-over-year sales do end up improving.