Why I Shop at Costco, and Why it Matters

Well, it matters to me, at least.

In 2014, retail giant Target announced that they would no longer offer healthcare benefits to part time employees, instead directing them to the newly formed ACA exchanges. Their rationale at the time was that “by offering them insurance, we could actually disqualify many of them from being eligible for newly available subsidies that could reduce their overall health insurance expense.”

At the time this decision was made, Target was still doing quite well and was profitable, though their earnings year over year had declined slightly. They hadn’t yet felt the full effect of their credit card breach, so this was not a reaction to adverse market conditions: this was purely a calculated business decision. When you look at it at face value, it makes sense for Target to do what it can to lower costs to compete in an already tight retail sector. But in reality what happened was that Target took its internal cost of providing benefits, previously paid for by consumers through retail pricing, and passed it along to everyone, not just their customers.

Think about it this way. If I buy a product at Target circa 2012, I know that I’m buying from a company that treats most employees fairly well from a compensation and benefits perspective, as well as providing career opportunities for growth and development. I know this because I talked to Target employees. So when I would buy a product there, which is more expensive than say at a competitor like Walmart, I was making a conscious choice to subsidize their business model, and specifically this facet of it.

I would rather shop where employees are treated well, not necessarily where I get the lowest price. It doesn’t make me a better person, but it makes me feel better as a person.

It is the same reason many people patronize Starbucks, which is renowned for taking a product you can make at home for pennies, charging you five dollars, and making you feel good about that decision. I would hazard a guess that along with valuing their fair trade coffee and recycling practices, many people make that choice because they see Starbucks treating employees well.

Fast forward to 2014, and I learn that Target has had a change of heart. They want their employees to fend for themselves now. And let’s be honest, it isn’t about having options, because studies show that even when offered good choices, people’s stress levels go up. But the exchanges don’t offer “good choices,” they offer highly complex ones that individuals without training and information will find daunting to say the least.* And that is why an employer’s benefit plan serves a valuable purpose: it filters the choices available, reduces them to a manageable number, and eliminates most of the complex decision making.

Beyond this point of just stressing out its own employees, and perhaps more critically, Target shifted the responsibility of who is actually paying for their employee’s benefits. Previously, as a consumer, I was happily subsidizing those benefits with each purchase I made. Now, as a taxpayer, I am subsidizing those same employees without ever making a Target purchase. Which means that if I now shop at Target, who certainly haven’t lowered their prices in tandem with this decision, I am not incrementally contributing to the betterment of their employees’ lives. Instead, I am likely only incrementally increasing the value of the bonus that some Target executive will receive.

If I don’t shop at Target now (and honestly, I very rarely do anymore because of this issue), I am still paying for their employee benefits. Just like I was already paying for Walmart’s benefits: Walmart has more employees on Medicaid than any other business in the US. Why? Because its shoppers are okay with everyone else paying for the company’s employee benefits as long as they get the Guaranteed Lowest Price.** Which is why Walmart actively supported the ACA: it would put their competition in an even more unfavorable position.

This is what a subsidy does. It takes a cost that could easily be borne by the private sector, and moves it to the public sector and spreads it out over all taxpayers—not just those who use the product or service in question. This leads to shifts in how those organizations employ their capital, and generally, it is not in some other fashion that benefits all employees. The Waltons and their shareholders did not get stinking rich by giving out Christmas bonuses to all several hundred thousand of their employees.

But those subsidies also make demand for the product inelastic: if the organization providing the subsidized service is guaranteed taxpayer money, there is no reason to maintain a competitive cost structure. We have already seen this play out with post-secondary education. College dorms look more like luxury hotels and the student gyms offer facilities that rival high-end fitness centers. Why? Because student loans come with government guarantees for payment. With that, you can jack up your tuition rate to whatever you want and no one will bat an eye. And we are already seeing this as consumer costs in healthcare are soaring and exceed nearly every other major economic index.

Sometimes, subsidies are done with the noblest and most altruistic of stated intents. But often times, these are made via grants and legislation that channel taxpayer money into already flush organizations.

Why on earth do Ivy League schools with multi-billion dollar endowments need federal grants for research? They staff entire departments with people to write those grant proposals and take taxpayer money for the most inauspicious of causes (ask me and I’ll tell you my favorite), while their alumni continue to fill the coffers for one more building to be constructed in their name.

Locally, I received a full-color mailing from a county organization that was proud to tell us of how they had been utilizing grant money that they had received. The total of the grant was about $27,000; the value of the mailing itself was at least ten percent of that, never mind that the graphic designer paid to put it together was also the grant writer. So this organization had frivolously expended taxpayer money to tell us how judiciously they were employing taxpayer funds.

The number of people and entities receiving subsidies doesn’t matter, though they rise every single year. It isn’t about orders of magnitude, it’s about the net effect. When they can do it once, they do it over and over. And the people who write the bills then cash out and go to work for the very special interests their legislation was supposed to hinder. Subsidies aren’t about helping the little guy, that much is clear with the decision that Target made in 2014 (and Walmart, and Trader Joe’s, and Home Depot, and… you get my point), and the skyrocketing health care premiums and deductibles. These subsidies are about lining the pockets of the special interests, lobbying and corporate both, and spreading that cost over all taxpayers.

And that’s why I now do most of my shopping at Costco.

*Full disclosure: My wife and I were without insurance after I left my job in late 2015. Rather than pay COBRA premiums exceeding $1,300/month, we met our legal requirement to have insurance by going on the exchange and choosing a PPO that was half that cost. We received a tax credit that was fully repaid in our 2015 income taxes. However, in 2016, that PPO’s premium was increased 60%, and we were forced to choose a POS plan with higher premiums than the prior year’s PPO, higher co-pays and deductibles, and extremely limited provider choices. I was previously responsible for choosing and administering employee benefits for a company, and the enrollment process took me well over three hours the first time, and over an hour the second. I believe the benefit providers are using the enrollment process as a deterrent to people changing plans, allowing them to rapidly drive up costs.

**Further disclosure: I have not made a purchase at Walmart in over ten years, and I don’t foresee that ever changing.

This article originally appeared on Shifting Gears.

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Free the People publishes opinion-based articles from contributing writers. The opinions and ideas expressed do not always reflect the opinions and ideas that Free the People endorses. We believe in free speech, and in providing a platform for open dialog. Feel free to leave a comment!

Andrew Forcier

Andrew is a former Montana state legislative candidate who works in human resources and is passionate about personal freedom. Given his area of professional expertise, he loves to cogitate on occupational licensing, the minimum wage, corporate cronyism and organized labor, which is why is wife is really glad he writes for a few different publications. He can also be found writing about movies and metal music when not advocating for liberty.

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