Many of Wal-Marts employees are part time workers, which means that many are teenagers or second income married earners, in which case many are already insured by other means.

Wal-Mart has two choices it can offer its employees: it can either offer them a higher wage and less health insurance, or it can use some of their wages and offer them health insurance and a lower wage - to Wal-Mart it is the same thing, it is the total wage it pays that employee that matters, it doesn’t matter how that money is spent, what matters is the amount.

But to that employee it makes all the difference in the world. What would you rather have, a higher wage and less health insurance or a lower wage and more health insurance? If you are a full time employee, you would probably prefer the latter, but if you are a part time worker - meaning the chances are high that you already have health insurance from somewhere else - you would probably prefer the former. And that is precisely the logic behind Wal-Marts decision.

This is how Richard Posner explains it:

“But the externality cannot be fully eliminated by passing a law that would require Wal-Mart and other employers of low-income employees to insure all their employees. This is clearest in the case of minimum-wage employees who at present are not insured. Since the labor cost that an employer incurs is the sum of the wage he pays and the cost of any fringe benefits, forcing the employer to incur a total labor cost of $12,000 for an employee worth to the employer only $10,000 will simply cause that employee to be fired, with little prospect of obtaining another job; so he will lose his health insurance and be thrown back on Medicaid. Suppose instead that the employer is willing to incur a total labor cost of $12,000 for this employee, but the latter prefers a cash wage in that amount and no insurance, and now suppose as before that the employer is forced to insure him. The employer will reduce the employee’s wage to $10,000, which may inflict significant hardship because the employee needs the cash more than he wants insurance (if he has no assets, he may well not need or want any health insurance). Notice the perverse redistributive effect: the average taxpayer, who is indeed made better off because the employee is now paying for his own health care, is wealthier than the average low-income employee”.