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An occasional talking point in US politics is that companies that hire lots of low-wage workers are getting subsidized by means-tested safety nets. If Medicaid is giving their employees access to healthcare, they don't have to pay for it, so their total cost is lower. You could imagine using this to advocate for either higher taxes on employers (since they're benefiting from public money) or, in theory, cuts to those benefits (since they subsidize big companies). It feels right, and it also feels sophisticated to talk about businesses exploiting some well-meaning policy, but it's completely wrong.

Here's a recent example:

Walmart, we basically subsidize Walmart through Medicaid because they don’t give their employees quality healthcare. So we, the taxpayers, are giving Walmart employees quality healthcare.

There are a few issues with this:

1. Walmart's starting pay is far above minimum wage; it's $14/hr in Indiana and Kansas, $18 in Hawaii, and $18.50 in Washington, D.C. For a single adult, working 30+ hours per week disqualifies them from Medicaid.

2. Walmart already has health plans for hourly employees, and has had them in some form since 1977.

Walmart in particular is a bad model for this because it's one of the rare cases where a 19-year-old can get a job working at a deli and, twenty years later, end up making a few hundred thousand dollars a year as a store manager ($, WSJ). This is hard for a small business to achieve; growth in the number of stores increases the number of opportunities people have to be promoted within the company, and it's good for morale if 1) the person asking you to mop up something disgusting in the condiments aisle knows how unpleasant it is, and 2) there is a direct path from condiment-mopper to being one of the best-paid people in town (at least for a Walmart-sized town).

So Walmart is perhaps the worst example you could pick, because of how early they were to engineering social mobility within their workforce. But there are plenty of companies that choose the opposite model, where they pay lower wages, give employees fewer opportunities to move up within the company, and accept that this means higher worker turnover and fewer opportunities for growth as a business.

They don't benefit when their employees have access to the social safety net, either. If there's a means-tested benefit, and a full-time employee qualifies for it, then usually an unemployed person does, too. So on the margin, it doesn't affect the worker's access to healthcare if they work or don't. In fact, if they get access to sufficiently generous means-tested benefits, they can end up in a situation where their effective marginal tax rate is a) higher than it is for the rich, and b) sometimes over 100%, if there's a sharp cutoff for access to some benefit. The first of these is just what you get if you provide everyone with some basic standard of living, no matter how poor they are: you're either giving everyone a flat amount regardless of their income, or effectively imposing high marginal tax rates.

If these benefits went away, workers would be worse-off, but the ones who needed healthcare would actually have to be willing to accept lower wages, once it's a matter of life and death rather than of paperwork. At that point, you really don’t have a choice. It's hard to think of a historical case where a country is poor enough that working full-time doesn't earn enough for a full meal, but there's also a welfare state robust enough to top-up people's calorie consumption so they don't waste away. You typically see this kind of redistribution working closer to middle-income status, but middle-income countries in 2026 don't have famines, just recessions. The last time it was even slightly possible for people to be too poor to eat in the US was in the late 1960s, in Mississippi. There were a few dozen cases of deaths due to starvation annually in New York in the 1930s, but this is broader, and includes cases analogous to modern situations where someone's nominal cause of death is starvation, and the actual cause is some mix of mental illness, substance abuse, dementia, physical disability, etc. Those are real problems, but they don't have much of an effect on the low-wage labor pool.

If welfare were a benefit to big companies that hired welfare recipients, one implication would be that cutting welfare would force those companies to pay workers more in return. But no one really makes that argument, because it doesn't make sense. Walmart might feel sorry for them, but "sorry" doesn't move the wage they're offering any higher, and actually makes them lower. It's a low-margin business, and they can offer pay that's objectively low, but still higher than relevant alternatives.

But it's fun to think otherwise, and to feel that there's some complicated way in which big companies are ripping off the American taxpayer. There are certainly companies that try to do that (though the typical one is not that big. Fraud is a classic mom-and-pop business in that it's easier to do in small, high-trust environments like families). The actual problem people are pointing to is poverty, not theft, and solving poverty is a grind. But it's one that modern economies are pretty good at.

We've covered a few related concepts in The Diff:

• We looked at how Saudi Arabia would need to use labor subsidies to make some domestic manufacturing work ($), a case where they would be benefiting employers, but deliberately so.

• We wrote about Walmart store manager pay a while back ($).

• And we've considered the supply chain of skilled labor ($).

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1  Though if you happened to be a Walmart associate paging through the company's annual report that year, the most important thing on that page was Walmart's employee stock ownership program. Shares compounded 50.6% over the next decade.