Health Costs Screw Business, TooThe victim Sicko won't acknowledge.
Posted Monday, July 2, 2007, at 2:01 AM ETTo listen to Slate's Spoiler Special about Sicko, click the arrow button on the player:
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Because he's a documentary filmmaker and not a politician, Michael Moore isn't obliged to pretend that fixing America's health-care system is a mere matter of realigning market forces. Moore's new film, Sicko, makes a straightforward case for "socialized medicine." Most other industrialized democracies have adopted some form of socialized medicine—Sicko visits France, Britain, and Canada—and while Moore can be faulted for depicting these health-care systems as flawless, the truth is that in most respects they are superior to the American system. Sicko tells story after heartbreaking story about ordinary people getting screwed out of the health-care benefits they thought they had coming. Yet one significant victim of America's market-based health-care system is left out: market capitalism itself.
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StumbleUponI refer not to health insurers, nor to health-maintenance organizations, nor to for-profit hospitals, but rather to businesses outside the health-care sector that are saddled with the growing cost of providing health insurance to their employees. This obligation puts American companies at a disadvantage with respect to foreign competitors whose governments provide health care. The most obvious victim, ironically, is a company Moore knows very well: General Motors. Because of health-care obligations, the automaker that Moore pilloried in his first film, Roger and Me, is fighting for its life.
As Jonathan Cohn relates in his recent book Sick, private health insurance first came into being during the Great Depression, when doctors realized they had priced themselves out of the market. In the United States, health-insurance plans were organized on a nonprofit basis by hospitals working through fraternal organizations like the Elks and the Shriners. These were sufficiently successful that for-profit insurance companies got into the act. Businesses started displacing the Elks, et al., as dispensers of health-care insurance during the 1940s. It was a way for companies to get around wartime wage controls in a tight labor market. The government further accelerated the trend by exempting company and individual expenses for health insurance from the income tax. Pretty soon, health insurance was a routine part of the pay package offered by all but the very smallest employers.
You know what happened next. Medical inflation (and, to be fair, an enormous improvement in the quality of health-care itself) drove up the price of health insurance. By 2004, the New York Times was reporting that the cost of providing employee health insurance, which averaged $3,000 per worker, was impeding a jobs recovery. Because employment remained virtually the only avenue to acquiring health insurance, businesses did not, in the aggregate, cut back on the proportion of the work force (about 75 percent) offered health insurance. Instead, they held back costs by offering employees health-insurance policies that cost the employees more and covered less. Moore is shrewd to focus Sicko more on this problem than on the growing number of uninsured, because it more vividly demonstrates how the system is unraveling. Even when you "have" health insurance, you can't count on it.
It's tempting to demonize business for whittling away at health-care benefits, but over the past two decades the cost to business of providing those benefits has roughly doubled, to a great extent because health insurers and hospitals now employ vast bureaucratic armies to fight over medical bills. Health-care costs are now outrunning income gains by about 3 percentage points. This means that for the typical worker, raises are, for the foreseeable future, an artifact of the past. That's terrible news for labor, but it's terrible news for bosses, too, because it robs them of a necessary tool to get employees to perform good work.
The old, large, unionized Rust Belt industries are hit especially hard by health-care costs. As of two years ago, health insurance was calculated to add between $1,100 and $1,500 to the price of each automobile manufactured by General Motors—a cost not borne by its foreign competitors. In 2005*, GM lost $10.4 billion on its North American operations, and the business press began speculating that the automaker might go bankrupt. Business Week pointed out that if this happened, it would likely be the largest Chapter 11 filing in history. Two years later, GM has laid off 34,000 workers, yet its North American operations are still losing money—$85 million during the first quarter of this year. The company is still, Business Week says, "on a glide path to disaster." Health-care costs are a principal reason why, which is why GM's chairman, Rick Wagoner, has begged Congress to tackle the problem.
Not even Wagoner is ready yet to join Moore in his call for socialized medicine. But it's clear that business desperately wants to get out of the health-insurance business, and as the health insurance it offers employees gets steadily crappier, that's in essence what it is starting to do. But it's a painfully gradual process, and for GM, there's a real chance union concessions won't come fast enough to save the company. What I'd have liked to see in Sicko is Michael Moore sidling up to Rick Wagoner and offering him a deal. Rick, he'd say, I know there's bad blood between your company and me, but let's let bygones be bygones. You want GM to be in business five years from now. I want the government to guarantee every American decent health care. Join me in demanding national health care in the United States, just like they have in Britain, France, and Canada.
Sure, Wagoner might refuse. But then what would he tell his stockholders?
Correction, July 2, 2007: An earlier version of this article misstated the year of GM's $10.4 billion loss as 1985. (Return to the corrected sentence.)
E-mail Timothy Noah at .
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Remarks from the Fray:
While it's true that GM has complained repeatedly about the advantages of their foreign competitors, it's worth remembering that the American branded manufacturers have both failed to produce competitive products and failed to exercise sound political judgment.
In their product lines, they largely ceded the automobile market to the competition, focusing on the short term profitability of light trucks (SUVs). These corporate executives might have been expected to plan for a future when taste would revert, and be prepared with a quality product line. Instead, they let Toyota and Honda sell notchbacks, since there was more money in Navigators and Escalades.
In the same way, their political contributions have been focused on the party in power, rather than the party that might have assisted in their goals. While the automobile manufacturers were never large players in terms of political contributions, they have followed the pattern of giving most of their contributions in recent years to the party in power, the Republicans. This may have made sense in terms both of buying access and supporting elected officials who would be least concerned about emissions standards -- but it also shows a lack of concern with redressing the imbalance in health care costs.
When the leaders of the automobile industry went to Washington to plead for more time to meet CAFE requirements, they were given scant courtesy. It was inevitable. Their own focus on the next quarterly report had made them effectively obsolete. Ben Stein, an old style conservative who believes in individual resposibility and working for money, made the point that the failure of the so-called Big 3 was failure to make cars that people wanted. Both the change in buying patterns and the health care crises could have been foreseen, but in a culture that can't seen beyond the price of stock options in the next reporting period, the future doesn't matter. In reality, the future gets here, whether we're ready or not.
--Samskara
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According to Tim Noah, American employers face an undue burden when required to provide health insurance for their employees. However, employees also face a burden: that of lower wages than they would be making if their employer didn't have to provide health insurance.
In fact, economic equations demonstrate that in many cases, a large proportion of the employer's health insurance costs are passed on to American workers because the average employee won't reduce the number of hours worked because of this implicitly lower wage.
On the other hand, the cost of universal health care comes directly (and visibly!) out of our taxes. The bottom line: American workers are paying for this system. We always have, and we always will. We will pay more if corporations don't chip in at all. But the problems that plague medical care won't go away.
Before taking the plunge into European living, we have to ask: will trading lower wages for higher taxes bring about a better system?
--AnikaG
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The argument isn't very good, because there's a simpler solution. You just decouple businesses from health care. Largely, you can do this by eliminating the tax deduction that favors business' providing health insurance. Then businesses can decide for themselves if they want to keep providing this benefit.
I think unions are a better explanation for why Detroit is falling to pieces. Under our laws, a union becomes a monopoly in supplying labor to the company it is associated with. Unions then use their monopoly power to wreck these companies.
Both Obama and Hillary favor a vast expansion of the scope of unions through their "card-check" proposal.
--Martin_Straub
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We don't need socialized medicine; what we really need is Walmartized medicine. There is a reason why people shop there: The stores are readily accessible and they sell what people want/need at a reasonable price. When I was a kid in a small town, we had to go to "Mom and Pop Shops" for the things we needed. Mom and Pop didn't do much volume, and they were often the only game in town, so they could charge whatever they wanted. Sure, they were warm and friendly. But you had to settle for whatever they had on their terms. Once Walmart came around however, the landscape changed. Now anyone in any town could have access to variety and selection and at bargain basement prices.
Imagine the impact if the federal government became a healthcare Walmart and all the doctors, hospitals, and drug companies became the suppliers. Costs would plummet, as would the profit margins. If you wanted to stay in business, you would have to keep producing a quality product at bargain basement prices. This is of course why the pharmaceutical industry has resisted any collective bargaining with the Governement; they designed the Medicare D program to be a bunch of Mom and Pop Shops. Ironically, a universal healthcare system operated by the Government might actually be more capitalistic than our current system is.
--IowaDoc
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(7/5)