The Health of GM, The Health of Health Care
The Hidden Columnists--Paul Krugman Edition (25 Nov)

Paul Krugman's latest column--"Bad for the Country" (here's the link for full Times Select subscribers)--focuses on two issues where GM's recent woes correlate to macro-economic trends to the US: health care and the trade deficit. I'll concentrate here on just the health care portion of it:

I won't defend the many bad decisions of G.M.'s management, or every demand made by the United Automobile Workers. But job losses at General Motors are part of the broader weakness of U.S. manufacturing, especially the part of U.S. manufacturing that offers workers decent wages and benefits. And some of that weakness reflects two big distortions in our economy: a dysfunctional health care system and an unsustainable trade deficit.

According to A. T. Kearney, last year General Motors spent $1,500 per vehicle on health care. By contrast, Toyota spent only $201 per vehicle in North America, and $97 in Japan. If the United States had national health insurance, G.M. would be in much better shape than it is.

Wouldn't taxpayer-financed health insurance amount to a subsidy to the auto industry? Not really. Because most Americans believe that their fellow citizens are entitled to health care, and because our political system acts, however imperfectly, on that belief, tying health insurance to employment distorts the economy: it systematically discourages the creation of good jobs, the type of jobs that come with good benefits. And somebody ends up paying for health care anyway.

In fact, many of the health care expenses G.M. will save by slashing employment will simply be pushed off onto taxpayers. Some former G.M. families will end up receiving Medicaid. Others will receive uncompensated care - for example, at emergency rooms - which ends up being paid for either by taxpayers or by those with insurance.

Moreover, G.M.'s health care costs are so high in part because of the inefficiency of America's fragmented health care system. We spend far more per person on medical care than countries with national health insurance, while getting worse results.
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I don't want to attribute all of G.M.'s problems to our distorted economy. One of the plants G.M. plans to close is in Canada, which has national health insurance and ran a trade surplus last year. But the distortions in our economy clearly make G.M.'s problems worse.

Dealing with our trade deficit is a tricky issue I'll have to address another time. But G.M.'s woes are yet another reminder of the urgent need to fix our health care system. It's long past time to move to a national system that would reduce cost, diminish the burden on employers who try to do the right thing and relieve working American families from the fear of lost coverage. Fixing health care would be good for General Motors, and good for the country.

Bradford Plummer over at the Mother Jones MoJo blog adds a bit more shading to this issue

There's reason to think that national healthcare wouldn't necessarily make American businesses more competitive.

Say each year GM paid each worker $40,000 and spent $5,000 per worker on health insurance. That's a major drag, right? Well, look. Say national health insurance is then created, some system that doesn't rely on employers. Depending on how it's financed, GM could still be on the hook for that $5,000, so long as total worker compensation doesn't change—which it shouldn't, so long as it's set by the market. Maybe companies will now pay that $5,000 in wage form, to attract the same caliber workers (or because unions demand it). Or maybe the new system will be financed by payroll taxes or individual mandates, in which case the company might have to pay each worker $45,000 to cover the cost. But total compensation wouldn't change.

Alternatively, those companies that are currently paying nothing for health insurance can help share the load with companies like GM. But then you're just taking from one company to help out another—American businesses overall don't necessarily become more competitive. There are probably ways to redistribute the load that make sense, and that's why we have policy wonks, but the point is there's nothing prima facie business-friendly about this.

In reality, of course, things would look far more complicated. The current tax system makes things complex. And some health insurance systems are more efficient than others. National health insurance might be cheaper, on aggregate, than our current system, in which case everyone would be paying less, and businesses obviously become more competitive. But what if the new system was more expensive—given that 45 million new people would need to be covered? GM's fortunes would depend largely on how the system was financed and how good it was at controlling costs. European companies are more competitive on this front presumably because Europe rations its health care and so spends less (with similar, if not better health outcomes). If we could do that, it wouldn't matter quite as much how health care was delivered—cutting costs is where the benefits to business would lie, primarily.

There's another aspect here. Right now, when insurance premiums go up each year, GM usually has to cover the increase, which goes up faster than wages do, unless it wants to shift some of the cost onto workers—a move that usually causes a big stir and is somewhat hard to do. But if GM was paying its workers entirely in wages, and the government handling health insurance, then GM might be able to get away with avoiding the "necessary" wage increases whenever there was a premium hike. In that case, GM would save money and become more profitable by giving its employees a pay cut—who get, say, a payroll tax increase or premium hike from the government, but not enough of a corresponding wage increase from GM to cover it. But who knows.

I certainly think a national health insurance system is necessary in this country, one not tied to employment. It would help workers move from job to job more easily while remaining insured, and would guarantee that everyone had insurance. It's fair, moral, decent, etc. And it would likely be progressive, which the current tax deductions for employer-backed insurance certainly aren't. And so on. In theory reform could even help control costs, although I'm not as orthodox about that particular faith as some. But would it be a boon for American businesses? It really depends.