It's hard to compete

The New York Times thinks that our low taxes are making us uncompetitive with the rest of the world:

Politicians on the right have continuously paraded the specter of statism to rally voters’ support for tax cuts, mainly for the rich. But the meager tax take leaves the United States ill prepared to compete. From universal health insurance to decent unemployment insurance, other rich nations provide their citizens benefits that the United States government simply cannot afford.

The consequences include some 47 million Americans without health insurance and companies like General Motors being dragged to the brink by the cost of providing workers and pensioners with medical care.

Greg Mankiw points out that this is silly:

Employer-provided health insurance is just a form of compensation that happens to be provided in kind rather than in cash. What the Times seems to be saying is that because companies like General Motors have promised levels of compensation too large to make them competitive in the international marketplace, we should shift the responsibility for some of that compensation from the companies to the taxpayer.

An alternative approach is for the companies to reduce compensation to levels they can afford. One might respond that reduced compensation would be hard on workers. But so would the higher taxes needed to pay for the national health insurance the Times is lobbying for. There is no free lunch here.

But what he doesn't point out is that one of their main assertions--that GM is losing competitiveness because it has to pay for health care and pensions--isn't even true. GM's foreign competition comes from Japanese and German cars; the next biggest player, the Koreans, has less than five percent of the market. And Japan and Germany have employer-paid health insurance just like American companies.

I have no idea how the meme got started that American companies are losing competitiveness because only they have responsibility for their employees' health, but it shows up quite a lot, along with the even more erroneous belief that our pension problem creates a competitiveness disadvantage; for the record, Germany and Japan have their own gigantic pension problems.

GM's problem is not that it has to supply health care for its workers, but that its health care costs seem to be running about 200% of the national average. That's union bargaining power, not the national health care system. It is true, of course, that a national system would remove the union's ability to bargain up health care costs, but as Greg Mankiw points out, the bargaining power wouldn't go away; one expects that it would just be used to extract some other form of compensation, such as better pension coverage, earlier retirement, or higher wages.

Comments

German health coverage is covered by sickness funds rather than American style insurance companies. The sickness funds are non-profit and tightly regulated by the government. Mankiw certainly knows this, but somehow it got left out of his argument.

Posted by Stan | October 22, 2007 2:20 PM

Even if the Germans and Japanese didn't have employer-paid health care, the competitiveness argument could be disposed of more simply by repealing the law which forces GM to provide it. This effort would admittedly be handicapped by the fact that there is no such law-- which is of course the point.

Posted by Paul Zrimsek | October 22, 2007 2:32 PM

Stan,

It doesn't matter, unless there is some magic pie from which to draw taxes that doesn't affect the competitiveness of Americans with regard to foreigners- or vice versa. This is what makes The Times' editorial so damned silly- we could just keep raising taxes until we are the most competitive country on the planet. Damn, we could even pay the wages and salaries of American workers if we just raised taxes enough. Wouldn't that make American companies nearly unbeatable on the world market?

And Megan is correct, GM's and every other American car company's healthcare related problem is not due to the fact that they cover their employee's healthcare directly, but due to the fact that they do so far more generously than the average American company. The companies are finding it a losing proposition.

Posted by Yancey Ward | October 22, 2007 2:34 PM

Stan is correct. It's completely inaccurate to say that Germany has "employer-paid health insurance just like American companies". German employers pay half of an employee's contribution to a state-regulated sickness fund. That contribution is close to fixed, and averages 14% of salary. Saying it's "employer-paid health insurance" is like saying that Social Security or Medicare are "employer-paid" because employers pay a portion of the contribution. Part of GM's problem, which you don't mention, is that it has an aging workforce, which is largely why its premiums are so high. In Germany it doesn't matter how old your workforce is: all the sickness funds are required by law to take all comers regardless of age or pre-existing conditions, spreading risk evenly. In fact, because some inequalities between the funds do develop on their own, the state actually COMPENSATES funds which have more old and sick people in them, so that the funds are competing purely on efficiency and benefits and not on who can exclude more high-risk people.

The system is completely unlike the American system, and it prevents the risk of exploding health insurance costs that are punishing GM now. I'm not familiar with the Japanese system so I won't speak to that.

Posted by brooksfoe | October 22, 2007 2:40 PM

Yancey, every time we have this argument, you pretend you haven't heard the things that have been patiently explained to you before.

If GM eliminates health insurance coverage for its workers, who are largely middle-aged, they will find individual health insurance too expensive to buy on the open market. Whatever the rates are to cover them inside GM, they will be twice as high once they're outside GM. That's because of the way the health insurance market works. It's cheaper for the companies to buy than for individuals, but even for the companies it's becoming ruinously expensive. Part of the solution is that everyone in the country has to be put into one giant risk pool; we need legislation mandating that insurers must take all comers. Such legislation is part of every universal health insurance plan with a private element, such as those proposed by John Edwards, Hillary Clinton, and Barack Obama.

Posted by brooksfoe | October 22, 2007 2:49 PM

I'm afraid I'm no more able than Yancey to understand how GM is hurt by having the opportunity to provide its workers with something whose value to them is double GM's cost.

Posted by Paul Zrimsek | October 22, 2007 2:59 PM

Even if the Germans and Japanese didn't have employer-paid health care, the competitiveness argument could be disposed of more simply by repealing the law which forces GM to provide it. This effort would admittedly be handicapped by the fact that there is no such law-- which is of course the point.

So why doesn't GM just drop all the union workers then?

Certainly they could find non-union skilled labor to produce cars with.

It is the unions forcing GM to provide certain benefits for their workers. Aren't the unions part of the reason the GM is uncompetitive. They can't lower labor costs without long negotiation and the possibility of a strike strangling productivity.

I mean the other reasons are (reality or perceived) lousy quality, lack of innovation, and lack-luster products.

Posted by Keith_Indy | October 22, 2007 3:05 PM

"I have no idea how the meme got started that American companies are losing competitiveness because only they have responsibility for their employees' health"
You wonder where the rumor got started? The auto unions and the Detroit companies have massive lobbying efforts to get a government bailout through dozens of channels, and it defies belief that this isn't a result of their agitprop.

Posted by Disgruntled Worker | October 22, 2007 3:16 PM

I must add something that no one has even touched upon in regard to the UAW. This union is unlike any other. It is different from any other automobile union in foreign countries, and there is no other union with nearly their power in any other industry. They have such a strangle-hold on GM that the company has been unable to get out of its own way since the seventies. That main problem is the bloated entitlements that have inflated to the point where some workers work what would be called a no-show or nut-job in organized crime. This incredible loss in production, and the inability for employers to cull the workforce of unproductive workers has led to the phenomenon known as "Monday morning cars"; as the repercussions of this are felt from the production line up to materials, and down again, quality is affected. In fact, Roger Smith attempted a massive project of robotics for the assembly lines in the early eighties just like the Japanese were doing, but he was thwarted by the UAW, claiming that the program violated their entitlements to duties and hours, regardless of efficiency and the quality of the product. It remains in somewhat bad taste among the mainstream media to criticize labor rights, so this taboo argument is rarely heard. Easier instead it is to lambaste the excess and imprudence of a wasteful and decadent mega US corporation.

Posted by Peter - car enthusiast | October 22, 2007 3:19 PM

Paul Zrimsek, your inability to understand the health insurance market is a common ailment, but it's certainly nothing to brag about.

Posted by brooksfoe | October 22, 2007 3:37 PM

brooksfoe,

It is very difficult to explain anything to me when you veer off into the lands of illogic, which you do repeatedly.

The healthcare provided by GM is part of the compensation package the union negotiated with the carmakers. GM does not care how its employees take their compensation, only the cost of the total compensation matters. In GM's case, it appears they have badly miscalculated and are slowly being strangled to death by their competitors, who have calculated differently. Now, along comes the New York Times, using a brand of logic you should be familiar with, and proposes that the solution to GM's competitiveness problem is to spread that problem out to other Americans, voila, no more problem.

I would like to believe in the land of milk and honey, where things could be provided for free by the government, and too-high compensation costs by particular, uncompetitive companies could be instantly waved away by dipping into the magic honey pot called taxes. As I wrote above, if The Times' argument had any validity, then why stop at raising taxes to cover healthcare costs, why not pay the wages and salaries as well? Why not cover all the costs of all the American companies? That should solve the competitiveness problem of US firms once and for all time, don't you think?

And note, American companies and Americans themselves are quite competitive with Europeans and Japanese already. Most American firms are not feeble like GM, Chrysler, and Ford. Editorials like today's are simply calls for saving the dying corporate carcasses because they happen to have highly unionized (Democrat) work forces.

Posted by Yancey Ward | October 22, 2007 3:42 PM

I always thought the public insurance argument was a way to sneak subsidies past GATT -- if GM pays its workers compensation, including health insurance, but a foriegn competitor has 15% of its employees' salories subsidized by the government, then the foriegn competitor is sliding past GATT.

Is that fair, or does GATT count health care as an export subsidy?

Posted by J Mann | October 22, 2007 3:42 PM

Auto workers have votes, and they're not going to go without health insurance to satisfy Ann Rand's version of a good society. Some form of universal medical coverage is inevitable. The only way to head off a single payer system is by adopting a plan like Hillary Clinton's. I'm saddened that conservatives can't see this, but not surprised.

Posted by Stan | October 22, 2007 3:49 PM

As things are, GM's workers bear some of the burden of paying for health care for GM's retirees. Under universal health care, they would instead bear some of the burden of paying for the currently uninsured. On balance, it seems like a pretty good deal for GM's workers. Not so good for high-wage workers in businesses that don't have retiree health benefits.

Posted by henry evans | October 22, 2007 3:50 PM

Megan_McArdle: You are correct that using GM's health care woes as support for the argument that "single payer would make american businesses more competitive" is flawed.

However, GM's legacy obligations unambiguously DO make it uncompetitive. It means they have to pay a cost that their competitors don't. It's that extra "required profit margin to stay profitable" that allowed Japanese imports to undercut American automakers in the first place.

But like your previous co-blogger Winterspeak noted, the problem isn't so much that "health care costs went up" but that GM made a promise it couldn't afford to keep (and should have known it couldn't afford to keep). It should have fully funded the future legacy costs as the benefits were being accrued. Like a bond issuance, it should have factored the future payment obligations into its own estimates of financial health. But GM didn't. Workers were taking deferred compensation in lieu of higher wages, yet executives took those lower wages as a "given" and used them to pay bonuses and dividends.

It would be like borrowing money, paying it out as a dividend (instead of investing in productive equipment) and then wondering why your competitors are in much better shape, while you gripe about these "legacy interest costs". And likewise, giving pensioners anything other than highest debt seniority is like paying a dividend while in bankruptcy.

Posted by Person | October 22, 2007 3:53 PM

Yeah, but....

I understand the Germans and Japanese do have to pay for their health care even if it's not a line item on each employee's pay stub, but aren't we putting US-based automaking operations at a global competitive disadvantage because they have signed up for (perhaps unwisely) a generous employee health care package? GM didn't project the extreme rise in costs of health care, and if it had, I doubt these employees would have the kind of coverage they do now.

I'm not advocating for a bailout of the corporations involved or giving them any special treatment. Quite the contrary. This is a sign that globalization can have a profound effect when an economy that had a previous competitive advantage suddenly finds itself at a disadvantage. This has not happened overnight. The companies let it slip away. They always seem to be a step-behind. Whether it's quality, product design, manufacturing, marketing, or labor costs, the U.S. based car companies seem to be behind in one more categories all the time. It's startling to me that capital markets lend them money at anything near a competitive rate given their recent record in the marketplace.

Yes, they might be more (cost) competitive if health care costs were spread across the entire population, but then they'd still have all their other issues.....

Posted by Michael W | October 22, 2007 3:56 PM

"But what he doesn't point out is that one of their main assertions--that GM is losing competitiveness because it has to pay for health care and pensions--isn't even true."

Right, and an important part of GM's competition is from transplant factories in the U.S. Those non-union factories also provide health insurance...just not GM-UAW gold-plated insurance.

"...as Greg Mankiw points out, the bargaining power wouldn't go away; one expects that it would just be used to extract some other form of compensation, such as better pension coverage, earlier retirement, or higher wages."

Or add-on health coverage above and beyond what a government system provided, for that matter.

The bargaining power has been diminishing, though, as the 'Big 3' have shed market share and jobs by the truckload.

Posted by Slocum | October 22, 2007 4:00 PM

Auto workers have votes, and they're not going to go without health insurance to satisfy Ann Rand's version of a good society. Some form of universal medical coverage is inevitable. The only way to head off a single payer system is by adopting a plan like Hillary Clinton's. I'm saddened that conservatives can't see this, but not surprised.

And every time you ring, and angel gets its wings, no doubt. Few things are more nauseating than a person who has converted to a politics in a religious fashion.

Any time expensive new toys are proposed, all sensible people are going to sit down and have a serious talk over the feasibility, costs, benefits, and implementation requirements for buying them in comparison to what is already available. If that's not the kind of discussion your religion permits, then why butt into it?

Posted by anony-mouse | October 22, 2007 4:08 PM

Slocum et al: Don't compare

a) GM's competitors' paying for health care for *current* employees

with

b) GM's legacy costs.

The former comes out of total wage compensation and would have to be paid in some form no matter what. The latter has nothing to do with current labor costs, but rather, a contract made with the union a long time ago. For the same reason, provision of that legacy health care does not exist because of union bargaining power today, but because of a contract signed under the pressuer of a previous generation's union's bargaining power.

Nor would any proposed national health care plan do anything at all for GM unless it took the unprecedented step of voiding contractual obligations.

There's so much confusion on this issue I could spend all day making posts like these.

Posted by Person | October 22, 2007 4:13 PM

Auto workers have votes, and they're not going to go without health insurance to satisfy Ann Rand's version of a good society.

On balance, it seems like a pretty good deal for GM's workers. Not so good for high-wage workers in businesses that don't have retiree health benefits.

Let me take these 2 quotes for premises...

...and rebuff this assertion:

Some form of universal medical coverage is inevitable.

The unionized labor pool of manufacturing industries shrinks. The non-unionized labor pool of IT and other "soft" industries expands. White shirts and golden shirts vote too, not just the blue ones. Thus we only need to hold the single-payer disaster off for a bit longer until unions start dying the death of a rabid dog, and we are home free. I'm sure there'll be enough takers for Chevy/GMC truck part of the business, as well as for the 'Vette trademark. And to the rest -- good riddance! Perhaps we'll finally start seeing more rentals made by Honda.

Posted by ...Max... | October 22, 2007 4:13 PM

That's true of the health care, but AFAIK, the health coverage for retirees is negotiated with every new UAW contract.

Posted by Megan McArdle | October 22, 2007 4:20 PM

NYTimes: companies like General Motors being dragged to the brink by the cost of providing workers and pensioners with medical care

If only we had some national, universal health care system that provided all "pensioners" with medical care! Oh, how much better a country we would be, and how much more competitive GM would be!

To solve these issues, I propose that all "pensioners" be given government-paid (single payer) medical care. And I propose we call it... MEDICARE. I can't wait until we live in this utopia of a society in which companies like GM no longer have to pay for pensioner medical care and instead it is all provided by the government.

Posted by Al | October 22, 2007 4:21 PM

Megan_McArdle: "That's true of the health care, but AFAIK, the health coverage for retirees is negotiated with every new UAW contract."

Who was that directed toward? And is that really true? Isn't it kind of stupid to base your ability to get health care in retirement on the bargaining power and corporate health of whatever union and GM happens to exist at that future time?

Posted by Person | October 22, 2007 4:28 PM

Obviously, that was "pensions" not health care, and it may be stupid, but that's how it's done; retiree benefits were on the table at the last GM round, and an agreement to cap them through a trust was one of the points that allowed a strike settlement.

Posted by Megan McArdle | October 22, 2007 4:39 PM

Too append my previous post, I'm always curious to know whether large companies like GM have investigated means of providing healthcare other than the very expensive option they have obviously chosen (in negotiation with the union, of course). Something along the lines of hiring their own first line health care general practitioners that act as gatekeepers to expensive tests and procedures. Because of their large employee base, I don't know why they are subject to such an extreme elevation in costs without even an attempt to do something innovative....oh wait, these are the companies that produced the Pinto, the Chevette, and the Cordoba.

I certainly understand why these companies would lobby for universal health care..it couldn't be anymore expensive than what they've chosen. Universal health care might be a good idea (I'm still neutral), but not because it would serve a particular corporate sector.

If Ford goes under, it won't be because of health care. Product, quality, overall costs, marketing.....

Posted by Michael W | October 22, 2007 5:04 PM

"The unionized labor pool of manufacturing industries shrinks. The non-unionized labor pool of IT and other "soft" industries expands. White shirts and golden shirts vote too, not just the blue ones. Thus we only need to hold the single-payer disaster off for a bit longer until unions start dying the death of a rabid dog, and we are home free."

The idea here is that blue collar work will disappear and that everybody will either have jobs that provide medical benefits or will be able to buy private insurance on their own. Max, do you see any possibility of this happening? And I wasn't talking about a single-payer system, I was talking about the system Congress will pass in 2009.

Posted by Stan | October 22, 2007 5:14 PM

The idea here is that blue collar work will disappear

No, the idea here is that political power of the unions (which are "the school of Communism" according to no other authority but Lenin) will dwindle, and so will support for measures that benefit their members at the expense of everybody else.

Me, I'd much rather NOT see jobs providing medical benefits. I'd rather see free and open markets for medical services and for insurance services. Now we have neither.

And as to what Congress will pass in 2009, each of us can have his own hopes. Mine feature a grinding deadlock.

Posted by ...Max... | October 22, 2007 5:34 PM

Back fifteen-or-so years ago, GM did massively cut its health care costs by adopting new, cheaper health plans for both workers and retirees. However, it was only able to do so for salaried employees and retirees, because the UAW utterly refused to consider any change to the health plans of hourly workers and retirees.

The result is that today, a line worker (or retired line worker) in a GM plant has more comprehensive and expensive health coverage than a Level 8 manager responsible for a whole engineering program and the output of that entire plant.

By the way, why does the UAW defend the benefits of UAW retirees so assiduously in each contract? Because retirees are voting members of the UAW, and there are almost as many of them as there are current autoworkers. Any UAW leadership that compromised on retiree benefits would be out on its ass.

So, let's assume a national health system:

If it's as good as what the UAW is currently getting, it will vastly increase the share of GDP going to health care, because they currently have the best and most expensive health care coverage in America.

If the national health system is not as good as what the UAW retirees currently get,

If it's not as good as what the UAW currently gets and it's legal to buy private coverage above the national system, well, the UAW will demand the excess coverage above the national plan to the current level. Still, that might reduce the costs to GM somewhat. And it's not necessarily true the UAW will use its bargaining power to extract the savings for its members. A major problem with the current system is "price stickiness" — the refusal of UAW retirees to take a cut in benefits, even if it's necessary to save GM. If they get the same benefits and can make GM more competitive at the same time, the retirees will probably not yell and the current employees/UAW leadership probably will favor keeping GM in business.

If the national plan both has a level lower than what UAW workers and retirees currently get, and doesn't allow supplemental coverage, the plan will outrage the UAW members and make them politically dangerous to whomever passed the plan. It would probably be a good way to elect Republicans in Michigan.

Posted by Oildrilling Lunatic | October 22, 2007 6:03 PM

GM's problem is not that it has to supply health care for its workers, but that its health care costs seem to be running about 200% of the national average.

The reason the health care benefits are 200% of the national average is that their workers and retirees are old! If you have a national system in which Company A covers its workers for life, while Company B doesn't, and as time goes on Company A increasingly shrinks its workforce by outsourcing tasks to its suppliers, so that its own workforce keeps getting older while it builds up more and more retirees it still has to cover -- then ultimately, obviously, Company A is going to be covering a much older and more expensive workforce, and the difference in health insurance costs between its workforce and Company B's is going to look much larger.

You can level the playing field either by ensuring that nobody in Company A or Company B has health insurance, or by ensuring that everybody has it and pays the same rate because charging different premiums based on age is illegal. The latter solution is the one used in Germany. I don't know about Japan, but I'd be surprised if it were much different. The preferred solution of the people on this list is to take away everyone's health insurance and make them buy it individually in an unregulated market. The more we move towards such a system, which no other advanced economy uses, the more Americans' health insurance leaps above every other country's in price, and the more Americans become uninsured and uninsurable.

The point Yancey, anony etc. keep making is that it would be easy for GM to become more competitive if it could just stop paying for its employees' health insurance. No duh! And if you don't care whether its employees have health insurance, that would be a perfectly fine way to go.

Let's put this another way. GM doesn't need a single-payer health insurance system paid for through taxes to become competitive. What it needs is legislation making it illegal to charge different rates to insure people based on age or preexisting conditions. That would immediately drop its health insurance costs radically. However, it would also put whatever company was insuring GM out of business, because under the current system clients have been sorted according to risk. That's where the part of the German system comes in that involves cross-subsidies from companies with young client bases to companies with old client bases. The transition to such a system in the US would be a big mess for a while, but eventually you'd get to where the Germans are, where the different sick funds have roughly similar client bases and the cross-subsidies aren't too big. And at that point insurance actually becomes "insurance", not a game of suckering young, healthy people and shunting the old and the sick off onto someone else, where everyone laughs at GM for being such losers that they actually promised to take care of their workers.

Posted by brooksfoe | October 23, 2007 12:24 AM

Megan_McArdle: Something still doesn't add up. If each new year's health benefits for retirees must be re-negotiated each year (presumably, costing the union a concession elsewhere), why do courts ever award retirees any health benefits at all during bankruptcy (or even have it on the list somewhere when sorting through creditors)? If GM (or any corporation in a similar situation) has zero legal obligation to provide health benefits each year beyond the present fiscal, why doesn't it just declare bankruptcy and wipe that off the balance sheet completely as it discharges the union obligations?

In fact, this is exactly what Chrysler's new PE owners should be thinking about right now.

Posted by Person | October 23, 2007 12:30 AM

Let's put this another way. GM doesn't need a single-payer health insurance system paid for through taxes to become competitive. What it needs is legislation making it illegal to charge different rates to insure people based on age or preexisting conditions. That would immediately drop its health insurance costs radically. However, it would also put whatever company was insuring GM out of business, because under the current system clients have been sorted according to risk. That's where the part of the German system comes in that involves cross-subsidies from companies with young client bases to companies with old client bases. The transition to such a system in the US would be a big mess for a while, but eventually you'd get to where the Germans are, where the different sick funds have roughly similar client bases and the cross-subsidies aren't too big. And at that point insurance actually becomes "insurance", not a game of suckering young, healthy people and shunting the old and the sick off onto someone else, where everyone laughs at GM for being such losers that they actually promised to take care of their workers.

You're very very very badly confused. "Insurance" involves charging people premiums based on risk. Having everyone pay the same amount regardless of health or age -- i.e., regardless of risk -- is welfare, not insurance.

Giving someone who is sick health "insurance" at the same rate as someone who's healthy is as sane as giving someone whose house is already on fire homeowners' insurance at the same rate as someone whose house is intact. That is to say, insane, and reflecting a complete lack of understanding as to what insurance is.

Posted by David Nieporent | October 23, 2007 12:56 AM

David N, if you don't make pool rating mandatory for health insurance, then you get what we have now: epidemics of cream-skimming and astronomical costs for everyone who does get insurance.

If you do not start from the understanding that the current American health insurance system is broken, then you a. disagree with the large majority of Americans and b. have nothing useful to contribute to where American health care is going to go.

Posted by brooksfoe | October 23, 2007 2:20 AM

I worked for a German company for several years. For most German workers, both the worker and his employer contribute contribute a set percentage of the salary towards health insurance. At the time (15 years ago), my employer and I each contributed about 6 1/2 %, though this percentage may have gone up since then. The cost of insurance is the same whether an employee is single or has a stay-at-home spouse and 6 kids.

I believe a big difference between the German system and what GM has is that German companies do not have to pay anything once an employee retires. Thus German companies are only paying health care costs for productive workers.

Posted by Stuhlmann | October 23, 2007 5:05 AM

David N, if you don't make pool rating mandatory for health insurance, then you get what we have now: epidemics of cream-skimming and astronomical costs for everyone who does get insurance.

And if you do, then you're not selling insurance. You're selling welfare. Now, since you're on the left, you're fine with that, and that's a question of values. But regardless, you should use proper terminology. That's just not insurance.

If you do not start from the understanding that the current American health insurance system is broken, then you a. disagree with the large majority of Americans and b. have nothing useful to contribute to where American health care is going to go.

Well, actually, "the large majority of Americans" fortunately seem to be pretty reluctant to embrace socialized medicine in whatever guises the left has been selling it.

There are obviously problems with the American health insurance system -- government coverage mandates, tax preferences for employer-provided health insurance. Too much insurance generally, so that it covers things that make no sense to cover in an insurance plan. (Real insurance should be limited to catastrophic coverage.) But the idea that low-risk people should subsidize high-risk people within the insurance realm isn't even sensible.

Posted by David Nieporent | October 23, 2007 5:22 AM

Large majorities of Americans always say they think the American health care system is broken. Majorities consistently say they are in favor of universal health care. The particular form that universal health care arrives in is still open to debate.

If you allow insurers to discriminate between low-risk and high-risk people, this is what happens. First, people at high genetic risk or born with genetic health disorders can't get coverage. If it weren't constitutionally prohibited for unrelated reasons, insurers would be justified in charging black people higher rates due to their higher rates of heart disease. Second, at any "choice point" where people switch coverage, whatever health problems or risks they've unluckily built up over the years will raise their rates. So essentially they haven't been "insured" at all, unless they never switch plans, which effectively means never switching employers under the US system. If you could buy a guaranteed lifetime policy, this wouldn't happen, but no one offers such a policy because it would attract only people afraid they're at high risk, so its rates would be astronomical. Young, healthy people would generally opt for riskier, cheaper plans. By the time they run into trouble, it's too late - they can't switch.

As Paul Krugman explains, conservatives always try to say the reason health insurance is too expensive is that people with insurance go to the doctor too often or get too many minor things covered. But when you run the numbers, that's all chump change. It's really all about the major procedures; that's where the money is. And the reason insurance for that is so expensive is because it's not being distributed rationally.

Posted by brooksfoe | October 23, 2007 8:05 AM

Y'all seem to be forgetting that GM retirees are covered by Medicare. The benefits don't have to be this generous; they're that way because, as pointed out, the retirees are voting themselves rich and don't care if they destroy the company, because they'll be dead when the carcass really rots.

However, in this case, it's moot; GM is no longer responsible for its retiree health costs. I suspect because the younger wrkers were not willing to stay on strike to protect retiree benefits that would bankrupt the gravy train.

Posted by Megan McArdle | October 23, 2007 10:04 AM

The reason that heath coverage for retirees for GM is an important issue is that the typical GM employee retirees long before they are eligible for Medicare.

If you start working at GM as a 20 to 25 year old -- fairly typical -- you can have your 30 years and retire some 10 to 15 years before you are eligible for Medicare.That 10-15 year gap until you are eligible for Medicare is what is covered and once the Retiree reaches 65 the cost of providing coverage drops massively.

Posted by spencer | October 23, 2007 11:52 AM

Moreover, when you evaluate what is important to the union members and so to the union negotiating position you have to consider who are the typical union members. Because for about 20 to 30 years employment at the big three has been stagnant or actually fell over most of this period the big three has hired very few new employees. Consequently, the bulk of the union membership are in their 40s & 50s -- like the joke that to get on the shop floor you have to have your 20 year pin -- so health insurance coverage in retirement is something that is very important to them.

If you look at many of the union positions even aside from this issue you see years of the union taking positions that focus on the worries of this older population into consideration. The union regularly negotiate issues that favor the older members even at the expense of younger memeber

Posted by spencer | October 23, 2007 12:04 PM

finally, back to the original issue of US taxes vs European taxes. the bulk of the difference stem from the fact that in Europe much more of the cost and spending of their healthcare systems is paid for through taxes. If you back that out their is not that big a difference between US and European taxes.

So for large US firms if you think of their spending on health insurance as being like a tax while in Europe taxes are skewed much more to taxes on consumption versus taxes on profits and income in the US you can see how shifting healthcare cost from the corporation to the individual would significantly impact US competitiveness even if firms had to pay higher salaries to offset the shift.

Posted by spencer | October 23, 2007 12:13 PM

"In Germany it doesn't matter how old your workforce is: all the sickness funds are required by law to take all comers regardless of age or pre-existing conditions, spreading risk evenly."

That sounds to me more like a system where new companies with younger workforces and no retirees subsidize the old, stagnant companies than a system that spreads risk evenly.

Posted by markm | October 23, 2007 1:07 PM