U.S. Healthcare Problem Too Big for Employers and Workers (6/20/2005)

Source: Los Angeles Times

Like a patient ignoring an ominous lump, Washington has spent years hiding from America's healthcare crisis. Now we'll soon learn whether President Bush and Congress will pay attention even if they are hit, so to speak, by a truck.

General Motors Corp. and the United Auto Workers are barreling toward an explosive collision over the company's effort to shift more of its crushing healthcare burden to its unionized workers.

GM is seeking concessions by the end of June, but union officials say they won't change their labor contract before it expires in 2007.

With many Americans already unnerved by persistent trade deficits, airline pension defaults and GM's recent announcement of 25,000 layoffs, the political and economic consequences could be profound if the GM-union conflict escalates into a strike or lockout. Self-preservation alone might encourage a president and a Congress with sinking approval ratings to confront the underlying healthcare problems fueling this dispute with even a fraction of the concern that they mustered for the treatment of a single Florida woman, Terri Schiavo.

To put it mildly, exploding healthcare costs present a more tangible problem for many more Americans than right-to-die cases. Since 2000, according to the Kaiser Family Foundation's authoritative survey, healthcare premiums for family coverage have increased by 59%, six times faster than inflation.

Higher costs, which encourage employers to drop coverage and discourage employees from purchasing it when offered, are swelling the number of uninsured. Meanwhile, managers and workers in companies that still provide coverage are facing no-win disputes over how to split escalating bills.

That tension triggered the bitter four-month grocery strike settled last winter in Southern California. Now, the same fuse is igniting the confrontation between GM and the UAW.

The company's fundamental problem is that it has not designed enough cars that consumers like. But there's no question that unsustainable healthcare bills are compounding its distress.

In 1996, GM spent $3 billion to provide healthcare to 1.2 million workers, retirees and family members. This year, it expects to spend $5.6 billion to cover 1.1 million people. That means GM's per-person expenditures for healthcare have doubled (from $2,500 to nearly $5,100) in less than a decade. GM now spends more than $1,500 on healthcare for each car it produces. That's more than it spends on steel.

More importantly, that's also significantly more than its key foreign competitors spend on healthcare. GM officials estimate that healthcare costs for Toyota are only about one-fourth as much per car, largely because the government pays more of the tab in Japan than in the U.S.

This is a problem too big for GM and its workers to resolve alone. Whether or not they negotiate a new formula for dividing healthcare costs, the prognosis is for perpetual conflict and economic strain unless the overall increase in medical costs is slowed. And that requires national action.

There's no silver bullet for controlling medical costs. The inability of even a massive consumer like GM, with its vast bargaining power, to hold down its bills belies the simplistic suggestions from Bush and conservative thinkers that transferring more of the cost to individuals will significantly reduce costs by making patients smarter consumers.

Instead, meaningful cost control requires a comprehensive agenda. One place to start would be by modernizing the healthcare industry's antiquated record-keeping and billing systems.

Last week, the odd couple of Senate Majority Leader Bill Frist (R-Tenn.) and Sen. Hillary Rodham Clinton (D-N.Y.) introduced legislation that they estimated could cut total medical spending by as much as 10% by providing incentives for hospitals and other providers to computerize medical records that now pass through too many hands and generate too many errors.

Next, Washington could shoulder more of the cost for the handful of catastrophic cases that inflate premiums for everyone else. As Rick Wagoner, the GM chairman and chief executive, noted last winter, 1% of patients generate 30% of the spending on healthcare.

The best domestic policy idea that Sen. John F. Kerry (D-Mass.) produced in his 2004 presidential campaign directly addressed that problem. Kerry proposed that Washington assume 75% of the cost for any patient whose annual health expense reaches $50,000. One leading analyst estimated that change alone could reduce health insurance premiums by 10%.

Kerry plans to embody his proposal in legislation this year. Frist hasn't progressed as far toward a specific plan, but he has proposed a public-private partnership that could absorb more risk for the most expensive cases from individual health insurers.

What else? Allowing Medicare to bargain directly for prescription drugs would establish benchmarks that could lower the massive pharmaceutical costs now inflating healthcare spending. (GM alone spends about $1.5 billion annually on prescriptions.) More creative efforts to encourage fitness would reduce the incidence of expensive illnesses, such as diabetes, linked to a widening (sorry) obesity problem.

Finally, covering more of the nearly 45 million uninsured Americans would shrink the huge bill for uncompensated care (recently estimated at $43 billion annually) that the insured pay through higher premiums.

Each of these steps would require more federal spending or intervention in the market. Big employers like GM contributed to their problems by allowing their ideological resistance to such activism to mute their support for innovative ideas like Kerry's. But Wagoner now talks urgently about the need for national action, and Washington should respond.

When it comes to controlling healthcare costs, an old diagnosis applies: What is good for GM actually would be good for America.

"That's the problem," Hill said.