Would National Health Insurance Help GM?

| Tue Nov. 22, 2005 12:56 PM EST

Conventional wisdom in this country has it that American businesses are uncompetitive partly because they have to spend so much on health insurance for their workers. Here's a common variation, from Dean Bakopoulos:

[W]e must implement a system that guarantees universal healthcare. American industry — from National Steel to Starbucks — would benefit from having the burden of health insurance lifted off its back. Why else would GM be aggressively investing in nationalized-healthcare Canada while U.S. plants shut down?
Why indeed? I certainly don't know. But I'm not convinced that the conventional wisdom is entirely right. At least let's hash it out. 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.