A Heftier Dose To Swallow
Rising Cost of Health Care in U.S. Gives Other Developed Countries an Edge in Keeping Jobs
By Kirstin Downey
Washington Post Staff Writer
Saturday, March 6, 2004; Page E01
For each mid-size car DaimlerChrysler AG builds at one of its U.S. plants, the company pays about $1,300 to cover employee health care costs -- more than twice the cost of the sheet metal in the vehicle. When it builds an identical car across the border in Canada, the health care cost is negligible.
In the battle for manufacturing jobs, the United States has always been at a disadvantage compared with underdeveloped countries where wages are low. But the rapidly rising cost of health care in the United States means that even developed countries sometimes have an edge when it comes to keeping jobs, according to interviews with dozens of corporate executives, legislators and health care consultants.
The United States has lost nearly 3 million manufacturing jobs since July 2001, with 43 consecutive months of manufacturing-employment decline, from about 17.3 million jobs to about 14.3 million in February 2004. During the same period, the manufacturing workforce in Canada has generally remained stable, at about 2 million jobs, even though the unemployment rate is higher there, at 7.4 percent, than in the United States, where it is 5.6 percent.
And, although both nations lost auto manufacturing jobs in 2000 and 2003, the decline was only 4 percent in Canada, compared with 14 percent in the United States.
Jim Stanford, an economist with the Canadian Auto Workers union, said employers who could operate in either country save $4 per hour per worker by choosing Canada. "That's a reasonably significant differential. . . . It's one of the reasons Canada's auto industry has done a lot better," he said.
In a joint letter circulated in Canada in November 2002, officials from Ford Motor Co., General Motors Corp. and DaimlerChrysler said "the public health system significantly reduces total labour costs . . . compared to the cost of equivalent private health insurance services purchased by U.S.-based automakers."
High health care costs have "created a competitive gap that's driving investment decisions away from the U.S.," Ford Vice Chairman Allan Gilmour said in a speech at a recent auto industry conference. "If we cannot get our arms around this issue as a nation, our manufacturing base and many of our other businesses are in danger," he said, according to a transcript of the speech.
Gilmour, who is leading a Ford study of health care, said it may be necessary to prod government officials to consider policy changes to reduce health care costs, although he declined to specify what changes should be made. "I do know that significant reform is necessary," he said. "Right now the country is on an unsustainable track and it won't get any better until we begin -- business, labor and government in partnership -- to make a pact for reform."
But while the Big Three automakers told Canadians that their nationalized health insurance system helped preserve jobs, and lobbied the Canadian government last year to maintain the program, their corporate executives are not willing to go that far when it comes to health care in the United States.
Business trade groups here advocate small steps, such as helping workers care for themselves better, urging them to stop smoking and lose weight, and shifting costs to employees. The U.S. Chamber of Commerce, for example, backs such proposals as tort reform, electronic prescription writing and providing better information on the quality of care by doctors and hospitals.
The Bush administration has proposed some targeted efforts to help individuals pay for their care, through tax credits and health care spending accounts that officials say would lower taxes and help people pay for health care.
Most of Bush's Democratic opponents for president would like to see more aggressive governmental action, ranging from Sen. John F. Kerry's (D-Mass.) plan to expand care for poor children and create a federal insurance pool to help employers pay for catastrophic care to Rep. Dennis J. Kucinich's (D-Ohio) proposal for a universal, single-payer system that would cut costs by eliminating insurance company paperwork.
Manufacturers outside the auto industry are also concerned about health care costs and employment.
"We can't just continue to shift jobs out of the United States, not just manufacturing jobs, but all kinds of jobs, and health care is playing a role," said William A. Rainville, chief executive of Kadant Inc., a Massachusetts-based manufacturer of papermaking equipment. "It's like we're in a stream with no control over it."
Rainville said his company will spend about $6,500 on health care for each of its 525 U.S.-based employees this year, while health care costs for its 45 Canada-based workers are minimal. "Our U.S. workers are the most productive, but it doesn't make up for the health care," he said.
Rainville said he has considered moving production to Canada. "As an American it concerns me, but as a businessman, I don't have much of a choice. You need to do what's right for the business."
The cost difference is striking. Employers in Canada pay only about $50 a month, or $600 a year, mostly for optional items such as eyeglasses and orthopedic shoes, said Elaine Bernard, executive director of the labor and worklife program at Harvard Law School. "Health care is significantly cheaper for corporations in Canada," she said. U.S. employers pay more than 10 times as much -- an average $552 a month per employee for health insurance, according to the Kaiser Family Foundation.
In the United States, General Motors spent $4.5 billion on health care last year for its 1.2 million American workers and retirees, at a cost of about $1,200 per car, said Tom Wickham, a GM spokesman. Ford spent $2.8 billion last year on health care, a Ford spokeswoman said. DaimlerChrysler spent $1.4 billion on health care for its 97,000 U.S. workers and 107,000 retirees last year, for an average cost of $1,300 per mid-range car priced at $18,600, said Thomas J. Hadrych, the company's vice president of compensation, benefits and corporate services. "The reality is it is a significant cost element we struggle with on a year-over-year basis," Hadrych said.
Meanwhile, the number of people insured by their employers is shrinking, which means that employers who continue to pay for employee health care must pay more. Employer health care costs rose 12 percent in the past year, on top of a 16 percent increase the previous year, according to Towers, Perrin, Forster & Crosby Inc., a human resources consulting firm.
"This is the seventh straight year of double-digit price inflation," said Helen Darling, a former Xerox Corp. executive who heads the National Business Group on Health, an association of 182 companies. "Prices started climbing in the bubble economy, but companies then were making a lot of money, everybody was living like they made a lot of money," and the escalation was relatively unnoticed at first, she said.
After the economy began to slump, however, executives began to worry. They shifted some of the growing cost to employees by raising insurance premiums and co-payments. Other companies have stopped offering health insurance or have raised premiums so high that some workers can't afford them.
Most other industrialized countries -- Canada, Japan and those in Europe -- have government-funded health care systems with universal coverage. Canadians, for example, pay higher income taxes and a 15 percent sales tax to support the nationalized health care system.
"Suffice it to say Canada and Germany have a socialized form of health care" that delivers quality care at a lower cost for a larger number of people, without placing all the expense on employers, said Hadrych, of DaimlerChrysler. "The burden of it falls on the government, not just on employers," he said. In the United States, "we carry the full brunt of it."
Hadrych said political pressure on the health care system a decade ago, when the Clinton administration proposed changes, helped keep prices down for several years, but when the political pressure eased, companies began increasing their prices again. He said he believed the country was moving toward what he called a "more comprehensive" solution to the problem in 2001, but that the Sept. 11, 2001, terrorist attacks diverted everyone's attention.
"Prior to 9/11, we saw a lot of interest on the Hill with respect to the health care issues," he said. "After 9/11, it all shifted," and, he said, momentum for a bigger solution was "not there."
"A lot of people think a single-payer system is better," he said.
