Health Costs Screw Business, Too

The victim Sicko won’t acknowledge.

Michael Moore (left) rabble-rouses in Sicko

Because he’s a documentary filmmaker and not a politician, Michael Moore isn’t obliged to pretend that fixing America’s health-care system is a mere matter of realigning market forces. Moore’s new film, Sicko, makes a straightforward case for “socialized medicine.” Most other industrialized democracies have adopted some form of socialized medicine— Sicko visits France, Britain, and Canada—and while Moore can be faulted for depicting these health-care systems as flawless, the truth is that in most respects they are superior to the American system. Sicko tells story after heartbreaking story about ordinary people getting screwed out of the health-care benefits they thought they had coming. Yet one significant victim of America’s market-based health-care system is left out: market capitalism itself.

I refer not to health insurers, nor to health-maintenance organizations, nor to for-profit hospitals, but rather to businesses outside the health-care sector that are saddled with the growing cost of providing health insurance to their employees. This obligation puts American companies at a disadvantage with respect to foreign competitors whose governments provide health care. The most obvious victim, ironically, is a company Moore knows very well: General Motors. Because of health-care obligations, the automaker that Moore pilloried in his first film, Roger and Me, is fighting for its life.

As Jonathan Cohn relates in his recent book Sick, private health insurance first came into being during the Great Depression, when doctors realized they had priced themselves out of the market. In the United States, health-insurance plans were organized on a nonprofit basis by hospitals working through fraternal organizations like the Elks and the Shriners. These were sufficiently successful that for-profit insurance companies got into the act. Businesses started displacing the Elks, et al.,as dispensers of health-care insurance during the 1940s. It was a way for companies to get around wartime wage controls in a tight labor market. The government further accelerated the trend by exempting company and individual expenses for health insurance from the income tax. Pretty soon, health insurance was a routine part of the pay package offered by all but the very smallest employers.

You know what happened next. Medical inflation (and, to be fair, an enormous improvement in the quality of health-care itself) drove up the price of health insurance. By 2004, the New York Times was reporting that the cost of providing employee health insurance, which averaged $3,000 per worker, was impeding a jobs recovery. Because employment remained virtually the only avenue to acquiring health insurance, businesses did not, in the aggregate, cut back on the proportion of the work force (about 75 percent) offered health insurance. Instead, they held back costs by offering employees health-insurance policies that cost the employees more and covered less. Moore is shrewd to focus Sicko more on this problem than on the growing number of uninsured, because it more vividly demonstrates how the system is unraveling. Even when you “have” health insurance, you can’t count on it.

It’s tempting to demonize business for whittling away at health-care benefits, but over the past two decades the cost to business of providing those benefits has roughly doubled, to a great extent because health insurers and hospitals now employ vast bureaucratic armies to fight over medical bills. Health-care costs are now outrunning income gains by about 3 percentage points. This means that for the typical worker, raises are, for the foreseeable future, an artifact of the past. That’s terrible news for labor, but it’s terrible news for bosses, too, because it robs them of a necessary tool to get employees to perform good work.

The old, large, unionized Rust Belt industries are hit especially hard by health-care costs. As of two years ago, health insurance was calculated to add between $1,100 and $1,500 to the price of each automobile manufactured by General Motors—a cost not borne by its foreign competitors. In 2005 *, GM lost $10.4 billion on its North American operations, and the business press began speculating that the automaker might go bankrupt. Business Week pointed out that if this happened, it would likely be the largest Chapter 11 filing in history. Two years later, GM has laid off 34,000 workers, yet its North American operations are still losing money—$85 million during the first quarter of this year. The company is still, Business Week says, “on a glide path to disaster.” Health-care costs are a principal reason why, which is why GM’s chairman, Rick Wagoner, has begged Congress to tackle the problem.

Not even Wagoner is ready yet to join Moore in his call for socialized medicine. But it’s clear that business desperately wants to get out of the health-insurance business, and as the health insurance it offers employees gets steadily crappier, that’s in essence what it is starting to do. But it’s a painfully gradual process, and for GM, there’s a real chance union concessions won’t come fast enough to save the company. What I’d have liked to see in Sicko is Michael Moore sidling up to Rick Wagoner and offering him a deal. Rick, he’d say, I know there’s bad blood between your company and me, but let’s let bygones be bygones. You want GM to be in business five years from now. I want the government to guarantee every American decent health care.Join me in demanding national health care in the United States, just like they have in Britain, France, and Canada.

Sure, Wagoner might refuse. But then what would he tell his stockholders?

Correction, July 2, 2007: An earlier version of this article misstated the year of GM’s $10.4 billion loss as 1985. ( Return to the corrected sentence.)