Posted on February 11, 2005

U.S. firms losing health care battle, GM Chairman says


By Ceci Connolly
Washington Post Staff Writer
Friday, February 11, 2005; Page E01

American manufacturers are losing their ability to compete in the global marketplace in large measure because of the crushing burden of health care costs, General Motors Corp. chairman and chief executive G. Richard Wagoner Jr. said yesterday as he called on corporate and government leaders to find “some serious medicine” for the nation’s ailing health system.

In a speech at the Economic Club of Chicago, the auto executive, who is responsible for providing health insurance for more people than any other private employer in the nation, graphically detailed how rising medical bills are eating into his company’s bottom line and ultimately threatening the viability of most U.S. firms”The cost of health care in the U.S. is making American businesses extremely uncompetitive versus our global counterparts,” he said. “In the U.S., health care costs have been rising at double-digit rates for many years. In 2003, they were about 15 percent of GDP, at least 30 percent higher than the next-most-expensive country.”

“Failing to address the health care crisis would be the worst kind of procrastination,” Wagoner said, “the kind that places our children and our grandchildren at risk and threatens the health and global competitiveness of our nation’s economy.”

After spending several years on the health policy sidelines, Wagoner is launching a mini media blitz, hoping the competitiveness argument will be the one that finally prompts lawmakers to take on an increasingly expensive system rife with inefficiencies and inequities. Wagoner said he intends to press his case personally in Washington and with the nation’s governors.

Though self-interest may be at the heart of Wagoner’s crusade, he and a range of corporate leaders and policy analysts warned that GM’s woes are a harbinger of what lies ahead.

“GM is the canary in the coal mine for Medicare and everyone else,” said Sean P. McAlinden, chief economist at the nonprofit Center for Automotive Research. “There are many, many more companies out there in trouble because of health care costs than just the auto, steel and airline industries.”

McAlinden, a labor expert sympathetic to union views, said many in Washington have mistakenly concluded that GM and other carmakers are simply whining about costly union contracts.

“GM and the United Auto Workers didn’t cause this double-digit inflation in health care,” he said. And if GM pushed for sharp reductions in health benefits, the powerful union would likely strike and send the company into Chapter 11 bankruptcy protection, he predicted.

Last year the automaker, known for its innovative approach to health care, spent $5.2 billion to cover 1.1 million retirees, employees and their families. Prescription drugs cost GM $1.9 billion, and the company projects overall medical spending will increase by $400 million this year. That could be offset by a provision in the Medicare drug benefit to pick up a portion of firms’ retiree drug costs.

But the figure that prompted Wagoner to raise his voice is $1,500. That is the amount of money added to the price of every single vehicle to cover health care, a cost that his foreign competitors do not bear.

Paul Hughes-Cromwick, senior analyst at the nonprofit Altarum Institute in Ann Arbor, Mich., said executives are alarmed that benefit costs are rising far more rapidly than wages. Total compensation costs for U.S. firms rose about 3.7 percent in 2004, mirroring previous years, he said, citing Bureau of Labor Statistics data. But salaries increased just 2.4 percent, while benefit costs rose 6.9 percent. The gap is the largest he has seen in two decades.

“That huge benefit hit is chewing up the salaries and wages we would be receiving,” he said. “That’s the key.”

Yesterday, Wagoner broke his silence on an idea proposed by Sen. John F. Kerry (D-Mass.) in the 2004 presidential campaign, saying he supports some type of national catastrophic reinsurance program. Senate Majority Leader Bill Frist (R-Tenn.) has also endorsed the concept of a separate government-backed insurance pool to cover the most expensive medical cases.

“If we can create a comprehensive insurance model to better share these catastrophic costs among all consumers, then we can take a big step toward providing affordable health care coverage for all our citizens,” Wagoner said.

Wagoner and fellow executives find much to be frustrated with in the health care system.

“It’s simply not acceptable for over 45 million Americans to be without health care coverage,” he said, echoing a point made recently by Jack O. Bovender Jr., chief executive of health care giant HCA Inc. “And it’s unfair for those of us who do provide health care benefits to have to pay higher bills to cover the costs of the uninsured. Talk about ‘no good deed goes unpunished.’ “

The business leaders cannot understand why the health care industry has been slow to institute the sort of technological changes that helped them improve quality and reduce costs.

“Only in health care does bad service and bad quality get paid for in the same manner as good service and good quality,” said Humana Inc. chief executive Michael B. McCallister, chairman of the Business Roundtable’s health care task force.

The CEOs agree that the double-digit premium increases will continue as long as individuals are sheltered from the true cost of health care.

“Companies, to manage health care costs, are going to have to have employees who understand that this is something you are consuming and you have a responsibility for,” Wal-Mart Stores Inc. chief executive H. Lee Scott Jr. said in an interview.

Staff writer Michael Barbaro contributed to this report.