You Can Lead GM To Water, But You Can't Make It Drink

Rick Wagoner, the chairman and CEO of General Motors, had a prime opportunity last week to help save his company and his country at the same time. Too bad for all of us he blew it.

Wagoner testified about the problems with America's health care system before the Senate Special Committee on Aging last Thursday. As head of one of the nation's largest employers, Wagoner has a unique view of a health insurance industry run amok. His audience was noticeably sympathetic, led by Hillary Clinton, who knows a thing or two about this country's health care problems and the difficulties in trying to solve them.

According to the Associated Press, Clinton told Wagoner that his company is "being put in an impossible position when it comes to the global economy... Companies like yours, which essentially bear the social contract of the last 50 years, are getting an especially bad deal because they're paying for what are now considered retired employees."

The senator closed with this question: "Why is it that American business doesn't just rise up and say there's got to be a better way here?"

Why indeed.

The point Clinton was making should be clear to anyone who's looked at the numbers. GM is America's largest health care provider with 1.1 million employees, retirees and dependents, roughly half of whom are aged 60 or older. Last year the company spent $5.3 billion on health benefits and so-called legacy costs. To pay for these services GM estimates that it adds $1,500 to the price of every vehicle it sells.

If GM was just competing against Ford and Chrysler, which also bear the same expenses for their employees and retirees, this wouldn't be a big deal. But on a global playing field the Big Three, like so many of America's largest industrial employers, are in an anticompetitive position because the United States is alone among the developed world in having a health care system that's based in the private sector (as shown in this study by the Organisation for Economic Co-operation and Development.)

That our health care system is wasting enormous amounts of cash while failing to provide for average Americans has been well documented. (I wrote about it here, here and here.) We pay far more for health care than any other developed country on the planet, more than $6,000 per person per year, or 15.3 percent of our gross domestic product. The average for the 30 countries in the OECD is $2,550, or 8.9 percent of GDP.

Yet we still fail to insure 46 million Americans. So I guess it shouldn't be surprising that we fall far short of the rest of the world in some basic health statistics. Life expectancy in the U.S. is 77.5 years, below the OECD average of 78.3. By comparison, residents of Australia, France, Iceland, Japan, Spain, Sweden and Switzerland, all can expect to live past 80. We also have substandard rates of infant mortality and obesity and lag in providing acute care facilities and resources across our entire population.

But what's far less talked about is how badly the way we pay for health care is serving corporate America. Major U.S. companies that are in a constant battle to increase market share, revenues and earnings find themselves draining their bottom lines to bolster a private health insurance industry that doesn't even exist in other developed countries. So while GM adds $1,500 to the cost of every vehicle it sells to pay for health benefits, Toyota and Honda do not. Say what you will about the cars GM, Toyota and Honda produce (full disclosure: I drive a 1996 Civic with 95,000 miles and couldn't be happier) but in a global capitalist economy it's tough to compete when your products are over priced out of the gate.

Furthermore, by primarily directing our health care payments through our employers we've created a system that forces companies to divert their focus to handle administrative tasks that have nothing to do with the products they make. Some outfits spend more time than others trying to game the insurance system, but all of them have to deal with it. Think about this for a second: GM is the largest health care provider in the U.S. Didn't you think GM made cars and lent money to people who wanted to buy cars? Well, in America a company like GM also is a health care provider, whether it wants to be or not.

This is why the fastest growing part of the U.S. health care industry isn't finding a cure for cancer or AIDS, operating on open hearts, or treating the common cold - it's paying for all of it. The major argument against reforming our health insurance system is that any tampering will mess with the "free market" and result in "socialized medicine." But you can't confuse a "private" market with a "free" market, because the market for health insurance in America certainly is privatized but it hardly can be described as free in any real sense of the word. Choices are limited, in many areas insurers have near monopolies, and there's almost no price disclosure. When you buy a car or an appliance you can do all sorts of comparison shopping to find the best deal. Try doing that with a health plan or a medical procedure. The system isn't set up to work that way, the way a real free market does.

What's worse, the system's structure flies in the face of basic economic principles. As health insurance consumers, we can get the best price by banding together and negotiating directly with providers. That's why companies pay less for coverage than individuals. It's the benefit of buying in bulk. So if we decided to have a single entity handle all of our health insurance and buy all of our pharmaceuticals, isn't it logical to assume that we'd get a better price than by spreading ourselves out across myriad different plans like we do now? Could this possibly explain why health care is so much cheaper in the rest of the developed world?

The system also ignores the theories of risk management at the core of the insurance industry. Insurance is all about assessing the risk of paying out claims in a pool of collected premiums. When dealing with a randomly assigned group the rule of thumb is the larger the pool, the lower the risk, because the chances of a catastrophic payment are offset by the bigger base of premiums. So assuming technology can handle the records processing, wouldn't the largest insurance pool with the most efficient risk profile be the entire population of the United States?

Unfortunately this economic logic usually is drowned out by cries of "No new taxes!" and "Socialized medicine!" As a result we allow our health insurance coverage to be dictated by the vagaries of our employment status, leaving 46 million Americans without it altogether. And even if you currently have health insurance, you still live with the knowledge that it can be yanked at any moment if your company goes through a round of layoffs, or if your division is reorganized, or if your boss doesn't like you. It's completely beyond your control. At your financially weakest moment, when you've just lost our job, you'll also be faced with not having adequate health coverage. As a society it's cruel and makes absolutely no sense. But it does sort of explain why we lag the rest of the developed world in overall health statistics.

All of which brings me back to my original point. Rick Wagoner could've unloaded in his Senate testimony. He could've stood up and said, "America is getting screwed, and General Motors is getting screwed! Enough is enough!" It would've gotten national attention. He would've become the leader of a movement. But he didn't. Instead, he trotted out the same tired "solutions" that he knows perfectly well won't fix a thing. Wagoner told the committee we need a "vigorous and robust" prescription drug market. We need a better health information network. And we need to focus more on the high-cost catastrophic cases that account for 30 percent of all health expenses. But we don't need national health insurance or a single payer system.

What a steaming pile of bullshit.

There's no way a guy as smart as Wagoner actually believes those band aids will fix this hemorrhaging mess. His company's health care costs are spiraling out of control because the country's system is wildly inefficient and obviously doesn't work. But he still can't bring himself to say the words "single payer" or "national health care."

Why?

I've got a hunch. See, Wagoner's business principles were incubated in the doctrinaire environment of the American senior corporate executive - from his Harvard MBA to his climbing the ranks at GM. As such, he's definitely bought into the core ethos of the Business Roundtable, which has most vocally supported the Republican party's and the Bush administration's fiscal policies. This is a crowd that typically sees economic issues through the prism of "shrinking government" and "cutting taxes." Even a hint of supporting a national health care system is anathema to that mindset. You might as well erect a statue of Lenin on the corner of Wall and Broad.

So with these big business blinders on, a very smart guy can stare at a bunch of figures that tell a simple story and willingly miss the truth. As head of GM, Rick Wagoner should be screaming from the highest mountaintop that we need to dramatically overhaul our health insurance system right away. But as a charter member of America's corporate elite, he can't bring himself to say the words.

Too bad for us.