Bold Words

I saw these two headlines right next to each other this morning:

GM Has a Record $39 Billion Loss

Toyota Reports 11 Percent Jump in Profit

For years, Detroit automakers ignored the obvious and insisted on playing catch-up instead of innovating. Now, as anyone who pays even a little attention to the news knows, GM, Chrysler, and especially Ford, are paying the price. The Japanese manufacturer Toyota, taking a cue from Henry Ford’s Today and Tomorrow, has displaced GM as the largest auto seller in the world, and all three U.S. manufacturers are scrambling to address union issues to keep plants running.

I can sympathize with U.S. automakers, and even with their employees. However, the rationalization that companies could be more competitive without the costs extracted by the union and the unions protesting that said automakers are trying to cheat them out of what they deserve strikes a false note. The unwillingness to acknowledge their necessary relationship is flabbergasting. If the U.S. car makers go out of business, the union has bigger problems than whether they’re making less per hour. And if its employees can’t buy the product your producing…the need for balance is obvious, but few seem ready to have that discussion without taking potshots at one another.

The conversation about modern-day American car production seems stuck on the same issues that have plagued it since the Japanese landed with their safe, economical alternatives. Instead of telling the car-buying public about the amazing models that are in R&D or in production, the focus of U.S. companies remains on union negotiations and the cost of health care. On the other side, Toyota and Honda get to talk about their hybrid models and saving the earth. Two distinctly different conversations with somewhat obvious outcomes.

Perhaps Toyota, Honda, and other foreign car companies have the advantage because they aren’t dealing with unions and the historical baggage weighing down the Big Three. However, instead of blaming the unions, I think U.S automakers are suffering from something else that Ford discussed in Today and Tomorrow:

One sees them all about—men who do not know that yesterday is past, and who woke up this morning with their last years ideas [...] there is a subtle danger in a man thinking that he is ‘fixed’ for life. It indicates that the next jolt of the wheel of progress is going to fling him off.

If the flinging hasn’t already commenced, I suspect it will shortly.

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Here’s a question: do you think if health insurance hadn’t become so prevalent health care would be so expensive? Think about that for a few minutes. Now here’s two more: how would the health care system function if insurance didn’t exist? If we actually had to pay the true cost, would we run to the doctor with every sniffle?

I pose these questions, because health care is one of the topics at the center of the UAW’s nationwide strike of GM plants (in 2005, GM spent $5.2 billion on health care). This post isn’t about the validity of unions, corporate greed, employer health care, or even universal health care. Instead, I’m focused on the validity of health insurance in general.

What’s mildly entertaining is that GM was the creator of its own mess. Back during World War II, the government capped wages. To compete in the war-time employee market, companies offered health insurance, which wasn’t classified as an increased wage. After the war and lift of wage caps, employers continued to offer insurance as part of the benefit package. GM, however, didn’t just settle for offering health insurance:

In 1950, GM President Charles Wilson offered to pay 50 percent of the health care costs of his employees. Walter Reuther, national president of the United Auto Workers, initially resisted, believing the cost should be spread across many companies or across the nation, according to a biography of the union organizer.

Reuther gave in, and GM entered the health care business.

In 1961, retirees were included. Three years later, the company began paying 100 percent of health care bills for workers and retirees. (link)

And that’s how you rack up billions in health care. Now, as part of the negotiations between the company and the union:

GM had been pushing hard for the health care trust known as a Voluntary Employees Beneficiary Association, or VEBA so it could move $51 billion in unfunded retiree health costs off its books. GM has nearly 339,000 retirees and surviving spouses. (link)

GM’s issues aside, the mistake people make with insurance is assuming that things will get better and/or cheaper if everyone has it. My aggravation with insurance is that it blinds the buyer to the true cost. For instance, you aren’t likely to you buy food, a car, or a house without knowing the price. But we scream about insurance premiums, deductibles, etc., without knowing what our health care really costs.

Maybe the insurance companies are cheating us, but how can we know that if we don’t understand the real cost of health care? One of the more recent issues of interest is the rising cost of prescription drugs. What if we didn’t request the drugs we see advertised on television and choose a generic version instead? Do you think that would make a difference?

There’s one caveat to my argument that requires acknowledgment. In the case of catastrophic events, like cancer or car accidents, insurance helps balance the risk of life. You can’t exactly weigh your cost options for emergency extrication from a smashed car or chemotherapy and radiation.

As I’ve thought through this issue, I go back and forth (which isn’t a good way to make one’s case). I don’t necessarily have answers to any of the questions I posed earlier. However, the one thing that holds true is the reality that too few people know the real cost of their health care. We lack knowledge when it comes to health care. Perhaps I’m wrong. If so, do you actually know how much your doctor charges (not your co-pay) for an office visit? Next time, ask. You might be surprised. I suspect asking questions is the first step to figuring out the value of insurance and its impact on health care.

Comments?