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COSMETIC
SURGERY
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HEALTH CARE THE
CORPORATE WAY
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Some very strange noises
have been emanating from executive suites in recent months on a subject
long anathema to corporate America: national health care. Art Puccini, a
vice president of General Electric, concedes that rising and uneven costs
"may lead some of us who today are free-market advocates to re-examine
our thinking and positions with respect to government-sponsored national
health insurance." Robert Mercer, a former Goodyear board member and
retired chair, now favors such a policy, saying, "There are things
that Government must do." Lee Iacocca says flatly that "more and
more business people are not just whispering but talking out loud about
making health care financing a government responsibility," leading one
United Automobile Workers official to remark that the chair of Chrysler
sounds "like an Italian socialist."
More accurately, Iacocca
and his boardroom brethren are squeezed American capitalists. They feel
painted into a corner by the inflation of health care costs, union
opposition to concessions on health benefits, marketplace competition and a
change in federal accounting rules that will make it impossible to put off
financial liability for retiree health care on annual balance sheets. The
corporate call for national health insurance is less a coherent policy than
an ad hoc, almost panicky response to long-term struggles with cost control
and short-term problems of labor relations and federal regulation.
These difficulties stem
from several factors, not least the existence of almost 50 million
Americans with no regular source of health care--predominantly the working
poor, the unemployed, minorities, women and children. Yet the United States
spends far more than any other country on medical services. In 1988, health
care costs, growing at twice the rate of inflation, totaled $542
billion--12 percent of the gross national product. On a per capita basis,
the nation spends 41 percent more than Canada, 85 percent more than France,
131 percent more than Japan and 171 percent more than Britain--all
countries that provide universal health care at well below 10 percent of
their G.N.P.
The gap between cost and
care is perpetuated by the health industry. American doctors and hospitals
charge third-party insurers on a fee-for-service basis; insurers pass on
higher costs as higher premiums. As in defense contracting, this
"cost-plus" structure encourages patients, doctors, hospitals and
insurance consumers (usually employers) to milk the system for as much cash
and care as they can. In turn, treatment of the un- or underinsured is paid
for by inflating costs for a shrinking pool of insured health consumers.
And this inflation is fed by high fees for elaborate--and frequently
unnecessary--technology and diagnoses. As The Economist observed recently,
American health care "creates an incentive to treat patients in the
most expensive possible way after they become ill.... It would be hard to
design a better way of inflating spending."
But the health industry,
led by the American Medical Association, has fought any attempt to contain
health care costs. The A.M.A. spent most of the late 1970s and early 1980s,
according to former Representative Toby Moffett of Connecticut,
"throwing money at the [House Energy and Commerce] Committee" to
defeat bills aimed at containing hospital costs. In the past year, the
288,000-member association has continued to throw its financial weight
around in Congressional elections and has launched a major campaign to
discredit Canada's national health care system.
The inflationary spiral is
central to business perceptions of health care reform. Big companies that
provide health insurance desperately want to shuffle the costs of
employment-based benefits to workers (through employee contributions or
concessions); to consumers (through higher prices); to other industries and
firms and direct competitors (through federally mandated insurance); or to
all of the above (through tax-financed national health insurance). For
employers, "national health care" is a catch phrase for any
political means of escaping health care liabilities and the high costs of
private insurance.
Flirting with the idea of
national medical insurance was not the first corporate reaction to the
health care crisis. Indeed, for the past five years much of the business
community has been ducking its health care commitments. Richard Heckert,
retired chair of Du Pont and president of the National Association of
Manufacturers, put it succinctly last fall when he told Congress, "I
hope that none of us will abandon our employees, but we are going to cut
our losses." Firms have sliced costs by forcing workers to pass
rigorous health exams to qualify for "good health rebates," thus
making employees prove, in effect, that they won't need care in order to
qualify for it. Other companies are hiring their own doctors or forcing
employees to choose from a limited pool of "preferred"
physicians. For example, under the 1989 A.T.&T. contract, employees not
using company-designated doctors must assume 20 percent of health care
premiums.
Major strikes in 1989 at
A.T.&T., the regional "Baby Bell" phone companies and the
Pittston Company, among other firms, were provoked by management attempts
to chip away at health benefits. The phone companies were unable to force
employees to pick up a percentage of premiums, but the companies achieved
higher deductibles and "preferred provider" provisions in the new
contracts. The Pittston settlement required the company to maintain health
care payments but opened the door to similar strikes throughout the coal
industry by allowing Pittston to settle its health care commitments outside
the employers' association, which had guaranteed pattern bargaining in the
industry. In general, contracts signed in 1989 and the first half of 1990
introduced higher deductibles, caps on the employer's share of health care
premiums, and cost sharing or "co-payment" of plans previously
funded entirely by employers.
Older unionized firms are
also grappling with their bill for retiree health care, a liability they
feel crimps their profit margins and makes them less competitive with newer
firms, especially nonunion ones. Because of a recent Financial Accounting
Standards Board ruling, in 1993 companies will have to begin recording
future health care liabilities as they accrue rather than as they are paid.
In 1988 American firms paid out $9 billion in health care benefits to their
retired workers. However, overall retiree liabilities totaled almost $230
billion, or nearly 10 percent of the stock market value of the companies
concerned. Had the F.A.S.B. ruling been in effect in 1988, corporate
profits would have been cut by $21 billion (the year's increase in
liability). This prospect left Business Week worrying that the F.A.S.B.
ruling "could virtually wipe out profit as we know it for the top
1,000 public companies."
So far, efforts to escape
the pressures of both health care inflation and the F.A.S.B. rule changes
have provided little relief. Du Pont's health care bill, now $450 million,
grew 15 to 18 percent in each of the past three years, and General
Electric's jumped an average of 15 percent per employee in both 1987 and
1988. Those rates are typical for large firms. Many companies have tried to
back out of their retirement commitments by settling liabilities for
retirement care with a one-time cash payment, the essence of the Pittston
settlement; or by forcing employees to finance retiree care either through
payroll deductions or out of stock ownership plans. Nevertheless, 54
percent of 1988 retirees under the age of 65 and 45 percent of those over
65 continue to qualify for company care, down only 10 percent from 1986
levels. And the tremendous losses suffered by Pittston during the 1989
strike have left few employers with the stomach to risk similar showdowns
over health care. "They say, `What do we do now?'" notes one
benefits consultant, mimicking his corporate clients, "and I smile and
say, `Write your Congressman and ask for national health insurance.'"
While Congressional
mailboxes may be filling up with impressive letterheads, there is little
business unity on the health care issue. Those who see no way out of the
trap of inflated costs and contract commitments favor some federal
contribution to employment-based health care. Others, more concerned about
the uneven provision of health care within the business community than
their own long-term commitments, favor federally mandated health insurance
for all firms. These positions are further divided by competitive concerns
within and among different industries. Corporate interests pushing for some
form of national health care agree on only a few buzzwords and vague goals,
and are bound together by little more than the desire to spread the costs
of health care to consumers, workers, the state or (ironically) one
another.
"Progressive"
companies are not selflessly offering to pay the costs of national health
care in exchange for equal coverage; they simply feel they are already
paying their share, and they want to see the costs diminish or disappear.
Leading this charge is the auto industry. In the United States, Chrysler
pays $700 in health care for every car it produces, more than the cost of
steel per car; in its Canadian plants, health care runs at less than $225
per car. General Motors estimates the cost differential between its
Canadian and American plants at $2 per hour per worker. "The issue is
competitiveness," stresses Chrysler's Iacocca. "Most of our
foreign competitors have a $300 to $500 cost advantage over us just in
health costs alone for every car and truck they build."
General Motors and
Chrysler are also typical of unionized corporations burdened by both
escalating current payments and the costs of retiree care. As the unionized
sector of the economy shrinks, a small group of industries--automaking,
steel, airlines and telecommunications--shoulders more and more of the
health care burden. Prevented from abandoning health care by their unions,
these companies understand "national health care" as any plan
that would tax or penalize employers not currently providing health care.
Faced with difficult contract negotiations, health care inflation and the
accounting headache of retiree care, union-sector employers have infused
recent industrial relations with the idea of socializing health care costs.
In the spring of 1989, the National Policy for Steel Committee, a joint
panel of the United Steelworkers of America and Bethlehem Steel, urged the
"development of a national health policy to...control health care
costs, and equitably distribute the costs across the country." The
Baby Bell and A.T.&T. strikes ended with union concessions on health
care and a similar pledge by both sides to lobby for national health care.
And Pittston executives ended their strike arm in arm with then=Secretary
of Labor Elizabeth Dole, who promised to explore federal assumption of the
industry's health care costs.
The business lobby for
national health care is inspired by distinct and often contradictory
motives. While all companies want to pay less for health care, they have
very different ideas as to who should pay more. Unionized firms unable to
push the burden onto their workers have turned to the government. Some,
looking more narrowly at the looming F.A.S.B. rules, hope to find a
solution, as The Economist notes, "before health-care obligations land
on their balance sheets in 1992." Corporations facing international
competition in domestic markets (such as Chrysler or G.M.) see mandated
private insurance or public insurance as a form of protective tariff that
will force the economy as a whole to counter the competitive advantage of
foreign companies. And firms facing only domestic competition simply want
to force competitors to bear a comparable share of the costs.
In the last case, while
costs may increase for the industry as a whole if public health care is
implemented, businesses with existing plans will reap the benefits. Such
firms prefer legislation that would mandate employee health care and tax
those who don't or can't comply. Modeled on early Social Security law, such
legislation would exempt companies with existing health care plans and
spread their costs to competitors and (once all firms are paying benefits
or punitive taxes) to consumers in the form of higher prices. In all,
divisions between large and small business, the divergent motives of
different types of industries and competitive differences within industries
make corporate unity on the health care issue unlikely in the near future,
notwithstanding public relations efforts to the contrary.
Business health care plans
have little to do with equity or accessibility. Even the willingness of the
Chamber of Commerce and the National Association of Manufacturers to lobby
for expanded Medicaid for children in the recent budget negotiations was
inspired by little more than a tangible fear that private insurers would
shuffle the costs indirectly onto the back of business. Depending on what
they are currently paying and what they might be liable for in the future, businesses
have proposed little more than spreading health care costs to anyone
without the political clout to avoid them. Forcing more firms to provide
health care will do nothing to curb the inflation encouraged by wasteful
services, excessive administration and insurers determined to avoid rather
than pool risk. Nor has the A.F.L.-C.I.O. shown much interest in containing
costs and making health care more accessible to the unemployed or
unorganized. Like the A.M.A., it has heartily endorsed the approach of the
National Leadership Coalition for Health Care Reform, a business-led group
that has decried the current situation but done little more than agree that
government solutions should be considered alongside market approaches. At
its February convention the A.F.L.-C.I.O. executive council shied away from
endorsing national health insurance, proposing instead a "play or
pay" system that would simply penalize employers not providing
coverage. The resolution may as well have been written by Iacocca.
Virtually alone among
business, labor and health industry interests, the Oil, Chemical and Atomic
Workers Union (O.C.A.W.U.) and Physicians for a National Health Program
(P.N.H.P.) have argued for a solution to the health care crisis that does
not frame the entire issue as a narrow problem of labor relations or
business expenses. The P.N.H.P. position, outlined in The New England
Journal of Medicine in January 1989, argues for a fully public national
health insurance system, modeled on Canada's, that would divorce the
delivery of care from private insurance and labor markets. Briefly,
O.C.A.W.U. and P.N.H.P. maintain that the American health care system
suffers not because the burden of private insurance and private care is
borne unevenly or unfairly but simply because it is private. Rather than
shifting the costs of an inflated and profit-driven system internally and
forcing the government to pick up business's health care tab,
Canadian-style health insurance would pool risks nationwide, provide care
regardless of employment status or "life style" and determine
appropriate levels and costs of treatment. According to Labor Notes,
P.N.H.P.'s David Himmelstein, co-author of the report, argues that
"anything short of a Canadian-style system is virtually nothing for
labor," which is why groups such as P.N.H.P. and O.C.A.W.U. have tried
to prevent various business proposals for federal assistance or federally
mandated insurance from dominating the health care debate.
The two organizations have
also pursued the health care issue at the state level. Last October
O.C.A.W.U. coordinated a series of rallies and job actions around the
country in an attempt to gain support for state health insurance. And
P.N.H.P.-inspired legislation is currently being debated in Ohio,
Washington, Florida, California and Illinois. For business, the prospect of
uneven state legislation is yet another annoying twist to the whole
problem: Employers in the above-mentioned states would prefer national
legislation that burdens all competitors.
Unfortunately, the
progressive health care alternatives promulgated by O.C.A.W.U. and P.N.H.P.
have drawn much less media and political attention than the pastiche of
business proposals and anxieties. Almost everyone now agrees that something
is terribly wrong with the way health care is provided (or not provided)
and paid for in the United States. But if the short-term goals and
self-interest of American business carry their usual weight in Washington,
health care reform will begin with a large step in the wrong direction.
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By COLIN GORDON
Colin Gordon teaches
American history at the University of British Columbia in Vancouver,
Canada.
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