The advent of employer-provided health insurance some 70 years ago is now killing jobs for Baby Boomers, their children, and their children’s children. It’s an American catastrophe.
Almost 70 years ago, American companies faced a problem that’s hard to imagine in today’s economy: There weren’t enough workers to meet demand. With so much of the population otherwise occupied by WWII, private employers couldn’t attract enough help. The usual solution to hiring competition is to offer higher wages, but the government had imposed wartime wage and price controls. On the other hand, there were no restrictions on nonwage benefits. So, employers got creative and came up with something new to attract workers-employer-paid health insurance. That decision, made in response to highly unusual transient conditions before the first Baby Boomers were born, is now killing jobs for those Baby Boomers, their children, and their children’s children. It is an American catastrophe.
The American health insurance system is seriously flawed in many ways, ranging from cost (17 percent of the U.S. economy goes to health care vs. 10 percent to 11 percent in the rest of the Western world) to effectiveness (significantly shorter life expectancy and much higher infant mortality rates here compared to other Western nations) to mental well-being (only Americans worry about economically ruinous treatment of serious illness). But the insurance system’s impact on jobs doesn’t attract much attention. Quite simply, employer-provided health care kills employment, stifles entrepreneurship, and stifles the economy. Workers can’t afford to move from jobs that provide health care, and entrepreneurs often can’t afford to provide insurance for their workers.
The wage rate for direct labor in much of American manufacturing typically runs between $12 and $16 an hour, barely a living wage in this country but considerably more than the pay scale in Asia and roughly eight times the going rate in Mexico. Health insurance, on the other hand, can easily add 30 percent and more to the employer’s total cost. Employer Social Security and Worker’s Compensation payments-two programs that are often criticized as job killers-together do not begin to approach that level. Thanks to the medical coverage bump in American labor costs, the option of subcontracting to Shanghai or Tijuana becomes vastly more appealing.
Of the many remarkable moments of political theater in the 30 months since Obama took office, few can compare to the furor over national health insurance. The Democrats wanted and fought for it, but they didn’t fight hard enough to deliver a program that would be transformational. The Republicans didn’t want it and fought hard enough to prevent something really good being adopted. While the rest of the Western world watched with amazement, our legislators argued questions that everyone else settled-and settled well-two generations ago.
Derided by opponents as “Obamacare,” the national plan we got (as opposed to the much better national plan we should have got) may actually reduce premiums while expanding coverage to millions who can’t get insurance at remotely reasonable rates. The reason for lower rates is also one of the most derided aspect of President Obama’s plan-required universal enrollment. Required universal enrollment is a necessary condition for a national plan; without forcing everyone to get on board, the young and healthy have incentives to stay on the sidelines until illness strikes, putting the system in danger of footing the bill for catastrophic illness treatments without the prior sharing of risk.
Obamacare isn’t perfect, but not for the reasons such as compulsory participation that its detractors throw around. It doesn’t solve overpriced drugs, litigation abuses and gross inefficiencies. It’s somewhat better than the existing muddle but not nearly good enough to give employers a reason for hiring.
The rest of the Western world leveraged mass purchasing power (and some useful government jawboning) to drive down the price of prescription drugs for all residents of those countries. Americans, on the other hand, believe in the free markets fairy who magically makes unfettered capitalism work to the benefit of all rather than providing outsized rewards to the few. So the drug lobby stopped discussion of drug price controls almost before any politician spoke the words. (The drug companies and their lobbyists have perfected the playbook over many years of successfully preventing imposition of price controls by Medicare. That both Medicare and Medicaid seriously limit the amounts paid to doctors while paying more than retail to the drug companies is bizarre, irrational and seriously unfair to doctors.) So, Americans will go on paying more-often, multiples more-than the rest of the world for the very same drugs (often sold by subsidiaries of the very same companies).
As far as I can tell, Obamacare also doesn’t overcome the enormous problem of medical malpractice lawsuits. Other countries manage to protect their citizens from serious losses when medical treatment goes wrong and they do it without crippling malpractice insurance that commonly costs American doctors a third or more of their income. Everyone knows the malpractice system here is corrupt, but Congress won’t tackle the malpractice lawyer power bloc.
Worst of all, Obamacare doesn’t deal with the fundamental reason Americans pay so much more than Canadians and Europeans for, at best, comparable health care-private sector health insurers. I spend some time in Toronto, so I have a general practitioner doctor there. He runs his office with a single nurse who assists only with scheduling and treating patients. At the end of the month, he spends 15 minutes submitting his computerized bill to the government. That’s quite a contrast to the staffing of my general practitioner’s office in Florida. With a practice roughly comparable to the Toronto doctor, he needs four people just to deal with the many private insurers, all of whom have large departments dedicated to denying coverage. The cost difference is nothing less than staggering. (For the record, the Toronto doctor is quite happy with the system there and is baffled by why any U.S. doctor would back the American way.)
Americans are programmed to react viscerally about government competency. But most people have no idea how much they depend on government services. The pensioners screaming “Keep government’s hands off my Medicare” are not much more uninformed and out of touch than the public at large. Medicare does more with much less than anything offered by the private sector.
What about government rationing of health care and death panels hurrying the elderly to early graves? Isn’t that the nasty secret of Obamacare? Well, we already have health care rationing. It’s why my Florida doctor needs four people to negotiate with the insurance bureaucrats. And, on average, all other developed countries have longer average life expectancies than Americans and provide seniors with the same care provided to the children of those seniors. The reality is that seniors vote in much greater proportions than do younger voters; no politician is going to risk alienating the demographic most likely to kick him out of office. With health insurance costs much faster than inflation, robust employer-issued health insurance policies will soon be history. Health care rationing is inevitable, but no bureaucrat is going to kill Grannie or Grandpa.
Still, we’ve all heard that Canadians and Europeans flock to America for medical treatments they can’t get at home, or they die waiting for critical surgery. It’s a very effective story used by the American insurance lobby to scare voters. It’s also a lie. Undoubtedly some Canadians must use American doctors, but I have never met one. Every Canadian I ask laughs at the suggestion that their health care is inferior to ours. A friend from England informed me that there is actually a “medical tourism” industry in the U.K., with patients coming from other countries.
So, the choice is stark and simple. America can hang onto its dysfunctional private sector health insurance and hemorrhage jobs even while dialing back on employee coverage, or we can admit that there are lessons we should be learning from the rest of the developed world. Obamacare won’t do the trick, but it has the virtue of being a way station along the path to something we can afford. A single-payer government-run health insurance system is coming; we can only hope it comes in time to save a few American jobs.
Editor’s note: Before “Shipulski on Design,” “Leading Lean,” and “Uncommon Sense,” there was ASSEMBLY magazine’s longest running and most controversial back-of-the-book column, “Unconventional Wisdom” by Jim Smith. A nationally known expert on electronics assembly, Smith never hesitates to question the sacred cows of manufacturing and economics. You can read more from him at his “Science of Soldering” blog http://blog.emsciences.com.