The Wonk Room

The Auto Makers And The Health Care Crisis

The Big Three automakers are scheduled to appear before the Senate Banking Committee today to ask Congress to bail-out the struggling industry. America’s car companies are in trouble and the health care crisis is at least partly to blame.

For General Motors, health care costs add $1,525 to the price of every car that leaves the lot and the company estimates that it spent $5.2 billion on health care benefits in 2004, more than it paid for steel.

The argument that automakers will benefit from a system of universal coverage in which the government, the employer, and the individual share the costs of health insurance is fairly obvious. Since General Motors spends $71 per worker per hour on health care and Toyota spends only $47, we might consider the Japanese public-private model of health care.

Japanese companies aren’t burdened by aging retirees straining company profits. In Japan, everyone is required to enroll in a public or private employer-sponsored plan, and the government spends half as much on health care as the United States to provide care for everyone.

While the Japanese government negotiates a fixed price for every procedure and every drug with the health industry to keep costs low and requires private insurance companies to offer everyone coverage, the American system lacks electronic medical records, effective comparative effectiveness research of new technologies, and broad-based access to preventive care.

In Japan, every citizen is covered while in America, care for the uninsured adds an average $922 to family health insurance premiums.

In short, our fractured health care system inflates health care costs and expects businesses to pick-up the tab.

This is not a ringing endorsement of the Japanese model, it has its share of problems. Hospitals and doctors are underpaid and the system may face insolvency due to a rapidly aging population. But for all its kinks, the Japanese system is grounded on the progressive theory that we can lower costs by covering everyone and adopting certain cost-containment initiatives.

Japanese manufacturers are competitive in part because they are not burdened by a draconian health care system that does nothing to control health care costs or increase access to care. In America, however, the current state of automobile companies represents the cost of inaction on health care reform.