Premium Checkup

July 15, 2005
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For every vehicle General Motors produces in the United States, the shrinking worldwide leader in automotive manufacturing spends $1,500 on its employee health-care plan. For every vehicle GM makes in Canada, the same industry giant spends just $120 on its employee health-care plan.

"Our labor costs are significantly lower in Canada," Buzz Hargrove, president of the Canadian Auto Workers union, told the Detroit Free Press. "So we have a very significant competitive situation in terms of costs."

And a Michigan congressman wants to see that changed.

The twelvefold difference in health-care premiums between the for-profit U.S. system and the nonprofit Canadian system is perhaps the singular reason why Ontario produces more vehicles for GM, Ford and DaimlerChrysler than Michigan does. This feat reportedly marks the first time in automotive-manufacturing history that another location builds more cars, trucks and SUVs than Michigan does.

And U.S. companies not only pay more for health-care coverage than their Canadian counterparts, they also shoulder a larger share of the system's cost than their neighbors to the north — almost twice as much, in fact.

The United States spent $5,267 on health care for each man, woman and child in 2002 and 55 percent of that amount, $2,903, was spent by the private sector. In contrast, Canada spent $2,931 per person in 2002 and the Canadian private sector was billed for 30 percent, or $883 for each resident.

A 2003 study published in the New England Journal of Medicine reported administrative costs for the U.S. health-care system reached 31 percent, while the same charge in the single-payer Canadian system was 17 percent. The Henry J. Kaiser Family Foundation said private health insurance administrative costs rose from $85 for each person covered in 1986 to $421 for each person covered in 2003 — an increase of 395 percent.

Also in 2003, the United States spent $1.7 trillion on health care, and private sector spending hit $913.2 billion that year.

"We feel that for businesses to have an advantage,they can't be spending all this money on health-care costs," said Joel Segal, legislative assistant to Congressman John Conyers Jr.

Conyers introduced a bill earlier this year that would convert the nation's health-care system from for-profit to nonprofit and offer primary care, prevention, prescription drugs, emergency care and mental health services to everyone, including the 45 million Americans without coverage. The bill the Detroit Democrat introduced, HR 676, is similar to the one he tried to get through Congress two years ago.

"This bill is a Medicare-for-all plan. It would extend Medicare to everybody and it would save anywhere from $56 billion a year to maybe $286 billion, depending on what numbers you run. No co-pays, no deductibles — it would cover all medically necessary services. You would still go to your same physician and hospital; it just has to be a nonprofit," said Segal.

"It's just what they do everywhere in the world but here, basically," he added.

The bill, known as the United States National Health Insurance Act, proposes to lower health-care costs for employers. Segal said the cost reduction would be "dramatic," falling to about $1,600 a year for an employer to cover an employee with a family of four who earns $40,000 annually.

"That's because (the system) would be nonprofit-delivered and the overhead is going to be much less because the administrative costs are dramatically reduced under a national health insurance program. The administrative cost for Medicare runs about 3 percent. The rhetoric about government bureaucracy is not true with Medicare," said Segal.

Segal explained that Medicare keeps its overhead low because it doesn't do a lot of things that private insurers do. He said the government program doesn't hire lobbyists, doesn't run TV commercials, doesn't hire utilization reviewers that determine coverage, doesn't have a lot of money invested in flashy offices, doesn't pay its top executives millions each year, and doesn't offer stock options and bonuses.

"All that fat, that waste is why it costs so much money because (the system) is run like a business. Medicare is an efficient, cost-effective delivery system of care," said Segal.

Conyers' bill pays for the expansion of Medicare in a variety of ways. A few are cost-cutting measures such as reducing paperwork and requiring that medications be bought in bulk. Another calls for existing sources of government health-care revenue to be directed to the new system. The bill also would raise personal income taxes on the top 5 percent of income earners and institute a "small" tax on stock and bond transactions.

But the biggest revenue generator for the system would be a 6.6 percent payroll tax that would be evenly split between an employer and employee.

"So it's easy to figure out how much everyone is going to pay. If you're working, you just do the math: 3.3 percent — that is your contribution. That is why this thing is so easy to understand," said Segal.

"Everyone under our program would be fully covered, from cradle to grave. But ours is not a government-run program, though; the system still remains private. It's just that the insurance is public."

A Premium Price To Pay

In only one of the 11 years listed in the chart below did inflation rise higher than health-care premiums paid by U.S. employers. In 1996, general inflation rose by 2.9 percent, while employers' premiums grew by less than 1 percent.

For those 11 years, the increase to employers in health-plan costs averaged 10.5 percent per year, or more than three times the hikes to inflation and workers' earnings. Over those same years, inflation grew by an average of 3.1 percent per year and employee earnings rose by an average of 3.3 percent.

The following chart compares the percentage increases for employer-paid health plans, overall inflation and workers' earnings for selected years from 1988 to 2004.

                      1988    1989    1990    1993    1996    1999    2000    2001    2002    2003    2004

Employer

Premiums    12.0     18.0     14.0      8.5      0.8       5.3       8.2      10.9    12.9     13.9     11.2

Overall

Inflation        3.9       5.1      4.7        3.2      2.9       2.3       3.1       3.3      1.6       2.2       2.3

Workers'

Earnings        3.1      4.2       3.9       2.5       3.3       3.6      3.9       4.0       2.6       3.0      2.2

Source:The Henry J. Kaiser Family Foundation, Trends and Indicators in the Changing Health Care Marketplace, 2005.    

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