While the economy will always be an important issue, one reason for the current “job loss recovery” is rising health costs. Companies prefer to increase existing employees’ hours, even if they have to pay overtime, rather than cover new workers’ health insurance.
Instead of building new factories, Ford, General Motors and DaimlerChrysler recently joined a legal challenge to block two Michigan health systems from building two new hospitals in the Detroit suburbs. (1) What is it that automakers have to gain from blocking the building of hospitals?
The Big 3 automakers, with a combined annual employee health bill of nearly $10 billion, worry that the hospitals would lead to overcapacity in Detroit’s Oakland County suburbs. (2) They argue, correctly, that in the hospital business, overcapacity pushes medical costs up, because it encourages doctors to put more patients – particularly those with good health plans who pay little out of pocket – into empty hospital beds.
It’s not surprising that businesses worry about developments in the health sector since health coverage has become one of the largest expenses for many employers. Employers’ health-care costs, which are expected to rise 12% this year, have doubled since 1999 for each active employee to an average of $7,308. (3)
In addition, the more than 2.8 million manufacturing jobs lost since August 2000 was partly because health costs tend to be higher in the manufacturing sector. (4) Only 13 percent of workers between 18-64 employed in manufacturing are uninsured whereas the rate is 18 percent for all industries. (5)
Similarly, since manufacturing jobs have a higher unionization rate than the rest of the private sector, manufacturing companies tend to provide better health coverage. And when up against other nations with publicly funded healthcare systems U.S. manufacturers just can’t compete.
According to the Canadian Auto Workers union, public health coverage gives automakers a $10 hourly cost advantage per worker in Canada compared to American autoworkers. That’s about a $20,000 per worker annual savings. (6) Canada’s National Post concludes that "rising health-care costs may be one reason why jobs keep disappearing in the United States – a situation that’s hard not to compare with Canada, where the labor market has been booming and health care is publicly funded." (7)
Publicly funded healthcare reduces companies’ share of health costs. But in addition, the U.S. health system is exceedingly inefficient due to its profit-oriented focus — not to mention ineffective at keeping people healthy. U.S. life expectancy is lower than every other rich nation and some poor ones. (8) U.S. health expenditures are by far the highest of any country in the world at 15% of GDP. (9) No other country spends even 11 percent of GDP. (10) The U.S. also spends much more in absolute dollars. Americans pay $5,440 on average for health coverage while Canadians, the fourth biggest spenders, shell out $2,927. (11,12)
One commonly cited reason for the larger U.S. health bill is the lack of price controls on drugs. Yet a more significant contributor to these costs are the higher administrative costs associated with multiple insurers, each of which have their own bureaucracy and advertising expenses. Data recently reported in the New England Journal of Medicine shows that, adjusting for population, the U.S. spends $209 billion more every year on extra administrative costs than the Canadian single-payer (government) insurance system. (13) The study didn’t even take into account the additional, 10 to 15 per cent of revenue that is siphoned off as profit by insurance companies and profit-oriented hospitals.
How dysfunctional is the U.S. healthcare system?
Both U.S. and Canadian governments spend approximately the same on healthcare — in 2001, north-of-the-border governments spent 7 per cent of GDP while American governments spent 6.7 per cent. (14) In Canada that spending provides good health coverage for everyone. In the USA, 43 million people have no coverage at all, companies resist hiring new employees and ordinary people go bankrupt because they get sick.
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Yves Engler lives in Montreal and can be