Friday, November 14, 2008

Best bailout for GM, Ford, Chrysler: Government health insurance (with private doctors)

While the Democratic leaders in Congress are pushing hard for a bailout of some kind to the nation's big three automakers (Ford, GM and Chrysler), the Republicans have basically said no

"The financial straits that the Big Three find themselves in is not the product of our current economic downturn, but instead is the legacy of the uncompetitive structure of its manufacturing and labor force," Mr Richard C. Shelby, senior Republican on the banking committee said.
And on the House side, Republican and Minority Leader John Boehner said:

"Spending billions of additional federal tax dollars with no promises to reform the root causes of crippling automakers' competitiveness around the world is neither fair to taxpayers nor sound fiscal policy."
What most Republicans want to do is just bust the union and lower wages. High wages is a central economic strategy of any recovery, so it's bad policy to try to lower wages. (That's the single strongest reason why government policy should always be to encourage more labor unions to form -- unions result in higher wages for workers, which results in more purchasing power for Americans which results in a stronger economy). 

However, the Republicans do have a point. It's too expensive to make cars in the U.S. compared to Japan or Europe. And it's not because we pay our workers too much. 

It's because the cost of buying health insurance to workers and retirees is contained in the cost of the car for American companies and not for Japanese and European companies. 

We force GM, Ford and Chrysler to pay for health insurance and run a huge insurance division. If we handle health insurance the way most European companies and Japan handles it -- which is to have the government pay for all health insurance while hospitals and doctors and providers are private and they just get paid by the government -- then the American automakers would save billions of dollars and become much more competitive.

Even just extending Medicare -- the most efficient health insurance company in the nation -- to people who are 55 and over and letting them buy into the plan (as many Democratic Members of Congress have suggested) is a great bailout of automakers by helping to solve a structural problem that makes them (and every other manufacturer) less competitive. 

I hope that's part of change in Washington. And I suspect that a smarter way to pay for health insurance than making American manufacturers less competitive will be.

2 comments:

Aaron Antrim said...

I am so disappointed with Democrats for proposing to bailout U.S. Automakers. I understand that their failure may hurt many, many thousands of workers, but I simply balk at the notion that auto manufacturers, executives, and yes, unions, should be relieved of shouldering the responsibility for the consequences of their decisions.

At various times, the unions have sided with auto manufacturers against higher fuel efficiency standards, saying that the expense of implementing those standards would hurt auto workers. I think that's just short-sighted and stupid.

Of course, I wish environmental groups had been more successful and vigilant at reaching out to those unions, but that's a different discussion.

Erik said...

Putting those over 55 into Medicare sounds good, as Medicare is hugely popular, but it would yield a cost the program couldn't sustain.

Medicare's chief actuary, Rick Foster, was quoted last week that the recession will accelerate Medicare insolvency from the current 2019 estimate to "between 2016 and 2018." If you add the heart of the Baby Boom generation atop the already problematic payment system, that insolvency accelerates further. Medicare has deeper problems (physician payment, fraud, health inflation, etc) without adding to them.

And as to the concept of Medicare as efficient, it is efficient as a cost shifter. From today's news regarding the Milliman study:

"Low Medicare and Medicaid reimbursements to hospitals and physicians lead to significantly higher health insurance costs for consumers and employers, according to a study released today by Milliman Inc. The report found that annual health care spending for an average family of four is $1,788 higher than it would be if Medicare, Medicaid and private employers paid hospitals and physicians similar rates, with total provider reimbursement unchanged."

It's easy to be efficient if you shift costs to others (as the Medicare Payment Advisory Commission repeatedly reports is the case with Medicare).

-Erik