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GM, WalMart, and health care reform

Two articles in today’s press highlight the growing impact of health care costs on US business. One, an opinion piece by Paul Krugman in the New York Times (subscription required) , compares the workforce compensation of GM and WalMart, noting WalMart’s significantly lower per-employee wages and level of health benefits programs. The other appears in the Economist, a publication with a more conservative bent, and notes the impact of health care and pension expenses on the Big Three (well, now that Toyota is one and Chrysler is not, perhaps the Big Two and Number Four) automakers.
Krugman’s comparison of WalMart and GM is illuminating. Here are his main points.
1. GM pays about $1500 per car for health benefits.
2. GM has about 2.5 retirees for each working employee
3. GM used to be the largest employer in the nation. Now, WalMart is.
4. When GM was the largest employer, average wages were equivalent to $29,000 annually in today’s dollars. WalMart employees average $17,000.
5. Essentially all of GM’s workers have incredibly generous health coverage. About half of WalMart’s have any company-paid health coverage.
6. This is not to praise or denigrate either company, just to illustrate how the US economy is changing and the impact on the “average” worker is a reduction in income and health benefits coverage.
The Economist (perhaps the best newsmagazine in existence) has an equally interesting perspective on the US auto manufacturers. Here are the main points from their article on GM and Ford, subtitled Detroit’s car industry and its unions now have to reduce legacy employment costs (available by subscription or free to print subscribers).
1. “GM’s 30-year slide from 60% of the American market has now taken it to 25%; Ford’s share is under 20%: neither shows any sign of arresting this trend, which looks dangerously close to tilting into precipitous decline, at least in their home market (both are now faring better abroad).”
2. “the American transplant factories of their Asian and European competitors have none of these (health care and pension) costs, and have young, non-unionised workforces.”
3. “the really big challenge for GM and Ford is attacking those legacy costs. That boils down to one thing: Detroit must persuade the unions to give some ground on pensions and health-care.”
4. the article goes on to point out that big steel, textiles, and heavy equipment have all weathered this storm and come out stronger, but the storm may well be hurricane-strength.
My conclusion? Health care costs and their attendant drag on American business have become an issue of survival. At long last, big business is recognizing that they cannot compete in the global economy without major reform of the US health care system.
What does this mean for you?
Health care reform is going to happen, and will be driven by both sides of the political aisle (Krugman representing the liberal and big business and the Economist the intelligent conservative). There will be a major effort at health care reform in the next two years. Pay close attention, and seek to understand the underlying motivations, for therein lies the impact on your organization.

3 thoughts on “GM, WalMart, and health care reform”

  1. I am not sure what kind of health care reform you are anticipating, but the entire delivery and payor system is constantly changing, and has been for as long as I have been around.
    Perhaps the biggest change, and one that is desparately needed in my opinion, is the shifting of responsibility for health care decisions to the consumer. Many large employers have utilized 125 plans for some time in an attempt to make their employees more pro-active. Many have also introduced HRA’s and now HSA’s while at the same time are raising deductibles and copays.
    Some states have passed legislation enabling employers to offer less comprehensive plans in an attempt to lower premiums. Most of these legislative changes are more illusory than cost effective but it makes for good print copy.

  2. Health care reform to date has been superficial and piecemeal. I am referring to much broader, deeper, and more wrenching change than tweaking tax laws or mandated benefits requirements. HSAs and so-called “consumer directed health plans” do nothing to address the real cost issues in health care: most dollars are used by a relatively few people, who will blow through their HSA $$ in a few months; technology is driving much of the cost and utilization increases; 40% of dollars are spent on individuals in the last six months of life; the uninsured’s care is paid for by invisible “taxes” while their health status is much worse than the insured population, etc.

  3. The overall cost of health care is multi-faceted as you have indicated. Addressing health care is like squeezing a balloon. You squeeze on one end and the other end inflates.
    Managed care slowed med care inflation but those controls ran out of steam after about 3 years. HMO’s have generally done a good job of holding down med care inflation but have failed to get a real foothold on a significant number of covered participants. PBM’s are not as effective as they once were since consumers now dictate to providers the meds they want to take.
    Over-utilization is rampant and a function of plan design, most specifically the low copay plans. Transforming a plan from a typical low copay to HSA/HRA will reduce utilization and hold down claims.
    Shock claims are controlled as much as they can be through large case management.
    The number of uninsured increases and definitely contributes to cost shifting which affects taxpayers and premium payors alike. What gets lost in the numbers is that approximately 85% of those uninsured COULD have coverage, either through taxpayer funded programs or through some form of private pay.
    If personal responsibility and accountability could be legislated, health care costs would drop dramatically. I don’t expect such a change to ever come about.

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Joe Paduda is the principal of Health Strategy Associates



A national consulting firm specializing in managed care for workers’ compensation, group health and auto, and health care cost containment. We serve insurers, employers and health care providers.



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