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Philadelphia Economics
economics
Healthcare Reform: Looking Ahead (3)
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For fifty years, turmoil in the health insurance industry has originated in the steel and auto industries. It seems strange that no heroes have come to general public attention, although there may be heroes who are known to insiders; somebody may yet write a book about it. This may be of only passing importance, but the present distress in the American Big Three automakers suggests that unexpected legislative proposals concerning health financing could emerge from that direction. The turmoil in Detroit once centered on the auto industry enjoying windfall profits which labor wanted to share. More recent discord comes from the opposite direction: the automakers now cannot afford to honor those contracts they signed with labor having to do with health benefits.
The contract for the United Auto Workers was certainly generous. Printed up in a little red book for wide distribution, the contract states emphatically that an employee for six months or more will be completely covered for medical expenses for the rest of his life. If Medicare pays some of the cost, that is fine, but if Medicare reduces its benefits, the employer is liable. Some features of this contract may have been changed since it was printed, but it is difficult to imagine what incentives the UAW would have to agree to modifications. Except, of course, the self-interest which emerges when it looks as though the employer might go out of business unless there is some form of relief from wage costs.
To judge what is going to come of this is to judge the likelihood of the various arguments, predictions, and recriminations that are so common in heated disputes. Two things are pretty clear to auto industry outsiders: the UAW contract provides more generous health benefits than almost any other employee group enjoys, while the auto industry has worse earnings than many or most other industries. Consequently, both the employees and the stockholders have an incentive to make adjustments in the auto industry, a situation shared by the steel industry and other major auto suppliers. The form this has seemed to take is to favor some form of national health insurance, in which the taxpayers would take over the obligations of the auto manufacturers. So, look out for proposals from Senators and Congressmen from Michigan, and watch which nominees for U.S. President are favored by the rust-belt political delegations.
Workers in other industries are not certain to go along with such proposals. After all, most people resent it when someone else makes out better than everyone else for decades, and then comes asking for a hand-out.
Originally published: Wednesday, August 08, 2007; most-recently modified: Friday, May 03, 2019