I’ve made a specific argument in my entries and comments about tax reform, but George Will described a perfect example of what I’ve written on the subject. Consider:
General Motors took an interesting turn on Monday. It is going back into the automobile business.
Granted, GM has always been in that industry, but it has also become the nation’s largest private purchaser of health care. This supposedly secondary role has become primary.
GM has been forced to allow product development, pricing and other decisions to be driven by the need to keep sufficient revenue flowing in so it can flow out in fulfillment of GM’s function as a welfare state. GM provides $5.2 billion in health care annually — more than Harley-Davidson’s revenue — to 1.1 million workers, retirees and dependents. Retirees outnumber current U.S. employees 2.5 to 1. The $4 billion that goes annually to retirees does not go into developing products people want to buy.
Concessions by the United Auto Workers will provide GM with annual savings of $1 billion in health care costs. But GM’s hourly workers, who pay no health care deductibles and only nominal co-payments, will still enjoy coverage better than most Americans have. Since 2000, the percentage of American businesses offering any health insurance to workers has declined from 69 to 60.
It makes no sense for GM or any other company to offer healthcare. It’s not the primary business, siphoning funds that should be spent growing the business through innovation and/or offering employees higher salaries. I’d contend that most, if not all should go to the employees. It’s part of their compensation, even if part of the expense is overhead. That’s overhead the company wouldn’t encounter if it didn’t offer health insurance. Human Resources is certainly designed to research and purchase insurance competitively, but where are the decisions on what individuals as individuals need (not part of the collective group of workers) best made, the fifth floor conference room or the family dining room? And what of the worker whose spouse’s company offers better health insurance? The worker loses that compensation from his own company because that portion of his compensation is non-monetary and must come in the form of health insurance or not at all. That’s not smart. Better to offer the compensation directly and let the employee decide what best suits his needs.
Mr. Will concludes:
Herb Stein, the University of Chicago economist who served as chairman of President Richard Nixon’s Council of Economic Advisers, famously said: If something cannot go on forever, it won’t. Delphi’s resort to bankruptcy and GM’s attempt, with the cooperation of the UAW, to avoid, for now, doing that, suggest that America’s welfare state — its private sector as well as its public-sector components — is reaching its Herb Stein Moment.
Let’s hope. Ultimately, a structure of competitive health insurance could replace this nonsense. Self-employed people somehow find health insurance without the benefit of employer funding and management. It’s logical to conclude that it would work when implemented on a larger scale, with insurance becoming just another product people purchase. I secured life and disability insurance policies on my own, as well. It’s funny how capitalism works to satisfy a need where it exists. Employer-provided health insurance subverts this process. Tax reform may not be 100% of the solution, but tax nonsense created the problem. It shouldn’t perpetuate it.