[Cross-posted from The Corner.] 

Car company executives and UAW leaders are fond of blaming the U.S. health–care system for their financial woes. If only the federal government would adopt Japanese- or German-style socialized medicine, they contend, all would be well. But this is just one more myth sidetracking Detroit from doing what really needs to be done to bring the companies back to profitability.

It’s absolutely true that the Big Three are buckling under the weight of massive health-care obligations, but this is because the companies over-promised benefits to their retirees — a mistake their competitors with U.S. manufacturing plants are not making.

As Shikha Dalmia explained in this piece from more than a year ago, before concessions were made in 2005, the typical UAW retiree got all of his health care, for life, virtually for free — and most blue-collar workers were retiring well before age 65. Today, after concessions, the typical UAW retiree still has to pay only about $750 out-of-pocket for his health care per year, which is far below what most other Americans, including retirees, pay. Consequently, GM alone is facing an estimated $80 billion in unfunded health care expenses.

Some car company executives and union leaders think socialized medicine is the answer, but the U.S. already provides a socialized system of care for retirees — it’s called Medicare. The problem is that, when the car companies were profitable, they saw Medicare coverage as inadequate by industry standards. Hence, they promised workers zero-premium insurance during early retirement and coverage of all expenses not paid for by Medicare when they hit age 65 until death. Certainly, other Americans industries have taken similar steps, but none to the extent and scale that Detroit did.

Socialized systems of health care are mainly about equality and income redistribution. That is, all citizens are supposed to have equal access to care, which is enforced with standardized benefits and uniform taxpayer subsidization. If the U.S. were to adopt some version of socialized medicine, retired auto workers would be among those with the most to lose because they have it so good today. Their retirement incomes are relatively high, and they have prototypical, Cadillac-style (had to!) health insurance. They would almost certainly pay more and get less to level the playing field with others who today are either uninsured or are enrolled in much less expansive insurance arrangements.

Bill McGurn of the Wall Street Journal pointed out in this piece earlier this month that what Detroit should do now is admit that their health-care promises are unaffordable in their current form and begin to convert them to fixed contributions into worker-owned Health Savings Accounts. The costs would be known and controllable, and the workers would no longer have to rely on the financial viability of their companies — which may never be well-run again — for their future health-care coverage.


December 16, 2008