In his recent New Yorker article, “The Risk Pool,” as well as a blog post, Malcolm Gladwell has drawn attention to yet another reason to move to a single-payer health insurance system: the punishing competitive disadvantage that American companies and industries suffer when they provide health insurance, especially health insurance for their retirees and pensioners. Gladwell’s piece is mainly about retirement benefits, both pensions and health-care; he focuses on the “dependency ratio,” which is the ratio, within a company, an industry, or a country, of working wage-earners to nonworking dependents, primarily the young and the retired. The higher the ratio of workers to dependents, the better the economic prospects for a company, an industry, or a company. Indeed, he presents fascinating arguments that changes in dependency ratios are responsible for much of the economic growth in Asia over the last quarter century as well as for the economic troubles of Africa.
The Sherman Lumber Company Sawmill, Stacyville, Maine, closed in 2002 and sold at auction. New England sawmills, like U.S. automakers and steelmakers, are getting their clocks cleaned partly because they carry health-insurance costs their foreign competitors (in this case, Canadian sawmills) do not. Photo from Keene Auction Company.
Within particular countries, however, the dependency ratio is almost meaningless to individual companies or industries in most industrialized Western nations, since retirement and health-care benefits are absorbed by society at large. In the U.S., however, companies that provide these benefits suffer a tremendous competitive advantage. And though Gladwell focuses mainly on retirement benefits (both pensions and health-care) in the article, his blog post notes that even our employer-based health-care-insurance system here in the U.S. puts many industries at a horrible disadvantge.
I first saw this directly when talking with New England sawmill and paper-mill owners when working on The Northern Forest, the book Richard Ober and I wrote about the northern New England woods industry and culture. These mill owners — a group decidedly toward the libertarian end of the political spectrum — were getting killed by Canadian mills an hour or two north, and a prime reason, as most of them recognized, was that the Canadian mills didn’t have the expense of paying for worker health insurance.
“I don’t have to give my guys health insurance coverage,” one mill owner told me. “But considering how dangerous this work is, I couldn’t feel good about it if I didn’t.” As a result, he operated on dangerously thin margins. This hurt him yet further, for it meant he couldn’t afford investments in more efficient mill equipment to improve productivity — improvements the Canadian companies were making as we spoke.
The New England mill industry is getting crushed right now by Canadian competition, and the cost of health-care insurance (and worker compensation insurance, another cost Canadian mills don’t directly bear) is a big reason why.
As Gladwell points out on his blog, some of our bigger, older industries, such as cars and steel, suffer this fate more painfully, since they are insuring not only present workers but many retired workers. The cost of doing so is one reason (along with some brain-dead management) that the Big Three are taking such a beating. Gladwell says the managers of these companies recognize quite clearly that the lack of national health insurance is crippling these industries — yet they stay mum. As Gladwell puts it,
Why aren’t the heads of the Big Three all campaigning for universal healthcare? One reader points out that Detroit did support the Clinton healthcare initiative, so perhaps their failure to speak up right now around is strategic: that is, they would rather expend political capital on ideas that have an immediate political future. But even if that is true, I don’t follow the logic. If the heads of all the old-line manufacturers were to stand up tomorrow and make a combined call for universal healthcare, wouldn’t that act alone be sufficient to put the issue at the top of the political agenda?
All I know is that if I were foolish enough to own GM stock right now, I would find Wagoner’s silence on this issue to be something very close to a violation of his fiduciary responsibility.
Ideology has led our political and business leaders to overlook a lot of bright-white evidence the past few years. But the continued insistence on sticking with our present employer-based medical insurance system ranks near the top. Our system costs us twice as much per person as systems in other countries that produce better outcomes, leaves tens of millions of people uninsured, harms both economy and society by forcing many people to stay in jobs they hate just so they can keep their insurance, and is crushing some of the industries that made us the superpower we are. Yet we seem scared to even raise the subject.