I began wrestling with the problem of a bloated healthcare sector and how it harmed U.S. industrial competitiveness during the presidency of George H.W. Bush, who just passed away at age 94.
During the 1980s, I covered the collapse of U.S. manufacturing for several publications in the Midwest. I wrote numerous stories about plant closings, the desperate straits of displaced workers and their communities, and how U.S. companies lagged their Japanese and German rivals in adopting the latest technologies.
As the recession of 1990-91 deepened, the Chicago Tribune asked me to go to Tokyo. “We need someone over there who understands business,” the foreign editor told me.
A few months after I arrived, the president, running behind in his bid for re-election, showed up with 23 CEOs in tow to demand that Japan open its market to U.S. cars and other manufactured goods. I was at the Hotel Okura the night when Poppy, as he was affectionately known to his family and friends, vomited in the Japanese prime minister's lap.
To American voters and the world, it was a symbol of U.S. weakness. But like the instant pundits of the day who blamed his sickness on bad sushi (it was later reported to be a stomach virus), it was an imperfect diagnosis.
U.S.-made goods had a quality problem, for sure. But companies were rapidly closing the gap by adopting Japanese-style manufacturing techniques (Kaizen, just-in-time inventory, standardization, statistical process control—sound familiar healthcare execs?).
Their bigger problem was labor costs. Those same CEOs would quietly admit when the cameras weren't rolling that the biggest part of the labor cost differential was healthcare. Back then, they calculated it at $800 per car. Today, it's much higher.
GM, then as now the bellwether among U.S.-based automakers, responded by closing plants. It instituted the first health insurance co-pays for their white-collar workers. GM eventually forced its blue-collar workers to accept a similar deal.
Unfortunately, making employees have more skin in the game didn't work. Healthcare costs continued to soar and U.S. manufacturers continued hemorrhaging jobs. Last month, GM announced it was shutting another five plants.
In the intervening years, most U.S. employers have taken the GM path. Rather than tackle structural problems like exorbitant prices and inequitably distributed healthcare costs, they have shifted more of the burden onto the sick.
A new report from the Commonwealth Fund shows a growing share of worker income goes to healthcare spending. Out-of-pocket expenses for the average family now take 11.7% of median income, up from 7.8% a decade ago. It's scant solace to say real wages are rising when most of the increase goes to pay higher premiums, co-pays and deductibles.
Tariff battles, whether in 1992 or 2018, will not solve what remains one of U.S. businesses' main international competitiveness problems: the higher prices they pay for healthcare and the tab's uneven distribution.
We don't think enough about the second part of the problem. GM and other manufacturers with older workforces have higher sickness expenses than, say, Facebook, Google or Amazon. When they go into the health insurance marketplace or self-insure, as most large employers do, they wind up paying much higher rates. Does it make sense to allow the most successful firms that face the least international (or domestic) competition to pay less?
The first President Bush did a few good things for healthcare. He signed the Americans with Disabilities Act. He boosted HIV/AIDS research funding.
But he lost his chance at a second term to an upstart Southern Democrat who promised to do something about rising healthcare costs. Focusing on trade barriers was not only an ineffective industrial policy, it turned out to be an ineffective electoral strategy.