Center for American Progress

Health Care for Automakers: A Progressive Priority for America

Health Care for Automakers: A Progressive Priority for America

The Big Three carmakers face rising health care costs that crimp their competitiveness. Congress needs to act on our innovative proposal.

President Bush met yesterday with representatives from the Big Three automakers to discuss, among other things, the three companies’ cost competitiveness vis a vis their global rivals due to the ever-rising cost of health care in the United States. Regrettably, the president is likely to miss a golden opportunity to improve the competitiveness of America’s car manufacturers by addressing the nation’s health care crisis.

Affordable coverage for all Americans would provide not only a direct remedy for what ails General Motors Corp., Ford Motor Company, and DaimlerChrysler AG’s Chrysler Group but also economic security for all American workers and families. The incoming 110th Congress should step into the breach when it convenes in Washington to begin its two-year session in January.

After all, the progressive mandate registered in last week’s congressional elections across the country included real commitments to fix the nation’s broken health care system as a key legislative priority. That should come as no surprise given that health care reform is unquestionably good for companies large and small, for hourly and salaried workers, and for our nation’s global economic competitiveness.

Case in point: the American automotive industry. The Center for American Progress recognized this over a year ago when we published our case for Health Care for Hybrids, a policy proposal to rebuild the auto industry, preserve jobs, and break our dependence on foreign oil by directly tackling the debilitating cost of legacy health care obligations to retirees at the Big Three Auto Makers.

The competitive disadvantage of U.S. automakers resulting from the absence of a national strategy on health care financing is becoming increasingly clear. GM faces legacy costs (health care plus pensions for retired workers) of $1,500 per car. Together, the Big Three automakers support roughly 800,000 retirees, compared to less than 1,000 for foreign-owned competitors in the United States.

Clearly the failure to address America’s health care finance problems has become a major competitive disadvantage for our economy as a whole and has placed U.S. workers in a diminished bargaining position for wages and job security in relation to the rest of the industrialized world. Targeting retiree health costs offers an opportunity to provide strong incentives for industry action on fuel savings investment and reduces the competitive disadvantage.

Our plan—and similar legislation offered by Sen. Barak Obama (D-IL) and Rep. Jay Inslee (D-WA)—would address the legacy health care costs of the U.S. auto industry to help level the playing field with U.S. competitors. Assistance to the auto industry, however, must include accountability for providing a strong public benefit in return for the public investment—by reducing U.S. reliance on oil through incentives for domestic manufacture of more fuel-efficient vehicles like hybrid cars, advanced diesels, and increased use of farm-based biofuels, making U.S. automakers more competitive for the future.

Government assistance must also result in domestic job retention. Only a manufacturing incentive for conversion of U.S. manufacturing plants can ensure that the next generation of high performance, energy-saving cars is made in this country. Consumer incentives or regulation in the absence of domestic investment are likely to drive even more rapid outsourcing of jobs. Our Health Care for Hybrids proposal would protect taxpayers, consumers, security, and the environment: A proposal to use health care relief as an incentive for breaking our reliance on oil will benefit taxpayers and workers by preserving the domestic tax base while improving national security, and protecting the global environment by reducing reliance on fossil fuels.

Of course, a broader embrace of real health system reform would be unquestionably good for companies large and small, for hourly and salaried workers, and for our nation’s global economic competitiveness. According to the Kaiser Family Foundation, health care insurance premiums have grown 87 percent since 2000—a rise in health care costs that hurts American employers and employees alike. Rising health care costs for businesses are a serious drag on the price competitiveness of their goods and services at home and abroad.

Money spent by employees on their own health care—whether by the nation’s 46 million uninsured or by employees with health insurance who must pay for services not covered by company-provided health insurance—is money not spent on other goods and services.

Health care spending in 2004 represented 16 percent of the nation’s gross domestic product, or about $1.9 trilllion. According to data from the Organisation  for Economic Cooperation and Development, American health care spending in 2004 averaged $6,280 per person—two times more than the average of what other wealthy nations spend, per person, on health care.

What’s worse, health care costs in the United States rose 7.9 percent in 2004, more than three times the rate of inflation. This is a serious drag on our nation’s economic competitiveness. The United States can no longer afford to handicap American businesses with these costs. It’s bad for business, bad for the economy, and bad for our citizens.

The Center for American Progress has researched specific policy prescriptions to address this problem. The 110th Congress needs to take a serious look at the Center’s health care policy proposals for our automotive industry and the entire nation. The progressive mandate so clearly evident in our most recent elections requires nothing less.

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