NCPA - National Center for Policy Analysis


April 26, 2005

General Motors executives say the $5.6 billion that the company will spend this year on health benefits adds $1,500 to the cost of each GM car and is a major factor in its $1.1 billion first quarter loss.

Columnist Matt Miller argues in Fortune magazine that GM's competitors in other countries aren't saddled with this "ball and chain" because they have government (taxpayer-financed) health care systems. He and others are issuing new calls for government to step in to socialize health costs.

It's time to get a better grip on reality -- and basic economics, says Grace-Marie Turner (Galen Institute). Here's the real deal:

  • The cost of employer-provided health insurance is part of employee compensation -- both earned today and deferred into the future; health benefits are simply a form of employee-earned, noncash wages -- no matter how the company chooses to list them on its accounting ledger.
  • The $1,500 cost isn't going away; if GM doesn't pay health costs directly, it would pay indirectly through higher taxes on the company and on workers, just as their competitors in other countries do.
  • The auto makers have some of the most generous health benefits in the country - no deductibles or copayments in many cases -- and their exploding health costs show the predictable result; would it be fair to saddle the florist shop up the street with higher taxes to bail GM out of decades of too-generous labor contracts?

GM Chairman and CEO Rick Wagoner told the Wall Street Journal last month that the company needs to introduce new incentives for its workers to regulate health spending through a consumer-driven, competitive marketplace. That's a great start and refreshing to hear the CEO looking for new solutions, says Turner.

Source: Grace-Marie Turner, "The Real Deal," Galen Institute, April 22, 2005.


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