Insurance Cost Crisis : Business Leaders Rethinking National Health-Care Options

For decades, national health insurance was organized labor’s dream and big business’s nightmare.

But now executives at some of the nation’s largest companies are beginning to rethink their earlier conviction after years of living with an even more painful reality--the skyrocketing cost of employee health-care plans.

These rising employee medical costs, said Art Puccini, vice president of labor relations at General Electric Co., in a speech early this year, “may lead some of us who today are free-market advocates to re-examine our thinking and positions with respect to government-sponsored national health insurance.”

In the six months since Puccini delivered his warning to a management conference in Florida, corporate America, with a major push from organized labor, appears to be moving toward a political conversion that could lead to the biggest extension of government health care since the creation of Medicare in the early 1960s.

Balance-Sheet Issue

The motives of both labor and management are largely self-interest--companies want the cost off their books, and workers want it out of their paychecks.

“It’s a balance-sheet issue,” says Karen Ignagni of the AFL-CIO. “They (companies) want to get it off their balance sheet and onto someone else’s.”

Whatever the motive, labor is perfectly happy to have business support for government health insurance. The AFL-CIO will use its national convention in November to kick off a major campaign for national health insurance legislation in the next Congress.

In many contracts being negotiated, labor and management are writing in language requiring them to work together toward some form of government solution to health care. In the new contract between the Communications Workers of America and American Telephone & Telegraph Co., for example, the two sides pledged to “mutually work to achieve prompt and lasting national solutions” to the health-care cost “crisis.”

“I think we’re on the verge of a historic opportunity in health care,” Ignagni said.

It remains far from clear what form such a program would take. Some proponents would like government to take over the nation’s health-care system entirely, but support for that is not broad and in the current budgetary climate, its prospects remain essentially nil. Still, some form of mandated insurance coverage by employers is gaining support, possibly coupled with a stronger government role in regulating costs.

The corporate charge for some form of government health-care program--few advocates call it national health insurance anymore--is being led by the auto industry. Chrysler Chairman Lee A. Iacocca has moved his top health insurance expert to Washington for the upcoming legislative campaign.

Ford has been using its seat on President Bush’s competitiveness council to push for government health care, and Capitol Hill lobbyists are reporting regular sightings of General Motors Vice President Beach Hall at various meetings on the issue.

Cost Containment Failed

Although the cost of providing health care to employees of the car manufacturers is among the highest, they are by no means the only ones concerned.

“A lot of people outside the auto industry are beginning to look at national health insurance as not so bad,” said an executive from one of the nation’s largest manufacturing firms who did not want to be identified.

Three years ago, he said, his company was “totally against” any form of government health program. Now, given the sharp rise in health costs, “we’re willing to take a look at it.”

Behind the companies’ sudden shift is their realization that the cost-containment strategies of the 1980s have failed. Such widely touted devices as co-payments by employees, second opinions for surgery, wellness programs and case management slowed the pace of increases for a few years, but now they are again climbing at rates of 20% a year and more.

For large companies, the costs are staggering.

At GE, for example, “health-care costs per employee rose 17% in 1987 and about 13% in 1988,” Puccini said in his speech.

The company’s annual health-care expenditures are now approaching $950 million a year, “and the projected trend would suggest that another 20% to 25% increase is to be expected in 1989,” he said.

“That would mean a $200-million increase in one year--even for a company like GE, that is enormous,” he said.

“We can’t outsmart the doctors,” said one top corporate official. “They’re in control. We’ve got to get it to the government level.”

Even benefits specialists admit that the programs that they have helped initiate have failed to cushion companies from spiraling costs.

Company officials come in “and say we did everything you told us and now we’re looking at our third year of increases of more than 20%,” said Michael Carter at Hay-Huggins Co., a benefits consulting firm in Philadelphia. “They say, ‘What do we do now?’ and I smile and say, ‘Write your congressman and ask for national health insurance.’ ”

The shift of opinion extends across the spectrum of corporate America.

“I’m kind of amazed, when I think back to five years ago, at the companies now supporting some sort of national health rules,” said Michael B. Jones of Hewitt Associates, another benefits consultant.

Some Have Doubts

Last May, the National Assn. of Manufacturers declared health costs “out of control” and warned that they “threaten the nation’s competitive position,” a theme being echoed by many corporations as they begin to turn to the government for solutions.

Although most everyone agrees that the current system isn’t working, not everybody believes that national health insurance is the answer.

“I like to say, if you like your Postal Service, you’ll love national health insurance,” said Thomas Burke, a former chief of staff at the Department of Health and Human Services and now a private consultant with A. Foster Higgins & Co.

The real problem, he and other critics say, is the actual cost of medical care, rather than who pays for it. All national health insurance would do is shift this cost from business to government, they say.

The current system provides “perverse incentives” to doctors and other medical-care providers to run up costs, Burke said, and as long as it does, “you get excesses.”

“We can’t let them set their own prices and create the demand” for their services, he said.

And not all companies are convinced that national health insurance is the answer, even those that are looking at it as a possible solution.

Hewitt’s Jones said he sees the corporate thinking taking two tracks: While some, like the big auto and steel companies, are overtly in favor of national health insurance, others are “beginning to say that they will support, or not actively oppose, mandated benefits.”

The major legislative vehicle currently before Congress is a bill proposed by Sen. Edward M. Kennedy (D-Mass.) that would require all employers to provide minimal health insurance coverage for their employees.

This year, however, Kennedy expanded his bill to include anyone else who lacks coverage. About 35 million Americans have no health insurance.

Must Debunk Myths

Another major doubter of national health insurance, though for different reasons, is the American Medical Assn. Pointing to Britain and Canada, where, they contend, medical care is suffering and research is limited, Dr. Robert McAfee of the AMA’s board of trustees said “we are very much against” any system where doctors work directly for the government or where the government directs care and prescribes fees.

In fact, there is some agreement on the labor side that no program will work if it restricts access to medical care.

“We will have failed if we create a system that makes everyone feel that they have to leave their own doctor,” said the AFL-CIO’s Ignagni. “The AMA is going to try and slaughter us. It’s up to us to debunk a lot of these myths.”

The Canadian system, which centralizes the financing but not the delivery of health care, is drawing increased attention from U.S. corporations.