A Good Deal For Big Three Workers

Compared with Japanese counterparts, they pay less for health care

Detroit’s Big Three need a bailout not because Big Labor has been too greedy but because American taxpayers haven’t been generous enough.

At least, that’s the argument that Michigan Gov. Jennifer Granholm was making on Meet The Press and other shows last weekend. But Granholm ought to get her facts straight.

American car makers make $1,500 to $2,000 less per automobile than their Japanese counterparts. Granholm–and other United Auto Worker (UAW) backers–want everyone to believe that this gap is unrelated to the extra $30 U.S. automakers must pay in hourly wages and benefits to their unionized work force compared to what Japanese transplants pay their non-unionized work force. They all blame the gap on the fact that Japan has socialized medicine and America doesn’t.

Until President-elect Barack Obama corrects that situation, the only decent thing for Americans to do is empty out their pocketbooks to keep the former Big Three–and UAW benefits–alive. Nevermind that other working Americans, who on average make $50 less than auto workers in wages and benefits per hour and don’t have a jobs bank program for laid-off workers to draw 95% of their wages, are in even more financial distress. (UAW chief Ron Getterlfinger agreed Dec. 4 to suspend the jobs bank program, although exactly when that will happen remains somewhat uncertain.)

In any event, Granholm would have a case if she didn’t overlook that 70% of the Japanese cars sold in America are made by Americans in America. Further, is it even true that Japan is a single-payer heaven where carmakers–and their workers–get free health care with no cost to themselves?

Far from it. In fact, Japanese workers pay for not only their own health care but everyone else’s, too–including students, retirees and the unemployed.

As I pointed out in the Wall Street Journal last year, the Japanese health care system consists of three basic insurance plans: one for the self-employed and the unemployed, including retirees under 70; one for the elderly over 70; and one for all private- and public-sector employees. Up to a third of the premiums for the employees go toward subsidizing care for the first two categories.

These premiums equal 9.5% of a worker’s annual income; employees pay 45% of the cost from their own paycheck and employers take care of the rest. Last year, this sum worked out to $1,500 in out-of-pocket premiums for an employee with an annual income of $36,500, which are average yearly wages for a blue-collar Japanese autoworker. The employer’s per-worker share added up to around $2,000.

But that’s not all Japanese workers are on the hook for. Working families also face a 30% co-pay–capped at $677 per month for a middle-income family–for all other medical expenses such as hospital charges, diagnostic tests, drugs and doctors visits. These services are fairly cheap in Japan, thanks to massive price controls, hence an average family pays only about $70 a month, or $720 a year, out-of-pocket.

All together, these annual premiums and co-pays add up to about $2,300 for one worker. But that’s under normal circumstances. Should anyone in the family contract a catastrophic illness, the worker’s co-pays alone puts him or her on the hook for about $10,000–or about a quarter of an annual paycheck.

There is no scenario under which UAW workers, active or retired, ever face this kind of liability. Indeed, before 2005, the Big Three picked up the entire health care tab for all their hourly workers–active, retired, laid off–and their dependents. Workers were not required to pay any premiums, deductibles or co-pays except for routine physical exams and prescription drugs.

In 2005, the UAW agreed to some “give backs” and began requiring well-off retirees to cough up $252 in annual premiums for family coverage and another $500 in total deductibles for a grand total of $752 in out-of-pocket annual costs.

Meanwhile, active UAW workers were required to defer $1 an hour of their pay raise toward a health care trust fund called the Voluntary Employees’ Beneficiary Association (VEBA) that covers retiree health care. This works out to a grand total of $2,000 in VEBA contributions per UAW worker per year–or 4% of their annual wages–for lifelong guaranteed coverage, complete with dental care and Lasik surgery.

All in all, it is hard to imagine a scenario under which UAW workers would ever face annual costs of more than a couple of thousand dollars for their health care. By contrast, Japanese workers pay about $2,300 annually on a regular basis–and thousands more in the event of a serious illness.

This means UAW workers get a good deal compared with their Japanese counterparts in absolute dollars. But they get a great deal relative to income. In fact, one that is four times greater given that Japanese workers earn only about $40,000 in annual wages and benefits; whereas UAW workers, according to James Sherk of The Heritage Foundation, earn about $130,000.

Granholm can wax eloquent about the wonders of universal health care, but the fact of the matter is no system can afford to pay its workers more than they generate in value and expect to remain solvent. Throwing more taxpayer money at the Detroit Three–as President Bush is poised to do–won’t restore their viability. Only some form of bankruptcy will force Big Labor to exit the la-la land it inhabits and bring its lavish benefits and wages in line with market realities.