Health care: a new angle on cost containment.

• Author: Altman, Dean
• Position: Includes articles on an individual company's cost containment efforts and an alternative view on health care

Health care: a new angle on cost containment Most companies agree that health care is a corporate cost driver that has a major impact on a firm's financial statements. Is it time for corporate America to reevaluate its role as the primary financier of health care?

In nearly every country in the world, the government provides basic financial health-care protection to its citizens. But, in the U.S., you in corporate America are our government. You didn't plan it that way. Following World War II, you started financing health care as a fringe benefit that probably didn't amount to more than 1 percent of payroll.

Today, health care consumes such a large percentage that it is no longer a fringe benefit. For some, it exceeds 10 percent of your payroll. And you cannot possibly figure out how to get out of this mess.

As an economist, I believe that competitive forces offer the best way of solving problems. But in this area, the debate over competition versus regulation is a nondebate. The issues are too large for any company to solve, even a General Motors. If you think that your corporation can solve this problem, you're not looking at the issues.

Why are you in corporate America our government? Because not only are you insuring your workers, but most of you are insuring two, three, or more dependents--as well as your retirees.

As if that isn't bad enough, you now are the main insurance vehicle for 37 million uninsured people. Moreover, you are increasingly the backup financing arm for both federal and state governments that can no longer afford the cost of the hospital and other health care that they are providing to Medicaid and Medicare recipients. Hospitals have figured out that there is a deep pocket other than the government--and you are it. There is no competitive strategy that you can possibly come up with to deal with that. In other words, this a problem that has to be solved in partnership with government.

A national leadership commission, comprised of private individuals representing our largest corporations, major insurance companies, and hospitals and doctors, has been meeting for more than two years to try to solve this problem. The commission has proposed a system that provides a financial backup for all Americans. It requires all individuals to have private health insurance and provides a mechanism for slowing down the rate at which costs are increasing.

But while the vast majority of the commission members support this proposed health insurance system, there are a number of noticeable dissenters. Some members of organized medicine feel the plan is too tough and too un-American. Some insurers feel the plan could result in their losing a portion of the private insurance market. And a few corporations feel that the plan isn't tough enough and isn't going to control enough costs. Unfortunately, while all these "interests" debate the fine points of the plan, your health-care expenses keep rising.

What are those expenses? The first thing to understand is that the U.S. sits in first place in the international health-spending derby, with close to 11.5 percent of our gross national product going to health care. We're talking about anywhere from $550 to $600 billion.

If you look at our trading partners, the U.K. sits on the bottom of the pack with about 6.2 percent of its GNP spent on health care. Japan is spending 6.7 percent. That means that into each Japanese car, for instance, goes about 60 percent as much health-care spending as goes into our cars.

Germany spends 8.1 percent of its GNP, and Canada is sitting there at 8.5 percent. So we are almost double the U.K. rate and 35 to 40 percent higher than Germany and Canada.

As recently as the early 1970s, the U.S. and Canada spent about the same. What happened? At that point, Canada introduced a national health insurance system. Financed primarily by the federal government and run by the provinces, it had tough budgetary constraints across the board. Canada's doctors are fee-for-service doctors; they're not in the employ of the government. The country's hospitals are not-for-profit, but they face a very tough bargainer at the other side of the table, and it's not corporations--it's the provincial government.

Why do I tell you this story? Not because I believe we should create a totally government-financed...