GOVERNMENT MEDI-BUNGLING HURTS AMERICAN COMPANIES

Which part of North America makes the most cars? If you answered Michigan, you would have been right for 100 years. But you would not be right anymore. Last year the Canadian province of Ontario surpassed Michigan in car production. Of course, most of the cars made in Ontario are manufactured by America's Big Three—General Motors, Ford and Daimler-Chrysler. These companies are shifting production out of the United States for one overwhelming reason: massive health-care costs. An American worker costs them more than $6,500 in health care per year. In Canada, which has a government-funded and -run health-care system, the cost to the employer per worker is just $800. While the Big Three are an unusual case, they highlight what might turn out to be the most significant threat to the competitiveness of American firms in an increasingly global economy: our out-of-control health system.

This year General Motors will pay about $5.2 billion in medical and insurance bills for its active and retired workers. That adds $1,500 to the cost of every GM car. For Toyota, whose products are manufactured in many countries abroad, these costs add just $186 per car. When China and India start making cars for sale in the United States and Europe, you can be sure that their health-care costs will be less than $50 per car.

It is often said that GM has been badly managed. This may be true, but the problems it is going through now are not primarily related to this issue. All large American companies to some degree have GM's health-care problem—accentuated greatly for the carmakers because of their older and highly unionized work force. For historical reasons, American companies pay the bulk of the medical costs of their workers (and often their retirees). And these costs have been rising across the United States at five times the rate of inflation for five years. It's GM's problem today. It will be GE's problem tomorrow.

One answer is for companies to stop paying for their workers' health care. But that doesn't really tackle rising medical costs, which someone has to pay. The trustees of Social Security and Medicare just reported that by 2030, one third of all wage increases would go to fund these two programs. And as Robert J. Samuelson points out, that doesn't even include the costs of Medicaid.

For most problems in Washington these days, there is an obvious answer but little political will to implement it. Take Social Security. The solution is simple—trim benefits by raising the retirement age, means testing, etc.—but somehow it is impossible to get this through a polarized political system. On health care, there is no simple answer. But there will have to be some broad bipartisan effort that involves compromise on both sides. There are only two major areas of the American economy where costs have risen for decades at three to four times the rate of inflation: health care and education. (Think of college-tuition bills.) In both cases the consumer does not pay the full cost, and government, the ultimate funder, has little power to negotiate costs or to ration benefits. (In education, government funding comes in the form of tax exemptions, grants and low-interest loans.)

If people paid for more of their health care themselves, they would use it more rationally, which disciplines costs. But it wouldn't really solve the problem because despite the mythology, American health care is not a free market. It is dominated by government funding, through Medicaid and Medicare. The big difference between our system and that of other countries is that in America the government cannot (often by law) exercise its clout as a buyer to drive down costs. So the individual doesn't have the incentive to control costs (why should he, someone else is paying?), and the government doesn't have the means to do so. This is a recipe for waste and overuse. In 2003, The New England Journal of Medicine published a study that showed that America's sprawling health-care system spends $209 billion more in administrative costs than does Canada's single-payer program.

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MISSOURI CUTS MEDICAID

Gov. Matt Blunt signed legislation Tuesday that will scale back Medicaid, the government's $5 billion health care program for the poor. The changes are expected to eliminate taxpayer-financed insurance coverage for about 100,000 parents, people with disabilities and elderly people. Thousands more will have to pay some of their medical bills. Many services, such as dental care and podiatry, will be discontinued for most adults in the program. Children, pregnant women and the blind are exempt from the cuts.

Blunt said Medicaid was growing faster than Missouri taxpayers' ability to finance it. "This is not Washington, D.C.," he told reporters. "We don't print money. We have to balance the budget." Even with his changes, he said the program is still "very generous" and will cover 15 percent of Missourians. The bill sets up a legislative commission to recommend a long-term overhaul of Medicaid by Jan. 1.

Another provision ends subsidies for parents who adopt foster children if parents earn more than twice the poverty rate -- $38,700 for a family of four. The bill takes effect Aug. 28.

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For greatest efficiency, lowest cost and maximum choice, ALL hospitals and health insurance schemes should be privately owned and run -- with government-paid vouchers for the very poor and minimal regulation.

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