GM'S HEALTH-CARE PROBLEM IS ALSO AMERICA'S

Is General Motors an automobile manufacturer that provides health-care benefits for its workers? Or is it a health-insurance provider that also happens to make cars? The question is facetious, but there's nothing funny about GM's predicament. At the company's annual meeting in Detroit last week, CEO Rick Wagoner told shareholders that health benefits add a staggering $1,500 to the price of every vehicle GM makes....

The health benefits GM provides are generous to the point of recklessness. While its salaried employees pay 27 percent of their health-care costs, the nearly 120,000 workers who belong to the United Auto Workers pay a minuscule 7 percent. They have no deductibles, no monthly premiums -- only modest co-pays for doctor's visits and prescriptions. Benefits that lavish might have been tolerable back when GM was king of the automotive hill and could count on selling enough cars to defray such a huge expense. But GM today sells only about one-fourth of the cars bought in America -- down from nearly half in the 1950s.

All of which helps explain why GM lost $1.3 billion in the first quarter of this year, why its credit rating (along with Ford's) was recently cut to "junk" status by Standard & Poor's, and why the price of its shares, notwithstanding a surge in recent days, has been sinking for months. At the annual meeting, Wagoner warned that the exploding cost of health-care benefits is "perhaps the most challenging element" of GM's looming financial crisis. Is it ever.

Of course GM has other problems, too. Union rules block it from shutting down underused plants. It takes 34 hours to build a GM vehicle, while Toyota can build a car in 28. Sales of high-profit SUVs and pickups have been depressed by rising gas prices. And as critic after critic has complained, GM's array of brands is too large and indistinct. How many non-car buffs can distinguish a Buick from a Pontiac? Or a Saturn SUV from one made by Chevrolet? "One has to wonder," writes auto industry analyst Maryann Keller, "why it has been so hard for GM to figure out what car buyers want and then give it to them."

Well, part of the reason is surely all those billions GM is spending on first-dollar health coverage for its legion of retirees. When $1,500 per vehicle is earmarked for Lipitor and knee replacements, that's $1,500 not being spent designing cars that drivers will fall in love with. Wagoner indicated last week that he intends to force down health care costs whether the union likes it or not -- "our strongly preferred approach is to do this in cooperation with the UAW," he said, implying that other approaches are available if necessary. Sure enough, The New York Times reported on Wednesday that GM has given the UAW until the end of June to agree to health-care concessions or face unilateral action by management.

GM's hourly workers undoubtedly have a sweet deal -- who wouldn't love health insurance that comes with a $0 deductible and no premiums? But such sweet deals drive up the cost of health care for everyone. When somebody else is picking up the tab, there is little incentive to economize -- that is as true of medical care as of anything else. The price of prescription drugs, hospital stays, and medical procedures has skyrocketed in part because tens of millions of Americans are insured through their employers with low-deductible medical plans. Why *not* run to the doctor for every minor ailment when the out-of-pocket cost to do so is minimal? Why inquire whether a procedure can be performed less expensively when it'll be covered by insurance either way?

In no other area do we rely on insurance for routine expenses or repairs. Auto insurance doesn't cover oil changes; no one uses homeowner's insurance to repoint the chimney. That's because most of us pay for those policies ourselves, and therefore get only the insurance we really need -- generally against catastrophic events, like a car being stolen or a house burning down.

Only when it comes to health care do we expect insurance to cover nearly everything. The problem may be especially acute at GM, but most of us have gotten used to having a faceless third party pick up the lion's share of our medical tab. GM's board of trustees can play hardball with the union. But ultimately this isn't a problem that a single company can fix. So long as Americans don't expect to pay for their health care themselves, what's no good for General Motors won't be good for America, either.

From Jeff Jacoby

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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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