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Healthcare costs pinch employers

Study suggests that manufacturers have limited resources to offset rising fees.

May 07, 2008|Lisa Girion | Times Staff Writer

U.S. manufacturers who provide health insurance spend an average of $2.38 per worker per hour on healthcare -- more than twice as much as their foreign competitors, an analysis released Tuesday found.

The study provides support for the now-familiar lament of employers -- that rising healthcare costs are eating into the corporate bottom line.

American automakers say employee health coverage adds $1,500 to the price of each car, and many U.S. manufacturers have blamed rising healthcare costs for decisions to drop health benefits for workers or shift jobs overseas.

But many economists have pooh-poohed the idea that U.S. businesses are hurt by their comparatively high healthcare costs. Instead, they have suggested that companies would pass those costs onto workers by lowering wages or onto consumers by raising prices.

But the new analysis suggests that neither lower wages nor higher prices are an option for most companies. Employers can't slash wages fast enough to keep up with rising healthcare costs because of minimum wage laws, union contracts and other factors, said economist Len Nichols, the analysis' author and a policy director for the New America Foundation.

"There's no question that if employers could push this into wages they would," Nichols said. "But every single year, healthcare costs rise faster than productivity and wages," he said. "Thus, they try to push it into prices. But with China and India competing against you, you can't do that."

George Rudes, chief executive of Not Your Daughter's Jeans, a Vernon-based manufacturer, said competition for workers prevented U.S. employers from reducing wages. He said the company paid starting wages for its 100 factory workers of 10% above minimum wage and that was not enough for them to afford healthcare coverage.

"How can you pay them less?" Rudes said.

The company wanted to extend health benefits for its factory workers two months ago, he said. But it was unable to find a plan that was affordable enough. They rejected a plan that, with the company picking up 50% of the expense, would have cost workers $80 a month each.

"We were trying to put it in and we were unable to do it," Rudes said. "They just can't afford it. How can anybody afford $4-a-gallon gasoline and insurance?"

Nichols found that healthcare costs were outpacing wages and productivity. With stiff global pricing competition, that means healthcare costs have to come out of the bottom line, he said.

"That," he said, helps "explain why so many employers are hyper-focused on health reform this time around compared to 1992-93."

Nichols said his study was prompted by a question from a manufacturer in the Midwest who was shifting his jobs overseas. "My question for you is this," Nichols recalled, "who is going to buy my stuff? If we move jobs overseas, who is going to be able to buy our middle-class stuff."

Foreign manufacturers' healthcare costs are lower because they are the beneficiaries of government-run programs that are not primarily employer-financed, Nichols said. Additionally, he noted, many competitor nations enjoyed greater healthcare efficiency, spending less for better outcomes.

But at least one policy expert said healthcare costs were not U.S. manufacturers' biggest problem in the new global marketplace. "What really drives international competitiveness is whether the U.S. company has a better product to sell at a better price," said Joseph Antos, a healthcare and retirement policy analyst at the American Enterprise Institute.

Pointing to the automotive industry, he added: "If you are not competitive in the business, you are in, then having somebody bail you out in health insurance is not going to help."

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lisa.girion@latimes.com

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