News & Opinion

AFSCME Ohio Council 8 president Patricia Moss's remarks at Cover the Uninsured rally May 6

I am Patricia Moss and I am the proud president of AFSCME Ohio Council 8 representing 41,000 public employees in Ohio. Nationwide AFSCME represents more than 1.3 million working Americans.

Our members like most Ohioans find themselves in the midst of this fight for affordable, quality health care. As so many speakers will tell you today there are 1.3 million Ohioans without health care. Every 8th person you pass on the street in Ohio does not have health insurance.  Count them the next time you go for a walk.

Many of you may think that union represented employees don’t need to be concerned about health care coverage. Well those days, if they ever existed, are gone. Across the nation, in states where we have the data, we see a growing number of union represented public employees on Medicaid—the government health care program for low income individuals who do not have health care.

Ohio unfortunately does not collect data on the number of public employees on Medicaid, so we don’t know the numbers. But we know they exist as public employers continue to reduce their health care benefits.
In Texas where we do have data, 15 of the 20 employers identified in the state's report of employers with employees whose children are on Medicaid, were public employers—mostly school districts.
In Massachusetts the City of Boston is number 6 on the list of employers with 50 employees or more who have employees using public health assistance. 
How can it be that public employers, which have historically offered decent health care benefits, are now beginning to contribute to the nation's uninsured working population? Strapped for cash, many states are reducing their own employees' access to health benefits by relegating them to part-time or temporary status, or increasing their contributions to a point where they simply cannot afford health care.

After 5 years of double digit health care cost increases, no longer are public employers willing to allow employees to keep their health care in exchange for giving up wage increases. Every where we look, we see that the deal is off—a deal that cost our members year after year of wage increases. 

And there is a growing number of public employees whose entire paycheck goes for their share of the health care premium. Some find that even after giving their entire paycheck to cover health care, they still owe their employer money for their health care.

We know that 46 million Americans have no health insurance. Another 16 million are in a new category of underinsured. That means these folks spend more than 10% of their income on health care costs.

With escalating health care costs and massive cost shifting to employees we are not only a nation of insured and uninsured, we are a nation of those who have insurance and can afford to use the benefit and those who are insured but cannot afford to use the benefit due to escalating deductibles, co-insurance and co-pays.

Indeed 21% of adults both insured and uninsured have medical debt they are paying off over time. For 44% of them the debt is in excess of $2,000. And no surprise the number one reason for bankruptcy in this country is due to medical expenses.

With every percentage increase in health care costs it is likely that 500,000 people are added to the uninsured as employers either stop offering health care or make it so costly that employees cannot afford to enroll in it.

We have an employer-sponsored health care system in this country. People generally get their health care through their employment. Yet nearly 40% of US employers do not offer health care coverage to their employees.  Nearly 60% do not offer retiree health care benefits.

Of course if you are uninsured you are less likely get needed medical treatment or fill your prescriptions. Because of that the National Academy of Sciences estimates that lack of health insurance leads to 18,000 preventable deaths in the United States. That is equivalence of the losses suffered through 6 9/11’s each year.

This lack of health care coverage has serious impacts on our nation’s ability to compete in the global market place. Benefits cost in the United States equals 29% of payroll. While in Japan, Canada and the United Kingdom it is closer to 17%. And the reason for this increased benefit cost in the United States is due to the cost of employer sponsored health care.
Starbucks spends more on health care for their employees than they do on coffee. The auto industry spends more on health care than it does on steel for its cars.

Every car built in America has an additional $1200 in costs due to our inefficient health care system. That makes it very difficult for our auto industry to compete in the global market place. And is it any wonder that GM had its bond rating downgraded to junk bond status—because of its staggering health care costs for its employees and retirees.

So at the same time we are losing our manufacturing sector in the US due to this health care crisis, the number of citizens on Medicaid due to lack of health insurance is increasing. In Ohio the number of non-disabled adults on Medicaid increased by 31% in the last 6 years. These are people who either lost their job or lost health care because their employer stopped offering it or made it too expensive for the employee to afford. So we lose the tax base provided by the manufacturing sector that helps fund programs like Medicaid at the same time we are experiencing increased demand on such programs. This is a public policy disaster.

And while our manufacturing sector cannot compete globally, foreign manufacturers are not building plants in America either. In fact, when Toyota was deciding where in North America to place its next auto factory it by-passed numerous offers of tax subsidies in the United States and opted for Canada due in part to its national health care system. Canadian workers are $4 to $5 cheaper to employ in large part because of the taxpayer-funded health-care system in Canada.

So while we are in the midst of this health care crisis what does the Ohio Legislature offer us as solutions?

First for school employees the legislature wants to take our members’ right to negotiate health care benefits away. HB 66 once fully enacted will strip hundreds of thousands of school employees of their right to negotiate over health care benefits. These are the same people who have year after year sacrificed wage increases to keep affordable health care. This no solution to the health care crisis we face in Ohio. And if you want to help stop this plan please sign one of the post cards to the Speaker of the House and the President of the Senate circulating in the audience urging them to keep their hands off our health care and we will make sure they get delivered.

The second solution this legislature has offered us is to force every public employer to offer a high deductible health savings account. These accounts do nothing to help the 1.3 million Ohioans who do not have health care. HSAs do nothing to add needed improvements to the health care system.

HSAs will negatively impact employers’ traditional health care plans as healthier employees leave those plans for the HSAs. HSAs will also make lots of money for countless brokers who manage these accounts. And for those who can afford them, they will provide some tax relief. For those who can’t afford to put $1,000 to $2,000 a year in an HSA they will simply not select health care. And if their income is low enough they will end up on Medicaid.

So while HSAs will reduce the amount of tax dollars coming in, they will also increase the demand for Medicaid. This is not the kind of public policy that our lawmakers should be setting as we address this health care crisis.

We need real health care reform. We need to deliver a wake up call to this legislature that this health care crisis must be addressed. My union, AFSCME Ohio Council 8 will continue to link arms with organizations that are fighting for affordable, quality health care.

So many of our great social programs like Social Security, Medicare, unemployment insurance, the public school system and workers compensation came about because labor unions joined with others to advance these causes. We will win this fight because of our joint efforts and you can count on AFSCME to be at the front of this fight.

Public employers cut health benefits

March 13, 2006

While state lawmakers target private employers for not providing health care coverage, a similar issue may be brewing in many of their own backyards.

In addition to being taxed by having to provide public health assistance to a growing number of working poor, government budgets are also being squeezed by their own employees' escalating health care costs, forcing them to shift more of the expense onto those employees. Those employees, in some cases, then turn to public health programs.


For example, while Canton, Mass.-based Dunkin' Donuts Inc. may be No. 1 on the Massachusetts' Executive Office of Health and Human Services' list of employers with 50 or more employees using public health assistance, the city of Boston is not far behind, ranking sixth on the list.


In Texas, 15 of the 20 employers identified in the state's Health and Human Services Commission report of employers identified by individuals enrolling in the Children's Health Insurance Program, were public employers—mostly school districts.

How can it be that public employers, which once made up for paying low wages by offering comprehensive benefits, are now beginning to contribute to the nation's uninsured working population?


It's the same reason states are seeking reimbursement from private employers to help shore up their overtaxed Medicaid systems, observers say. Strapped for cash, many states are reducing their own employees' access to health benefits by relegating them to part-time or temporary status, or increasing their contributions to a point where they sometimes become unaffordable.


Ohio last July increased state employee health plan contributions to 15% of premiums from 10%, because "the state, like many other states, had significant concerns about the state budget," according to Nan Neff, benefits administrator, in Columbus. With the increase, the employee contribution for single coverage is now $47.30 a month and $128.91 for family coverage, she said.


While Ohio offers health benefits to part-time employees, their contributions are based on the number of hours worked, so those part-time employees who work fewer hours pay more for their health care, said Ms. Neff.


About 5,000 of the state's 60,000 workers are not eligible for coverage because they are either seasonal or temporary workers—a growing phenomenon in the public sector, experts say.


"Perma-temps—people without health insurance—are almost as big a problem in the public sector as the private sector," said David West, executive director of the Center for a Changing Workforce, a nonprofit research organization in Seattle that focuses on issues affecting low-wage and nonstandard workers. "In the last 10 years, the public sector strategy has been to reduce the number of employees eligible for insurance."


He said that the center's analysis of 2004 Medicaid enrollment found that as many as 10% of Washington state's 160,000 employees were receiving government health assistance.


"I'm sure every state and local government has people on Medicaid," Mr. West said.


Because many government budgets provide for a specific number of full-time positions, public entities often hire temporary, seasonal, part-time or other types of contract workers who usually are not eligible to participate inbenefit plans, according to Rick Johnson, senior vp and national public sector health practice leader for the Segal Co. in Washington.


Dennis DiMarzio, chief operating officer for the city of Boston, attributed that city's appearance on the Massachusetts list to part-timers, "school crossing guards and things like that."


Because, in his opinion, the city's benefit package is reasonably priced—$45.12 a month for individual coverage and $121.32 a month for family coverage, Mr. DiMarzio said that any eligible employee who isn't enrolled is "irresponsible."


"Even if you're making $30,000 a year—that's $600 a week—to not spend essentially $10 a week to get yourself coverage, outstanding coverage, to me is individual irresponsibility," he said.


He acknowledged, however, that it might be difficult to afford family coverage on that income.


According to the Massachusetts list, 1,110 city of Boston employees were receiving public health assistance. The city has 17,000 active employees and about 12,000 retired employees enrolled in its health plan, according to Mr. DiMarzio.


"I'm not surprised there are folks who can't make it on public salaries," because "there's always a tug of war between pay raises and benefits," said Segal's Mr. Johnson. "There's only so much tax money. They can't raise prices like private employers—that would be called raising taxes."


In general, public-sector employees "are probably over-benefited and underpaid and some of that reflects the thinking of our members. They really value their benefits," said Steve Kreisberg, head of collective bargaining at American Federation of State, County and Municipal Employees in Washington, which represents about half of the nation's public employees.


"So when we negotiate, the members say in a very clear voice, `Look, if I have to sacrifice wages, I will, but hold onto my health benefits'," he said. "But we're not increasing their standards of living as much as we should because health benefits are eating up an increasing share of their income."


For example, New York employees earn an average of just $28,000, which would make any kind of contribution difficult, according to Mr. Kreisberg.

"That's about rent if you're going to live in a lot of neighborhoods in New York City," he quipped.


Subsidized workers


While AFSCME doesn't track the number of public employees without health care coverage, it is looking into the uninsured program among a growing number of employees, such as home health and child care workers, who are not on public payrolls but whose wages are financed by government programs.

While AFSCME doesn't track the number of public employees without health care coverage, it is looking into the uninsured program among a growing number of employees, such as home health and child care workers, who are not on public payrolls but whose wages are financed by government programs.

These individuals are "paid with Medicaid money, but they have no health benefits," Mr. Kreisberg said. "There are also childcare workers who are getting subsidies from public programs. In the `80s there might have been a state agency created to employ them and provide benefits. But not today."


"The fact is, I don't know of a single government that is so rich and fat and happy that it can keep up with the increased cost in employee health care," said Darrell E. Wells, director of risk management for the city of Odessa, Texas, and chairman of the board of trustees of the Family Health Benefits Pool that provides coverage to city employees.


"Eventually, the pain level rises to the point where even government has to act," he said.


While the city of Odessa is still offering benefits to employees at almost no cost—individual coverage is free and employees with two or more dependents pay just $27.85 a month—other Texas communities aren't, Mr. Wells said.


As an example, he described the recent experience of a police officer who left Odessa to take a job as the police chief in another town.


"He called me on my cell phone after he was offered the job to say he had gotten his health insurance information and that something was terribly wrong," Mr. Wells recounted.


While the town offered to pay 100% of the cost of his individual coverage, he would be required to pay more than $370 a pay period for employee-plus-family coverage.

"It was almost $10,000 for the same thing he was getting for a little over $300 a year here," Mr. Wells said.

"He asked me, `They pay pretty good around here in this little town. But they've got garbage truck drivers and low-level people, how can they afford to spend $10,000 a year to insure their families?' I said, `That's the point. This city is sending a message. The message is, `We'll insure our employees. But we don't want your spouses and children'."


"The fact is, we're starting to see government reject the idea that we have to provide the best benefits in town," Mr. Wells said.


When Kip Wall, former chief executive officer of the Office of Benefits for the state of Louisiana, discovered that about 9% of the state's workers could not afford to participate in the government's health plan, he tried to create a low-cost plan that would have provided at least basic benefits.


"We have a material percentage of state employees making under $25,000 a year," said Mr. Wall, who now practices law in Baton Rouge.


Unfortunately, "we never could put together a plan of sufficient value to the employees to make it worth their while to invest in the product, and so it never did get off the ground," Mr. Wall said.


"There are still some public employer plans out there to die for…but comparable to what they were five years ago, not they're not common any more. The very rich plans are the exception," he said.



D for Debacle

May 15, 2006
New York Times
Op-Ed Columnist


Today is the last day to sign up for Medicare Part D, the prescription drug benefit. It appears that mill ions of Americans, confused by the array of competing plans or simply unaware of the cutoff date, will miss the deadline. This will leave them without drug coverage for the rest of the year, and subject to financial penalties for the rest of their lives.

President Bush refuses to extend the sign-up period. "Deadlines," he said last week, "help people understand there's finality, and people need to get after it, you know?" His real objection to extending the deadline is probably that this would be an implicit admission that his administration botched the program's start-up. And Mr. Bush never, ever admits mistakes.

But Part D's bad start isn't just another illustration of the administration's trademark incompetence. It's also an object lesson in what happens when the government is run by people who aren't interested in the business of governing.

Before we get there, let's talk for a moment about the problems older Americans have encountered over the past few months.

Even Mr. Bush has acknowledged that signing up for the program is a confusing process. But, he says, "there is plenty of help for you." Yeah, right.

There's a number that people needing help with Part D can call. But when the program first went into effect, there were only 300 customer service representatives standing by. (Remember, there are 43 million Medicare recipients.)

There are now 7,500 representatives, making it easier to reach someone. But should you believe what you're told? Maybe not. A survey by the Government Accountability Office found that when Medicare recipients asked for help in determining which plan would cover their medications at the lowest cost, they were given the right answer only 41 percent of the time.

Clearly, nobody in the Bush administration took responsibility for making Part D's start-up work. But then you can say the same thing about the whole program.
After all, prescription drug coverage didn't have to be bafflingly complex. Drug coverage could simply have been added to traditional Medicare. If the government had done that, everyone currently covered by Medicare would automatically have been enrolled in the drug benefit.

Adding drug coverage as part of ordinary Medicare would also have saved a lot of money, both by eliminating the cost of employing private insurance companies as middlemen and by allowing the government to negotiate lower drug prices. This would have made it possible to offer a better benefit at much less cost to taxpayers.

But while a straightforward addition of drug coverage to Medicare would have been good policy, it would have been bad politics from the point of view of conservatives, who want to privatize traditional social insurance programs, not make them better.

Moreover, administration officials and their allies in Congress had both political and personal incentives not to do anything that might reduce the profits of insurance and drug companies. Both the insurance industry and, especially, the pharmaceutical industry are major campaign contributors. And soon after the drug bill was passed, the congressman and the administration official most responsible for drafting the legislation both left public service to become lobbyists.

So what we got was a drug program set up to serve the administration's friends and its political agenda, not the alleged beneficiaries. Instead of providing drug coverage directly, Part D is a complex system of subsidies to private insurance companies. The administration's insistence on running the program through these companies, which provide little if any additional value beyond what Medicare could easily have provided directly, is what makes the whole thing so complicated. And that complication, combined with an obvious lack of interest in making the system work, is what led to the disastrous start-up.

All of this is, alas, terribly familiar. As John DiIulio, the former head of Mr. Bush's faith-based initiative, told Esquire, "What you've got is everything — and I mean everything — being run by the political arm." Ideology and cronyism take complete precedence over the business of governing.

And that's why when it comes to actual policy as opposed to politics, the Bush administration has turned out to have the reverse Midas touch. Everything it gets its hands on, from the reconstruction of Iraq to the rescue of New Orleans, from the drug benefit to the reform of the C.I.A., turns to crud.


Good health care, Aussie-style

By Susanna Rodell
01:00 AM EDT on Thursday, July 6, 2006
HOBART, Tasmania

WHENEVER the lament goes up about the awful health-care system in America, there's a predictable response: Yes, we have our problems, but this country still has the best health care in the world. To those who still think this is true, I'd like to introduce Billy Badger, of the Australian state of Tasmania.

Dr. Badger (a Ph.D., not a medical doctor) inhabits the office next to mine at the University of Tasmania. He is a professor of German. He is also the brand-new father of a baby girl.


Billy has no private health insurance. He and his wife, Christina, have relied entirely on the public system for prenatal care, for the birth, and for postnatal care of baby and mother. I asked him to describe the experience.


"We had no idea what to expect," he told me. Both parents were healthy and had never as adults set foot in a hospital. Upon finding out they were expecting a baby, they went to a doctor, who directed them to the maternity ward at the Royal Hobart Hospital.


At the Royal, Hobart's big public hospital, they were given the choice of three systems: 1) They could go to a birthing center, run entirely by midwives. 2) They could go to a doctor at the hospital. 3) Or they could stay in the hospital and use a system called KYM, which stands for Know Your Midwife: At prenatal visits they would meet all the hospital's midwives, so that whoever was on duty when the time came, it would be someone familiar. Christina and Billy chose the KYM system.


At first monthly, they visited the hospital's maternity unit and had checkups with midwives. As the pregnancy advanced, the intervals between visits were shorter, becoming weekly in the last month. They saw an obstetrician at their first visit and at the 20th and 36th weeks. If the midwives had seen any problems, the couple would have seen a doctor more often.


"We were never kept waiting at any of these appointments for more than five minutes," Billy said. "There were five or six midwives in all, and they were all pretty good. It was like a family; you had a community feeling."


On the day that Christina went into labor, she and Billy went to the hospital, at first to a PAC, or Pregnancy Assessment Center. This was a two-bed hospital room with a bathroom attached, where Christina was monitored until the staff judged her to be fully in labor. Then they went to the birthing suite.


The suite consisted of a large room with a double bed, a table and chairs, and its own adjoining bathroom. "It was comfortable," said Billy. "It was clean enough in a hospital sense, but also homey enough."


Here the midwives kept an eye on the couple but also tried to stay out of the way unless they were needed. The birth was straightforward.


Emergency equipment was available, just in case, and a doctor was also present, but a midwife eased the baby into the world as Billy stayed in bed with Christina.


"You didn't necessarily get the feeling you were being watched or intruded on," Billy said. "It was more like we were doing it, and they were there to help." For example, after the birth a midwife lifted the baby's legs and said, "Have a look and see what you've got" -- rather than telling them the child's sex.


"After that they left us pretty much alone," Billy said. "The baby was obviously all right, so they just left us for about an hour." Any time they needed help, it was nearby.


Billy, Christina, and the baby stayed together in the suite for five days, just getting to know each other and calling on the staff when they needed a little help with establishing breast-feeding and giving the baby her first bath.


"We could have stayed for up to two weeks if we had wanted," Billy recalled with wonderment. The food was good, too -- a special menu, since the couple are vegetarians.


When they decided to go home, the staff encouraged them to stay another night if they felt at all unsure. The staff also said that the new family could come back and stay a few more nights, if needed, up to the two-week limit.


When the family left, they took with them free diapers and baby wipes. Whatever was needed, said Billy, "if you didn't have it, you got it."


After the family was home, midwives visited every day for three days. A child-health-service nurse also visited, giving Christina and Billy phone numbers they could call at any time of day or night with any problem.

Christina made an appointment with a postnatal physical therapist, who spent 45 minutes with her, coaching her on exercises to get her body back in shape. In six weeks she will be able to go to postnatal-exercise classes with her baby.


How much, I asked Billy, did all this cost the couple?


Nothing, said Billy. Not the prenatal care, not the hospital, not the supplies, not the postnatal care, not the physical therapy. He and Christina have not spent a penny.


And there's more. In the next few weeks, the couple will receive a check from the government for $3,500, to help with the expenses of a new child.


How does Australia pay for all this? With a flat 1.5-percent levy on everyone's income, plus a 1-percent surcharge on people with higher incomes ($50,000 for an individual, $100,000 for a family). So if your taxable income is $45,000, you pay $675 a year.


Still think we in America have the world's best health-care system?


Susanna Rodell, editorial-page editor of The Charleston (W.Va.) Gazette, is teaching journalism at the University of Tasmania (
Online at:


Unstable Condition

After Streak of Strong Profits,
Health Insurers May See Decline


Aetna, Others Face Dilemma:
Hold Back Price Increases
Or Watch Customers Walk?


Mr. Johnson Drops Coverage


July 31, 2006; Wall Street Journal, Page A1


Last year, the top seven U.S. health insurers earned a combined $10 billion -- nearly triple their profits of five years earlier. The windfall came as insurers raised their prices faster than underlying health costs.


Now the good times may be rolling to a halt. Health insurance has become so expensive that many smaller employers are dumping insurance altogether. If insurers don't do something, they may find their business shriveling. Yet if they restrain price increases, or appear to, they get hammered by Wall Street.

Aetna Inc. has found that out twice this year, after each of its quarterly earnings announcements showed medical costs were taking a bigger bite of premium revenue. The first time, in April, Aetna's shares fell 20%. Last week came another 17% plunge as investors expressed fear that the company is restraining premium increases too aggressively.

Aetna Chief Executive Ronald Williams denies that. "We have continued to exhibit strong pricing discipline," he says. "Sometimes that's more than what an employer can afford" but it's necessary to maintain Aetna's financial health, he adds.


Other insurance executives have also suggested they would rather miss their targets for membership than succumb to a price war. David Colby, WellPoint's chief financial officer, says that if the company's profit margin fell by just 0.2 percentage point, "We'd have to gain two million lives to make it up. It doesn't take much analysis to ask, 'From where?' "


Earlier this month UnitedHealth Group Inc. reported a 26% increase in second-quarter net income but said it expects to add only 850,000 new members this year instead of the one million to 1.2 million it originally forecast. WellPoint Inc., which had projected around one million new members, now expects about 700,000, with many coming from Medicaid and other public contracts.


With insurers trying to protect their profit margins, some consumers -- especially those who work for small or midsize businesses -- could be losers as employers trim health benefits or cancel them altogether. Insurers' resolve to price every account at a profitable level means a smaller company with several chronically ill employees or a few premature births can quickly be priced out of the market.


Robert Laszewski, a Washington-based health-care consultant and former insurance executive, says the insurers' strategy can work for only so long before their employer customer base dwindles dangerously. "Where is this industry in four, five years if it can't control health-care costs?" he asks. "It's on a long walk off of a short pier."


Stagnation "is a very real scenario," agrees Jon Rubin, chief financial officer of Cigna Corp.'s health-care business. Cigna, which reports second-quarter earnings Wednesday, saw its share price fall 15% after its first-quarter results.


Yet Mr. Rubin is optimistic about growth, simply because the U.S. has so many uninsured and underinsured people. "It has the appearance of a mature market because we have employers who can no longer afford coverage," he says. "But underneath you still have a growing employee population that needs coverage."


Others say the troubles of employer-based health insurance point to the need for a "single-payer" system in which the government would guarantee or mandate health care for everyone. However, the potential cost of such a system and opposition from those who favor a free-market approach make it an unlikely prospect anytime soon.


Big employers typically pay employees' health costs out of their own coffers and hire an insurer to administer the benefit -- negotiating with doctors over prices and handling the paperwork. At smaller employers, health insurance is truly insurance: The employer pays a premium at the beginning of the year, and the insurer takes on the risk of covering employees' medical bills.


The latter business offers a potential for big profits if covered employees rack up fewer medical costs than expected. That is precisely what was happening until recently. The "risk business" accounts for more than half of most of the big insurers' profits. A typical member in a risk plan currently yields six times the profit that a beneficiary in an employer-paid plan does, according to Goldman Sachs analyst Matthew Borsch. The only problem is that these small-business customers are the least able to absorb fast-rising medical costs and the most likely to be priced out of the insurance market.


Insurers have enjoyed their rising profits without the public vilification they suffered a decade ago. In the 1980s and early 1990s, many believed that insurers could play a leading role in containing costs by rounding up people in tightly controlled health-maintenance organizations. The HMOs cracked down on supposedly unnecessary care by limiting choices of doctors and procedures.


The so-called managed-care revolution collapsed amid a public outcry. HMOs were accused of denying lifesaving treatments. State legislatures rushed to pass bills forcing insurers to pay for various kinds of care. After costs briefly stalled in the mid-1990s, they surged again and forced many HMOs into the red amid a bruising price war.


Insurers found that, instead of playing the bad guy, it was easier to treat surging health costs as an inescapable force of nature -- and to make sure price increases stayed ahead of costs as much as possible. Today, operating margins, once 4% to 5% in a good year, average 8% at the country's biggest insurers.


Aetna's turnaround effort after heavy losses symbolized the strategy shift. Once the country's biggest insurer with 21 million members, it abandoned its growth strategy in 2000 and replaced its management. It sharply raised premiums, especially on unprofitable accounts, and lost eight million members in a few years. In 2002, premiums went up nearly 19%.


The industry's price rises outpaced the increase in health-care costs, especially after 2001 as the rise of cheap generic drugs and higher co-payments for employees curbed spending. Mr. Laszewski, the consultant, says employers tended to accept the increases because they didn't realize health-care inflation was decelerating. "Every year the insurer charges what the benefits manager thought was last year's trend," he says.


Randy Perkinson, chief executive of Advertising Props Inc. in Atlanta, felt the blow from the industry's tougher pricing. His 30-employee company makes packaging prototypes for advertising. For several years insurers told Mr. Perkinson he would have to pay double-digit increases in health-insurance premiums unless he introduced additional plans that spread more costs to employees. His medical costs were roughly half of the premiums he paid between 2002 and 2004, according to his insurance data. But last year, after an employee was severely injured in a highway accident, WellPoint's Blue Cross Blue Shield of Georgia boosted premiums by 30%. It had asked for a 41% increase but came down after Mr. Perkinson agreed to make employees pay even more of their bills out of pocket.


"I'm paying a lot more than I did three years ago and getting a lot less insurance for it," says Mr. Perkinson, who shopped around for a better deal but couldn't find one. "How can they come back to you year after year with 10%, 20%, 30%? The system is broken." The WellPoint unit says it had to increase AdProp's premiums so much to cover the big claims it incurred after the employee's accident.


Health-insurance executives say their business still has lower margins than drug makers and some hospitals. They say they have improved efficiency and used their profits to invest in innovations that keep the cost of health care from rising even faster than it has. Aetna points to its MedQuery system, which uses software to uncover gaps in care, unfilled prescriptions and medical errors. Customers in its risk business get the system for no extra charge.


Nonetheless, high health costs have forced many smaller employers to drop coverage. Today only 59% of employers with fewer than 200 workers provide health benefits, compared with 68% in 2000, according to the Kaiser Family Foundation, a policy-research group in Menlo Park, Calif. Last year, premiums at small firms rose more than 11% while the increase at larger firms averaged 8.9%, according to the foundation.


Two years ago David Johnson opened ImageFreeway Document Solutions LLC, a suburban Atlanta document imaging business. Soon he had to stave off a 22% increase in health premiums by raising employee deductibles -- the out-of-pocket cost before insurance kicks in -- to $1,000 per year from $250. Last fall, after Mr. Johnson and his partner reincorporated their business, Aetna re-evaluated his health plan from scratch because it was technically a new company. With a couple of his staff suffering from chronic ailments, the insurer told him it needed to roughly double his premium. No one else would offer a better price.
Mr. Johnson dropped coverage. "I can't open my doors with that financial burden," he says. Already three of his most experienced employees have left for a bigger company that could offer benefits, he says.


His receptionist, Nirvani Zurzolo, stayed and remains uninsured. She and her husband quickly bought their 10-year-old daughter an individual policy. But as a 47-year-old with previous episodes of high blood pressure, Ms. Zurzolo couldn't afford one for herself. She plans to skip her annual physical. "Bottom line, no health care for me now," she says.


Georgia law offers employers some protection from sharp rate increases. The state requires insurers to price premiums for small employers within 25% of a reference rate, which insurers file with regulators each month. But the reference rates have been surging by 12% to 18% a year since 2002, according to brokers.


George DuMouchel, a benefits consultant and insurance broker who advised Mr. Johnson, says in the late 1990s the market was more fragmented and insurers were eager to grab market share. "I'd take something into the marketplace and come back with 10, 11 bids," says Mr. DuMouchel.


WellPoint, which operates the for-profit Blue Cross Blue Shield of Georgia, has about 40% of the state's market, while UnitedHealth and Aetna hold another 25% between them. The 10 largest health insurers control about half of the U.S. market today, up from a quarter a decade ago. The industry has seen a handful of megamergers, such as UnitedHealth Group's purchase of PacifiCare Health Systems last year, and dozens of smaller ones.


Mr. Williams, the Aetna chief executive, says some regional competitors in a few markets are offering cut-rate deals for small employers. Aetna lost some customers with generally healthy workers, leaving it with a slightly more expensive pool of members.


"Some plans become very competitive and enter at price points that we don't believe are appropriate for us to sell at," he says. Because the competitors tend to pick off employers with healthy work forces, he says Aetna has lost some "very attractive business."


Mr. Williams cautions that this wasn't the only reason for Aetna's disappointing medical-cost results in the second quarter. He cites other factors including one-time spikes in medical costs on one big government account.


The challenge for Aetna and other insurers is keeping prices up without losing members. Aetna says it will fall 17% to 30% short of its original target of one million new members this year.


Jay Gellert, chief executive of insurer Health Net Inc., says the industry can still enjoy plenty of growth if it finds low-cost alternatives to attract uninsured customers. Over the longer term, Mr. Gellert and other executives believe the recent trend toward giving consumers more data on price and quality, with the goal of steering them to cost-effective care, will help bring health-care expenditures under control.


Says Mr. Rubin of Cigna: "We need to drive new solutions because, ultimately, the trends that are reflected in the premium simply are not sustainable. The only viable alternative is the advance of consumerism."

Write to Vanessa Fuhrmans at


Companies explore overseas healthcare

To cut its insurance costs, a US papermaker plans to let workers seek medical care abroad in 2007.


By Patrik Jonsson | Staff writer of The Christian Science Monitor


Carl Garrett, a paper-mill technician in Leicester, N.C., is scheduled to travel Sept. 2 to New Delhi, where he will undergo two operations. Though American individuals have gone abroad for cheaper operations, Mr. Garrett is a pioneer of sorts.

He is a test case for his company, Blue Ridge Paper Products, Inc., in North Carolina, which is set to provide a health benefit plan that allows its employees and their dependents to obtain medical care overseas beginning in 2007.


"It's brand-new and nobody's ever heard of going to India or even South Carolina for an operation, so it's all pretty foreign to people here," says Garrett. "It's a frontier."


Garrett's medical care alone may save the company $50,000. And instead of winding up $20,000 in debt to have the operations in the US, he may now get up to $10,000 back as a share of the savings. He'll also get to see the Taj Mahal as part of a two-day tour before the surgery.


His two operations could cost $100,000 in the US; they'll run about $20,000 in India.


With US health insurance costs soaring, cash-squeezed companies such as Blue Ridge and poor states such as West Virginia are considering affordable plans that may require their employees to travel to India, Thailand, or Indonesia.


Critics say that limited malpractice laws in foreign countries makes such travel risky as well as the prospect of spending 20 hours on an airplane after invasive surgery. Despite the concerns, "medical tourism" is morphing into "global healthcare."


"Global healthcare is coming and American healthcare, which is pricing itself out of reach, needs to know there are alternatives" in order to improve, says Alain Enthoven, senior fellow at the Center for Health Policy in Stanford, Calif.


The average American hospital bill was $6,280 in 2004, twice that of other Western countries, according to the National Coalition on Health Care (NCHC) in Washington.


The cost savings have prompted a few hundred Americans this year to fly to India, Jakarta, or Bangkok for serious medical conditions, receiving heart stints and hip replacements. But most of the some 150,000 "medical tourists" nationwide go for a tooth filling or plastic surgery and a week at a sunny beach resort where the dollar stretches like lycra.


More companies - especially those with smaller company-run plans - are investigating people's claims of good overseas hospital care. The International Standards Organization in Geneva accredits these hospitals and audits American hospitals, too.


Companies are also attracted to the relatively inexpensive price tag for care at foreign hospitals, which have been reported to be up to 80 percent less than in the US. In New Delhi, for example, the Apollo chain of hospitals gives resort-style convalescence care for $87 a night.


• Insurers Health Net of California already contracts with medical clinics on the Mexico side of the US border.


• A West Virginia state legislator introduced a bill this year that would encourage state workers to seek treatment overseas using incentives such as cash bonuses and family travel.


• United Group Programs in Florida, which administers self-insurance programs for small companies, has contracted with a Thailand hospital for its employer clients.


• Inquiries from self-insured employers are brisk at IndUShealth in Raleigh, N.C., which specializes in offshoring serious medical cases such as rotator cuff surgery and gall bladder removal to India.


"We're dealing mostly with companies that are self-funded and have essentially run out of options," says IndUShealth president Tom Keesling.


"It's an amazing trend, and it speaks to the tremendous frustration people feel with how to provide healthcare services in our current environment."


Blue Ridge Paper Products, which makes the DairyPak milk carton, pleaded unsuccessfully with providers for discounts for its 5,000 covered workers.


In the past five years, the company established its own clinic and pharmacy. Blue Ridge decided to try overseas healthcare after it heard that hospitals "rolled out the red carpet" to American patients based on news reports and personal accounts from a North Carolina medical traveler brought in by IndUShealth.


"We want to help our company but also help to drive healthcare reform," says Darrell Douglas, vice president of human resources. "We're very much homebodies ... and the idea of going abroad for fun, let alone healthcare, is foreign to some people. But we do have some adventuresome people, and [Mr. Garrett] is one."


For critics, Americans heading overseas for care shows the severity of the country's healthcare crisis - especially as employers' health insurance premiums have risen 73 percent while average employee contributions have risen 143 percent since 2000, according to the NCHC. Rising costs stem from poor management, inefficiences, waste, fraud, and lack of competition, critics say.


"We're seeing some employers who are seriously beginning to think about doing [global healthcare] and not giving employees an option," says Joel Miller, vice president of operations at the NCHC. "And that has implications for quality of care, and what recourse people have if something goes wrong overseas."


Hospital officials say only a sliver of business will be lost to overseas providers. Yet going overseas for expensive medical services, such as heart bypass surgery, cut into US hospitals profit centers - such as heart units - that are used to underwrite emergency rooms and indigent care.

"[Global healthcare] will limit the amount of money that's available for everybody else to have access to the system and starts to jeopardize access to healthcare for everybody in the community," says Don Dalton, a spokesman for the North Carolina Hospital Association.


Garrett, meanwhile, anticipates movie-star treatment in India. Doctors will operate on his gall bladder and left shoulder, he says, and he will have a 24-hour nurse working only for him while he's recovering. Garrett's experience could affect whether Blue Ridge will proceed with its plan to give its workers the option of going overseas for medical care, the company says.

"Everyone can see this thing could really become a big thing, so they're going to go out of their way to make sure everything is above and beyond the average in the United States," Garrett says.

From the August 16, 2006 edition -

Ohio Single-Payer Supporters Elect State Council

The following individuals were elected by their respective constituencies to serve on the SPAN State Council for a one-year term ending in April, 2006:


Michael Anderson — Boilermakers Local 900
Tim Burga — Ohio AFL-CIO
Bernie Burkett — Transport Workers Union
Chris Farrand — Graphic Communications Union (GCU) Local 546M
Linda Hinton — Communications Workers of America (CWA) District 4
Harold Mitchell — AFSCME Ohio Council 8
Dave Pavlick — United Auto Workers (UAW) Region 2B
Bob Park — American Federation of Government Employees
Dallas Sells — UNITEHERE, Ohio District Council


Health Care Community
Joseph Daprano, M.D.
Alice Faryna, M.D.
Martha Grodrian, R.D., L.D., C.D.E.
Kristopher Keller, DC, DABCO
David Lewis, Medical Student
Hassan Mehbod, M.D.
Johnathon Ross, M.D.
Donald L. Rucknagel, M.D.
Orhan Sancaktar, Medical Student
Michael Seidman, M.D.


Community Organizations
David Berenson — Joining Forces
Kathleen Geathers — Women for Racial and Economic Equality
Karen Hansen — Ohio Conference on Fair Trade
Suzette Henderson — Ohio NOW (National Organization for Women)
Vicky Knight — Women Speak Out for Peace and Justice
Mickie Maccabee — Rural Action
Nathan Ruggles — Northeast Ohio American Friends Service Committee
Heather West — Deaf and Deaf-Blind Committee on Human Rights


Faith Groups
Barbara Baylor, Minister for Health and Wellness, United Church of Christ
Pam Cobb, M.D., Social Justice Committee, First Unitarian Universalist Church of Columbus
Rev. Bryan Gillooly, Assistant to Bishop for Peace and Justice Ministries, Episcopal Diocese of Ohio
Rev. Leslie E. Stansbery, President, Interfaith Association of Central Ohio


Business Community
Tony Bourne — Manager, Workforce Development - Dayton Area Chamber of Commerce
Mark Gaskill — Consultant to Business
Tim Kettler — Action Septic
Logan Martinez — Painter
Bob Smiddie — Potter


Other Organizations / Individuals
Tim Bruce — Green Party
Martha Grodrian — Dayton Area Organizer
Robert F. Hagan — State Senator
Sevim McCutcheon — Noble County Organizer
Dale Miller — State Representative
Carolyn Park — Ohio State Labor Party
Michael Skindell — State Representative
Nick Teti — Zanesville/Coshocton Area Organizer


Chapter Representatives
Cincinnati — Bob Park
Cleveland — Bob Parker
Columbus — Mary Lou Shaw, M.D.
Cuyahoga-West — Ron McCutcheon
Greater Miami Valley — Darlene Mehbod
Mahoning Valley — Leonard Grbinick
Southeast Ohio — Warren Haydon
Toledo — Bob Masters
Tri-County — Herman Oden


Regional Coordinators
Region 1 — Dave Pavlick
Region 2 — Bob Masters
Region 3 — Arlene Sheak
Region 4 — Don Rucknagel (Acting)
Region 5 — Alice Faryna
Region 6 — Leonard Grbinick (Acting)
Region 7 — Sheilah Conard


Jerry Gordon — SPAN Ohio Secretary
Barbara Walden — SPAN Ohio Treasurer



Medical Miasma

By George H. Lesser
Published August 16, 2006
The Washington Times

I have problems with our health insurance "provider," as I suppose some of you reading this do as well.
I had a minor test done in my doctor's office. He injected a little pain killer, did the test, and I was gone in about half an hour. The insurance company refuses to pay half the costs, because the doctor anesthetized me, rather than having an anesthesiologist come. Of course, that would have dramatically increased the cost, but that's what the insurance company demands.


Not too long ago, another doctor sent me to a hospital to have two routine tests performed, which required a general anesthetic in an operating room. My wife went through the same thing a few months before, and the insurance company paid only half because the two tests were performed simultaneously. So I scheduled two visits, on separate days, in the full operating room with the doctor, anesthesiologists, nurses, and who knows what else. I missed two days of work. The insurance company paid twice as much, plus twice the administrative costs for processing two claims. And, of course, I had to run twice the risks of two procedures under general anesthetic. The insurance tail wags the medical dog.


The last time I sought medical help in Italy, I suffered from gastrointestinal distress to such an extent I wasn't eating. If I can't eat in Italy, that is serious. The night before I was due to fly to Washington, I was in a hotel near the Milan airport. I wanted to see my doctor in Washington as soon as possible, so I telephoned him to make an appointment. He questioned me about my symptoms and told me I was too sick to fly. We argued, and then he said I could fly, but only if I got a doctor to prescribe ciprofloxacin ("Cipro") and metronidazole ("Flagyl") for me to start taking that evening.


I asked the hotel for a doctor. They said it would be faster to go to the clinic at the airport. I followed their advice and found a doctor. He wrote out two prescriptions for me, but said the airport pharmacy had just closed. He directed me to the nearest town with an open pharmacy.


I couldn't find the drug store. I did find a hospital. I parked in the parking lot, walked in, and asked if I could get the prescriptions filled. The lady got testy and informed me this was a hospital not a pharmacy. I asked for her advice. She told me: "This is a hospital. We practice medicine. If you would like us to treat you, take a seat in the waiting room." Unable to think of a better course, I went out to my car, grabbed my book, went back into the hospital and settled in for a nice, long read.


After at most five minutes, a male nurse interrupted me. I assumed it was to wrestle with insurance forms in Italian. Instead, the fellow escorted me into a hospital room, where we were joined immediately by a doctor. He spoke English about as well as I speak Italian, so we spoke my language until he ran into problems, then switched to his language until I couldn't find a word. He questioned me closely about my symptoms. He had me lie down on the bed and started poking and asking me how it felt. He had the male nurse draw some blood, and he ran some other tests. He took a medical history and inspected parts of my anatomy that seemed to have nothing to do with the problem.


I was there six hours. The nurse was in the room with me for all but a few minutes. The doctor was there almost all the time. After a while, he got the test results, which showed I did not have food poisoning, but he wanted to observe me a while longer. Eventually, he concluded I had contracted some kind of intestinal bug, and he gave me a couple of days supply of Cipro and Flagyl.


I checked in with the waspish lady at the front desk to ask how much I owed. She asked me if I had parked in the hospital parking lot. I said yes. She said I owed one euro and 50 pence ($2). I asked how much for the medical care and the medicine. She said that was free. When I got back to Washington, I saw my doctor. He had a few tests run in the office, gave me full prescriptions for Cipro and Flagyl, and billed me $1,000.


Most Americans I talk to have a lot of screwy ideas about medical care. They think Americans have "The Best Health-Care System in the World." They think "socialized medicine" doesn't work, because people have to wait too long to get care, and the care isn't very good and they don't have any choices.


We have many wonderful doctors, hospitals and pieces of equipment in the U.S. However, statistically, we don't do so well. Life expectancy, infant mortality, how long people live with a disease after it is diagnosed: You name the criterion, and we don't compare well with any of the countries that have national health care. And we spend a whole lot more for a lot less health care.


Here are a few comparisons between the U.S. and France. According to the Organization for Economic Cooperation and Development: French women live 3-1/2 years longer than American women; French men live just over three years longer than American men. Our infant mortality rate is 72-1/2 percent higher than theirs. And 30 percent more Frenchmen smoke than we do, and they consume almost twice as much alcohol. Who knows how much more butter, cheese and fois gras?


Worried about waiting for a doctor? Or a hospital bed? The French have 37-1/2 percent more doctors than we, and way over twice as many hospital beds, per capita. Worried about choice? French hospitals are 65 percent government run and 35 percent privately run. Take your pick. The health-care system pays. You also get to choose your doctor.


The difference in the quality of service is difficult for Americans to comprehend. In France, doctors routinely make house-calls. Patients aren't thrown out of hospitals because the insurance companies decide when it is time to go. They stay until doctors decide it is time to go. The French government pays 75 percent of all health care costs. Most of the rest is paid by private insurance. If somebody can't afford private insurance, the government makes up the difference.


The bottom line: We pay 43 percent more for health care than the French do, and we get a whole lot less for our money.

George H. Lesser has reported for more than 30 years on international political and economic developments for both U.S. and European publications. He has been based in Washington, New York, London and Brussels, and lives in Washington D.C. and Florence, Italy.


Assembly approves universal health care

Passage of bill seen as election-year test for Schwarzenegger


The Democratic-controlled Legislature is on the verge of sending Gov. Arnold Schwarzenegger a bill that would create a state-run universal health care system, testing him on an issue that voters rate as one of their top concerns in this election year.


On a largely party-line 43-30 vote, the Assembly approved a bill by state Sen. Sheila Kuehl, D-Santa Monica, that would eliminate private medical insurance plans and establish a statewide health insurance system that would provide coverage to all Californians. The state Senate has already approved the plan once and is expected this week to approve changes that the Assembly made to the bill.


Schwarzenegger has said he opposes a single-payer plan like the one Kuehl's bill would create, but the governor has not offered his own alternatives for fixing the state's health care system. As many as 7 million people are uninsured in the state, and spiraling costs have put pressure on business and consumers.


"We know the health care in place today is teetering on collapse," said Assembly Speaker Fabian Núñez, D-Los Angeles. "We need to do something to improve it, to reform it, and this is what we are bringing to the table."


Schwarzenegger's office said it had no official position on the bill. The governor has said he would propose solutions to the state's health care crisis in his State of the State address next January if he is re-elected.


"I don't believe that government should be getting in there and should start running a health care system that is kind of done and worked on by government," Schwarzenegger said in July at a speech at the Commonwealth Club. "I think that what we should do is be a facilitator, to make the health care costs come down. The sad story in America is that our health care costs are too high, that everyone cannot afford health care."


The governor hosted a health care summit earlier this year, but no concrete proposals came from the meeting.


If he vetoes SB840, the governor will be reminded of his decision come election day in November, Kuehl said.


"I hope that the people of California will hang the albatross of bad health care around the governor's neck," she said.


Núñez said that while the governor has worked with Democrats on many issues this year, he is on the wrong side of this one.


"The biggest issue facing California today is health care," Núñez said. "This legislation represents yet another and the most important opportunity we have to say to the governor that he needs to embrace the Democratic agenda, just as he has done on prescription drugs and minimum wage."
Labor unions and Democrats will take part in a rally on Wednesday to urge Schwarzenegger to sign the bill.


Democratic gubernatorial candidate Phil Angelides is not supporting the Kuehl bill.


"He supports moving toward universal health care by first covering all children and then requiring businesses to cover their employees," said Angelides spokesman Nick Pappas.


Kuehl called the passage of the bill historic because it was the first time both houses of the Legislature have passed a universal health care bill. SB840 must return to the Senate, which approved it once, 25-13, for concurrence before going to Schwarzenegger's desk.


"Every advance you can make for any cause is important," Kuehl said. "Most important, it gives hope for the people of California that this can be done."


SB840 would provide comprehensive medical, dental, vision, hospitalization and prescription drug coverage to every California resident. Anyone could see any doctor or go to any hospital.


"SB840 creates a system of comprehensive health insurance benefits for all Californians that guarantees free choice of doctors and hospitals," Kuehl said. "It creates access for all Californians by steeply reducing administrative overhead and emphasizing preventative and primary care instead of endlessly cutting coverage and access to care or increasing consumer spending."


Republicans and insurance groups oppose the bill, saying it will create an inefficient government bureaucracy.


"This takes us in the wrong direction," said Assemblyman Greg Aghazarian, R-Stockton. "This creates a government-run system akin to the Department of Motor Vehicles. Do we want health care taken care of by another bloated bureaucracy?"


The bill does not account for the costs of the program since it would take several years before any plan was up and running. The plan would create a commissioner and a blue-ribbon commission to examine how the structure would work. An analysis by the Lewin Group, an independent health care consulting firm, said the plan could be paid for with all of the money now being spent on health care.


That would mean combining all state and federal funds, along with business contributions and participant payments and co-payments. The report suggests that funding could come through an 8 percent payroll tax and a 3 percent individual income tax.


SB840 allows California to use its purchasing power to negotiate bulk rates for prescription drugs and durable medical equipment, such as wheelchairs, thus realizing an additional $2 billion in savings, Kuehl's office said.


But eliminating health care insurance plans would eradicate the groups that have the most experience with getting people insured and to doctors, said Chris Ohman, president and CEO of the California Association of Health Plans.


Ohman said other places that are trying universal health care -- such as Massachusetts and San Francisco -- are using health care plans to help facilitate the implementation. He said the insurance companies are in the best position to manage costs.


"If there isn't the focus and drive for advancing preventative programs, the sky's the limit in terms of what the costs will be," he said. "That's what health plans do."


A Public Policy Institute poll from September 2004 showed that 71 percent of likely voters said they are at least somewhat concerned about being able to afford health care. A slim majority of Californians, 53 percent, said they would be willing to pay more -- either through higher health insurance premiums or higher taxes -- to increase the number of people who have health insurance.

The plan


The health care measure would:


-- Eliminate private health insurance plans and create the California Health Insurance System.


-- Provide health care insurance for all Californians.


-- Guarantee patients the ability to choose their own doctors and hospitals.
-- Pool funds now being spent on health insurance and save money by reducing overhead and using leveraged buying power for things like prescription drugs.


-- Require separate legislation to establish financing of the system.


E-mail Lynda Gledhill at
Page A - 1




What’s behind Ireland’s economic miracle—and G.M.’s financial crisis?


Issue of 2006-08-28


The years just after the Second World War were a time of great industrial upheaval in the United States. Strikes were commonplace. Workers moved from one company to another. Runaway inflation was eroding the value of wages. In the uncertain nineteen-forties, in the wake of the Depression and the war, workers wanted security, and in 1949 the head of the Toledo, Ohio, local of the United Auto Workers, Richard Gosser, came up with a proposal. The workers of Toledo needed pensions. But, he said, the pension plan should be regional, spread across the many small auto-parts makers, electrical-appliance manufacturers, and plastics shops in the Toledo area. That way, if workers switched jobs they could take their pension credits with them, and if a company went bankrupt its workers’ retirement would be safe. Every company in the area, Gosser proposed, should pay ten cents an hour, per worker, into a centralized fund.


The business owners of Toledo reacted immediately. “They were terrified,” says Jennifer Klein, a labor historian at Yale University, who has written about the Toledo case. “They organized a trade association to stop the plan. In the business press, they actually said, ‘This idea might be efficient and rational. But it’s too dangerous.’ Some of the larger employers stepped forward and said, ‘We’ll offer you a company pension. Forget about that whole other idea.’ They took on the costs of setting up an individual company pension, at great expense, in order to head off what they saw as too much organized power for workers in the region.”


A year later, the same issue came up in Detroit. The president of General Motors at the time was Charles E. Wilson, known as Engine Charlie. Wilson was one of the highest-paid corporate executives in America, earning $586,100 (and paying, incidentally, $430,350 in taxes). He was in contract talks with Walter Reuther, the national president of the U.A.W. The two men had already agreed on a cost-of-living allowance. Now Wilson went one step further, and, for the first time, offered every G.M. employee health-care benefits and a pension.


Reuther had his doubts. He lived in a northwest Detroit bungalow, and drove a 1940 Chevrolet. His salary was ten thousand dollars a year. He was the son of a Debsian Socialist, worked for the Socialist Party during his college days, and went to the Soviet Union in the nineteen-thirties to teach peasants how to be auto machinists. His inclination was to fight for changes that benefitted every worker, not just those lucky enough to be employed by General Motors. In the nineteen-thirties, unions had launched a number of health-care plans, many of which cut across individual company and industry lines. In the nineteen-forties, they argued for expanding Social Security. In 1945, when President Truman first proposed national health insurance, they cheered. In 1947, when Ford offered its workers a pension, the union voted it down. The labor movement believed that the safest and most efficient way to provide insurance against ill health or old age was to spread the costs and risks of benefits over the biggest and most diverse group possible. Walter Reuther, as Nelson Lichtenstein argues in his definitive biography, believed that risk ought to be broadly collectivized. Charlie Wilson, on the other hand, felt the way the business leaders of Toledo did: that collectivization was a threat to the free market and to the autonomy of business owners. In his view, companies themselves ought to assume the risks of providing insurance.


America’s private pension system is now in crisis. Over the past few years, American taxpayers have been put at risk of assuming tens of billions of dollars of pension liabilities from once profitable companies. Hundreds of thousands of retired steelworkers and airline employees have seen health-care benefits that were promised to them by their employers vanish. General Motors, the country’s largest automaker, is between forty and fifty billion dollars behind in the money it needs to fulfill its health-care and pension promises. This crisis is sometimes portrayed as the result of corporate America’s excessive generosity in making promises to its workers. But when it comes to retirement, health, disability, and unemployment benefits there is nothing exceptional about the United States: it is average among industrialized countries—more generous than Australia, Canada, Ireland, and Italy, just behind Finland and the United Kingdom, and on a par with the Netherlands and Denmark. The difference is that in most countries the government, or large groups of companies, provides pensions and health insurance. The United States, by contrast, has over the past fifty years followed the lead of Charlie Wilson and the bosses of Toledo and made individual companies responsible for the care of their retirees. It is this fact, as much as any other, that explains the current crisis. In 1950, Charlie Wilson was wrong, and Walter Reuther was right.


The key to understanding the pension business is something called the “dependency ratio,” and dependency ratios are best understood in the context of countries. In the past two decades, for instance, Ireland has gone from being one of the most economically backward countries in Western Europe to being one of the strongest: its growth rate has been roughly double that of the rest of Europe. There is no shortage of conventional explanations. Ireland joined the European Union. It opened up its markets. It invested well in education and economic infrastructure. It’s a politically stable country with a sophisticated, mobile workforce.


But, as the Harvard economists David Bloom and David Canning suggest in their study of the “Celtic Tiger,” of greater importance may have been a singular demographic fact. In 1979, restrictions on contraception that had been in place since Ireland’s founding were lifted, and the birth rate began to fall. In 1970, the average Irishwoman had 3.9 children. By the mid-nineteen-nineties, that number was less than two. As a result, when the Irish children born in the nineteen-sixties hit the workforce, there weren’t a lot of children in the generation just behind them. Ireland was suddenly free of the enormous social cost of supporting and educating and caring for a large dependent population. It was like a family of four in which, all of a sudden, the elder child is old enough to take care of her little brother and the mother can rejoin the workforce. Overnight, that family doubles its number of breadwinners and becomes much better off.


This relation between the number of people who aren’t of working age and the number of people who are is captured in the dependency ratio. In Ireland during the sixties, when contraception was illegal, there were ten people who were too old or too young to work for every fourteen people in a position to earn a paycheck. That meant that the country was spending a large percentage of its resources on caring for the young and the old. Last year, Ireland’s dependency ratio hit an all-time low: for every ten dependents, it had twenty-two people of working age. That change coincides precisely with the country’s extraordinary economic surge.


Demographers estimate that declines in dependency ratios are responsible for about a third of the East Asian economic miracle of the postwar era; this is a part of the world that, in the course of twenty-five years, saw its dependency ratio decline thirty-five per cent. Dependency ratios may also help answer the much-debated question of whether India or China has a brighter economic future. Right now, China is in the midst of what Joseph Chamie, the former director of the United Nations’ population division, calls the “sweet spot.” In the nineteen-sixties, China brought down its birth rate dramatically; those children are now grown up and in the workforce, and there is no similarly sized class of dependents behind them. India, on the other hand, reduced its birth rate much more slowly and has yet to hit the sweet spot. Its best years are ahead.


The logic of dependency ratios, of course, works equally powerfully in reverse. If your economy benefits by having a big bulge of working-age people, then your economy will have a harder time of it when that bulge generation retires, and there are relatively few workers to take their place. For China, the next few decades will be more difficult. “China will peak with a 1-to-2.6 dependency ratio between 2010 and 2015,” Bloom says. “But then it’s back to a little over 1-to-1.5 by 2050. That’s a pretty dramatic change. Thirty per cent of the Chinese population will be over sixty by 2050. That’s four hundred and thirty-two million people.” Demographers sometimes say that China is in a race to get rich before it gets old.


Economists have long paid attention to population growth, making the argument that the number of people in a country is either a good thing (spurring innovation) or a bad thing (depleting scarce resources). But an analysis of dependency ratios tells us that what’s critical is not just the growth of a population but its structure. “The introduction of demographics has reduced the need for the argument that there was something exceptional about East Asia or idiosyncratic to Africa,” Bloom and Canning write, in their study of the Irish economic miracle. “Once age-structure dynamics are introduced into an economic growth model, these regions are much closer to obeying common principles of economic growth.”


This is an important point. People have talked endlessly of Africa’s political and social and economic shortcomings and simultaneously of some magical cultural ingredient possessed by South Korea and Japan and Taiwan that has brought them success. But the truth is that sub-Saharan Africa has been mired in a debilitating 1-to-1 ratio for decades, and that proportion of dependency would frustrate and complicate economic development anywhere. Asia, meanwhile, has seen its demographic load lighten overwhelmingly in the past thirty years. Getting to a 1-to-2.5 ratio doesn’t make economic success inevitable. But, given a reasonably functional economic and political infrastructure, it certainly makes it a lot easier.


This demographic logic also applies to companies, since any employer that offers pensions and benefits to its employees has to deal with the consequences of itsnonworker-to-worker ratio, just as a country does. An employer that promised, back in the nineteen-fifties, to pay for its employees’ health care when they were retired didn’t set aside the money for that while they were working. It just paid the bills as they came in: money generated by current workers was used to pay for the costs of taking care of past workers. Pensions worked roughly the same way. On the day a company set up a pension plan, it was immediately on the hook for all the years of service accumulated by employees up to that point: the worker who was sixty-four when the pension was started got a pension when he retired at sixty-five, even though he had been in the system only a year. That debt is called a “past service” obligation, and in some cases in the nineteen-forties and fifties the past-service obligations facing employers were huge. At Ford, the amount reportedly came to two hundred million dollars, or just under three thousand dollars per employee. At Bethlehem Steel, it came to four thousand dollars per worker.


Companies were required to put aside a little extra money every year to make up for that debt, with the hope of someday—twenty or thirty years down the line—becoming fully funded. In practice, though, that was difficult. Suppose that a company agrees to give its workers a pension of fifty dollars a month for every year of service. Several years later, after a round of contract negotiations, that multiple is raised to sixty dollars a month. That increase applies retroactively: now that company has a brand-new past-service obligation equal to another ten dollars for every month served by its wage employees. Or suppose the stock market goes into decline or interest rates fall, and the company discovers that its pension plan has less money than it had expected. Now it’s behind again: it has to go back to using the money generated by current workers in order to take care of the costs of past workers. “You start off in the hole,” Steven Sass, a pension expert at Boston College, says. “And the problem in these plans is that it’s very difficult to dig your way out.”


Charlie Wilson’s promise to his workers, then, contained an audacious assumption about G.M.’s dependency ratio: that the company would always have enough active workers to cover the costs of its retired workers—that it would always be like Ireland, and never like sub-Saharan Africa. Wilson’s promise, in other words, was actually a gamble. Is it any wonder that the prospect of private pensions made people like Walter Reuther so nervous?


The most influential management theorist of the twentieth century was Peter Drucker, who, in 1950, wrote an extraordinarily prescient article for Harper’s entitled “The Mirage of Pensions.” It ought to be reprinted for every steelworker, airline mechanic, and autoworker who is worried about his retirement. Drucker simply couldn’t see how the pension plans on the table at companies like G.M. could ever work. “For such a plan to give real security, the financial strength of the company and its economic success must be reasonably secure for the next forty years,” Drucker wrote. “But is there any one company or any one industry whose future can be predicted with certainty for even ten years ahead?” He concluded, “The recent pension plans thus offer no more security against the big bad wolf of old age than the little piggy’s house of straw.”


In the mid-nineteen-fifties, the largest steel mill in the world was at Sparrows Point, just east of Baltimore, on the Chesapeake Bay. It was owned by Bethlehem Steel, one of the nation’s grandest industrial enterprises. The steel for the Golden Gate Bridge came from Sparrows Point, as did the cables for the George Washington Bridge, and the materials for countless guns and planes and ships that helped win both world wars. Sparrows Point, a so-called integrated mill, used a method of making steel that dated back to the nineteenth century. Coke and iron, the raw materials, were combined in a blast furnace to make liquid pig iron. The pig iron was poured into a vast oven, known as an open-hearth furnace, to make molten steel. The steel was poured into pots to make ingots. The ingots were cooled, reheated, and fed into a half-mile-long rolling mill and turned into semi-finished shapes, which eventually became girders for the construction industry or wafer-thin sheets for beer cans or galvanized panels for the automobile industry. Open-hearth steelmaking was expensive and time-consuming. It required great amounts of energy, water, and space. Sparrows Point stretched four miles from one end to the other. Most important, it required lots and lots of people. Sparrows Point, at its height, employed tens of thousands of them. As Mark Reutter demonstrates in “Making Steel,” his comprehensive history of Sparrows Point, it was not just a steel mill. It was a city.


In 1956, Eugene Grace, the head of Bethlehem Steel, was the country’s best- paid executive. Eleven of the country’s eighteen top-earning executives that year, in fact, worked for Bethlehem Steel. In 1955, when the American Iron and Steel Institute had its annual meeting, at the Waldorf-Astoria, in New York, the No. 2 at Bethlehem Steel, Arthur Homer, made a bold forecast: domestic demand for steel, he said, would increase by fifty per cent over the next fifteen years. “As someone has said, the American people are wanters,” he told the audience of twelve hundred industry executives. “Their wants are going to require a great deal of steel.”


But Big Steel didn’t get bigger. It got smaller. Imports began to take a larger and larger share of the American steel market. The growing use of aluminum, concrete, and plastic cut deeply into the demand for steel. And the steelmaking process changed. Instead of laboriously making steel from scratch, with coke and iron ore, factories increasingly just melted down scrap metal. The open-hearth furnace was replaced with the basic oxygen furnace, which could make the same amount of steel in about a tenth of the time. Steelmakers switched to continuous casting, which meant that you skipped the ingot phase altogether and poured your steel products directly out of the furnace. As a result, steelmakers like Bethlehem were no longer hiring young workers to replace the people who retired. They were laying people off by the thousands. But every time they laid off another employee they turned a money-making steelworker into a money-losing retiree—and their dependency ratio got a little worse. According to Reutter, Bethlehem had a hundred and sixty-four thousand workers in 1957. By the mid-to-late-nineteen-eighties, it was down to thirty-five thousand workers, and employment at Sparrows Point had fallen to seventy-nine hundred. In 2001, Bethlehem, just shy of its hundredth birthday, declared bankruptcy. It had twelve thousand active employees and ninety thousand retirees and their spouses drawing benefits. It had reached what might be a record-setting dependency ratio of 7.5 pensioners for every worker.


What happened to Bethlehem, of course, is what happened throughout American industry in the postwar period. Technology led to great advances in productivity, so that when the bulge of workers hired in the middle of the century retired and began drawing pensions, there was no one replacing them in the workforce. General Motors today makes more cars and trucks than it did in the early nineteen-sixties, but it does so with about a third of the employees. In 1962, G.M. had four hundred and sixty-four thousand U.S. employees and was paying benefits to forty thousand retirees and their spouses, for a dependency ratio of one pensioner to 11.6 employees. Last year, it had a hundred and forty-one thousand workers and paid benefits to four hundred and fifty-three thousand retirees, for a dependency ratio of 3.2 to 1.


Looking at General Motors and the old-line steel companies in demographic terms substantially changes the way we understand their problems. It is a commonplace assumption, for instance, that they were undone by overly generous union contracts. But, when dependency ratios start getting up into the 3-to-1 to 7-to-1 range, the issue is not so much what you are paying each dependent as how many dependents you are paying. “There is this notion that there is a Cadillac being provided to all these retirees,” Ron Bloom, a senior official at the United Steelworkers, says. “It’s not true. The truth is seventy-five-year-old widows living on less than three hundred dollars to four hundred dollars a month. It’s just that there’s a lot of them.”


A second common assumption is that fading industrial giants like G.M. and Bethlehem are victims of their own managerial incompetence. In various ways, they undoubtedly are. But, with respect to the staggering burden of benefit obligations, what got them in trouble isn’t what they did wrong; it is what they did right. They got in trouble in the nineteen-nineties because they were around in the nineteen-fifties—and survived to pay for the retirement of the workers they hired forty years ago. They got in trouble because they innovated, and became more efficient in their use of labor.


“We are making as much steel as we made thirty years ago with twenty-five per cent of the workforce,” Michael Locker, a steel-industry consultant, says. “And it is a much higher quality of steel, too. There is simply no comparison. That change recasts the industry and it recasts the workforce. You get this enormous bulge. It’s abnormal. It’s not predicted, and it’s not funded. Is that the fault of the steelworkers? Is that the fault of the companies?”


Here, surely, is the absurdity of a system in which individual employers are responsible for providing their own employee benefits. It penalizes companies for doing what they ought to do. General Motors, by American standards, has an old workforce: its average worker is much older than, say, the average worker at Google. That has an immediate effect: health-care costs are a linear function of age. The average cost of health insurance for an employee between the ages of thirty-five and thirty-nine is $3,759 a year, and for someone between the ages of sixty and sixty-four it is $7,622. This goes a long way toward explaining why G.M. has an estimated sixty-two billion dollars in health-care liabilities. The current arrangement discourages employers from hiring or retaining older workers. But don’t we want companies to retain older workers—to hire on the basis of ability and not age? In fact, a system in which companies shoulder their own benefits is ultimately a system that penalizes companies for offering any benefits at all. Many employers have simply decided to let their workers fend for themselves. Given what has so publicly and disastrously happened to companies like General Motors, can you blame them?


Or consider the continuous round of discounts and rebates that General Motors—a company that lost $8.6 billion last year—has been offering to customers. If you bought a Chevy Tahoe this summer, G.M. would give you zero-per-cent financing, or six thousand dollars cash back. Surely, if you are losing money on every car you sell, as G.M. is, cutting car prices still further in order to boost sales doesn’t make any sense. It’s like the old Borsht-belt joke about the haberdasher who lost money on every hat he made but figured he’d make up the difference on volume. The economically rational thing for G.M. to do would be to restructure, and sell fewer cars at a higher profit margin—and that’s what G.M. tried to do this summer, announcing plans to shutter plants and buy out the contracts of thirty-five thousand workers. But buyouts, which turn active workers into pensioners, only worsen the company’s dependency ratio. Last year, G.M. covered the costs of its four hundred and fifty-three thousand retirees and their dependents with the revenue from 4.5 million cars and trucks. How is G.M. better off covering the costs of four hundred and eighty-eighty thousand dependents with the revenue from, say, 4.2 million cars and trucks? This is the impossible predicament facing the company’s C.E.O., Rick Wagoner. Demographic logic requires him to sell more cars and hire more workers; financial logic requires him to sell fewer cars and hire fewer workers.


Under the circumstances, one of the great mysteries of contemporary American politics is why Wagoner isn’t the nation’s leading proponent of universal health care and expanded social welfare. That’s the only way out of G.M.’s dilemma. But, from Wagoner’s reticence on the issue, you’d think that it was still 1950, or that Wagoner believes he’s the Prime Minister of Ireland. “One thing I’ve learned is that corporate America has got much more class solidarity than we do—meaning union people,” the U.S.W.’s Ron Bloom says. “They really are afraid of getting thrown out of their country clubs, even though their objective ought to be maximizing value for their shareholders.”


David Bloom, the Harvard economist, once did a calculation in which he combined the dependency ratios of Africa and Western Europe. He found that they fit together almost perfectly; that is, Africa has plenty of young people and not a lot of older people and Western Europe has plenty of old people and not a lot of young people, and if you combine the two you have an even distribution of old and young. “It makes you think that if there is more international migration, that could smooth things out,” Bloom said.


Of course, you can’t take the populations of different countries and different cultures and simply merge them, no matter how much demographic sense that might make. But you can do that with companies within an economy. If the retiree obligations of Bethlehem Steel had been pooled with those of the much younger industries that supplanted steel—aluminum, say, or plastic—Bethlehem Steel might have made it. If you combined the obligations of G.M., with its four hundred and fifty-three thousand retirees, and the American manufacturing operations of Toyota, with a mere two hundred and fifty-eight retirees, Toyota could help G.M. shoulder its burden, and thirty or forty years from now—when those G.M. retirees are dead and Toyota’s now youthful workforce has turned gray—G.M. could return the favor. For that matter, if you pooled the obligations of every employer in the country, no company would go bankrupt just because it happened to employ older people, or it happened to have been around for a while, or it happened to have made the transformation from open-hearth furnaces and ingot-making to basic oxygen furnaces and continuous casting. This is what Walter Reuther and the other union heads understood more than fifty years ago: that in the free-market system it makes little sense for the burdens of insurance to be borne by one company. If the risks of providing for health care and old-age pensions are shared by all of us, then companies can succeed or fail based on what they do and not on the number of their retirees.


When Bethlehem Steel filed for bankruptcy, it owed about four billion dollars to its pension plan, and had another three billion dollars in unmet health-care obligations. Two years later, in 2003, the pension fund was terminated and handed over to the federal government’s Pension Benefit Guaranty Corporation. The assets of the company—Sparrows Point and a handful of other steel mills in the Midwest—were sold to the New York-based investor Wilbur Ross.


Ross acted quickly. He set up a small trust fund to help defray Bethlehem’s unmet retiree health-care costs, cut a deal with the union to streamline work rules, put in place a new 401(k) savings plan—and then started over. The new Bethlehem Steel had a dependency ratio of 0 to 1. Within about six months, it was profitable. The main problem with the American steel business wasn’t the steel business, Ross showed. It was all the things that had nothing to do with the steel business.


Not long ago, Ross sat in his sparse midtown office and explained what he had learned from his rescue of Bethlehem. Ross is in his sixties, a Yale- and Harvard-educated patrician with small rectangular glasses and impeccable manners. Outside his office, by the elevator, was a large sculpture of a bull, papered over from head to hoof with stock tables.


“When we showed up to the Bethlehem board to approve the deal, they had an army of people there,” Ross said. “The whole board was there, the whole senior management was there, people from Credit Suisse and Greenhill were there. They must have had about fifty or sixty people there for a deal that was already done. So my partner and I—just the two of us—show up, and they say, ‘Well, we should wait for the rest of your team.’ And we said, ‘There is no rest of the team, there is just the two of us.’ It said the whole thing right there.”


Ross isn’t a fan of old-style pensions, because they make it impossible to run a company efficiently. “When a company gets in trouble and restructures,” he said, those underfunded pension funds “will eat it alive.” And how much sense does employer-provided health insurance make? Bethlehem made promises to its employees, years ago, to give them medical insurance in exchange for their labor, and when the company ran into trouble those promises simply evaporated. “Every country against which we compete has universal health care,” he said. “That means we probably face a fifteen-per-cent cost disadvantage versus foreigners for no other reason than historical accident. . . . The randomness of our system is just not going to work.”


This is what Walter Reuther believed. He went along with Wilson’s scheme in 1950 because he thought that agreeing with Wilson was the surest way of getting Wilson and the other captains of industry to agree with him. “Reuther and his brain trust had a theory of capitalism,” Nelson Lichtenstein, the Reuther biographer, says. “It was: If we force G.M. to pay extra, we can create an incentive for G.M. to join our side.” Reuther believed, in other words, that when American corporations reached the point where they couldn’t make their business more efficient without making it less profitable, when their dependency ratios soared to unimaginable heights, when they got tens of billions behind in their health-care obligations, when the cost of carrying thou-sands of retirees forced them to stare bankruptcy in the face, they would come around to the idea that the markets work best when the burdens of benefits are broadly shared. It has taken half a century, but the world may finally be catching up with Walter Reuther.


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