Sidney Hill, Jr.: The health of U.S. manufacturing may hinge on insurance reform

Since our mission at MBT is illustrating how the intelligent use of information technology makes it easier to conduct the business of manufacturing, we generally don't talk politics. But there will be an issue in the 2008 presidential campaign that profoundly impacts U.S. manufacturers.

That issue is health insurance. Most people who have health insurance in this country get it through work. Typically, the employee pays a small percentage of the actual cost of the insurance through a payroll deduction and the company picks up the rest.

The auto industry pioneered this model in the days when the term Big Three had real meaning. Now, the Big Three automakers—all of whom are in what appears to be a chronic state of poor fiscal health—would like to change this model. They have not said exactly how they would like the model to change, but they have made a strong case for why they think it should.

General Motors, which at this writing still edges out Toyota as the world's largest automaker, hauled in a record $207 billion in revenue in 2006, yet it lost $2 billion.

Meanwhile, GM estimates that it spends more than $4 billion a year on health care for its employees and retirees.

Again, that's a $2 billion loss and $4 billion spent on health insurance. You can do the math yourself and figure out what that means.

Actually, several auto industry analysts have crunched these numbers already. These experts also have thrown the billions of dollars in operating costs GM has eliminated over the past few years into the equation.

And here's their conclusion: Without significant heath care cost reductions, GM's North American business unit may never be able to do more than break even.

This fall, GM will start negotiating new contracts for its U.S. hourly workforce. Ford Motor Co. and DaimlerChrysler will be involved in similar talks, and all three want health insurance to be a major talking point.

This fall is also when the races to determine who represents the country's two major political parties in the presidential election should heat up—and health insurance will be debated in that arena as well.

So far, none of the candidates have floated any proposals that would relieve the pain that GM—and many other manufacturers—are feeling on this issue.

The three leading Democratic candidates say they want all Americans to have health insurance, but John Edwards, the former senator from North Carolina, is the only one offering a proposal to make that happen. He would require employers to offer insurance benefits for their workers or pay a special tax to offset the cost of workers enrolling in outside health plans.

As governor of Massachusetts, Mitt Romney signed a law that calls for everyone in that state to have health insurance by July of this year. That plan calls for companies with 10 or more employees that don't offer health insurance to pay $295 per worker into a state insurance fund each year. But Republican presidential candidate Romney has not said how he would address health care from the White House.

With all U.S. manufacturers fighting to maintain profit margins—and increasingly competing with companies from countries that don't have an employer-paid health insurance model—is it time for significant change in this area? Send your opinions to shill@reedbusiness.com.