Providing Health Care Insurance Does Not Make Us Less Competitive

Michigan’s governor, appearing on Fox News Sunday (10/11), said that we need the public sector to pick up more of the health care bill so that the private sector can be more competitive.

It is this kind of flawed economic thinking that gets us into so much trouble.

Does the governor think that the public sector gets its funding from thin air, or that doctors work for nothing? Doesn’t she get it?

The private sector pays for the entire health care bill in every country under every scheme. The government does not produce stuff - the private sector does, and earns the income that pays for everything the government promises. I can pay for my health care directly, or I can pay taxes to support Medicare which pays for health care with a lot of administrative costs.

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Firms don't have to provide insurance and don't have to keep up with rising costs. It's not law (yet). It is part of total compensation which includes cash, taxes and benefits. In most of the economy, this "pay package" is negotiable. Not so with union contracts however.

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The governor complained that health care costs are a large part of the cost of making a U.S. car, making them less competitive.

Well, providing health insurance is not mandated (yet, anyway), and is a result of heavy-handed union activity over the past decades aided by government’s foot on the neck of the industry to avoid strikes. Union power is simply a way to tax non-union workers to the benefit of union workers by forcing companies to pay above market wages and benefits and over-charge for the union made products. This destroyed our basic steel industry and our domestic auto industry in spite of government attempts to use protectionism to shield this bad behavior.

A decade ago I and other economists predicted the demise of these companies as a result.

The only sector of the economy where unions thrive is the public sector which faces no competition and has no bottom line. Garbage collector strikes are always settled so that voters do not get too unhappy and the cost is passed on in higher taxes. Private sector firms do not have that luxury, they face “re-election” daily in a competitive market and must be efficient or “lose the election” as our steel and auto companies have.

Taxpayers spent $50 billion to save union jobs at GM – a continuation of very ill-advised policies that leave our private sector weaker. Continuing to look to government to solve our “problems” and “save us” is a downhill path to lower prosperity.

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If consumers want to consume a lot of health care, it is the job of markets to provide it. Spending a lot is not a “crisis”, unless we demand too much because we face the wrong prices (“free” doctor visits for example).

If cars were “free”, we’d take a lot more of those as well.

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William Dunkelberg is an Economic Strategist, Boenning & Scattergood and Chief Economist, National Federation of Independent Business.