Before We're 64
While the recent General Motors and Chrysler strikes ended quickly, the fundamental issue behind them -- retiree health care -- threatens to haunt us for decades. Instead of waiting for American workers and businesses to again find themselves against the wall, we should act now to let companies and unions buy their early retirees into Medicare.
The troubles at GM and Chrysler -- and Ford, which reached a tentative labor agreement this weekend -- underscore the enormous competitive burden that health-care costs impose on American companies. Tougher global competition, an aging population and soaring health costs pose a triple threat to our economy. Health care adds $1,600 to the cost of every GM car -- five times what it costs Toyota. And Chrysler's health costs have more than doubled since 2000.
It's not just the Big Three. By next year, the health-care costs of Fortune 500 companies will exceed their total profits. It's no wonder that the share of businesses offering health insurance has dropped from 69 percent to 60 percent since 2000, and only half of small firms now offer health benefits at all.
Employees, of course, are suffering the most. In 2005, Americans ages 55 to 64 were the fastest-growing segment of the population to become uninsured. For those employees lucky enough to still have insurance, the percentage of workers with deductibles of $500 or more has nearly tripled.
Covering early retirees is the most acute problem for workers and employers alike. Younger workers have fewer health needs and cost far less to cover; older retirees have much of their higher costs covered by Medicare. The average annual cost of covering a 30-year-old employee is $2,222. The average yearly cost for an employee who retires at 60 is $6,139.
We can't afford to let American workers and companies wither on the vine. We can ease the cost crunch for both by giving employers and unions a new option: buying Medicare coverage for retirees ages 55 to 64. Retirees would get quality care from a program they can trust. Employers would get to buy affordable insurance and take spiraling health costs off their books.
GM and the United Auto Workers agreed to establish a retiree health trust because GM realized that it can't afford to be in the health-care business when it's fighting to survive in the car business. And let's face it: Given the choice, unions don't really want to be in the health management business. Voluntary Employees' Beneficiary Associations, or VEBAs, carry their own risks and burdens. Some, including the one the UAW set up with Caterpillar, have gone bankrupt.
That's the great advantage of Medicare: Unlike GM, Chrysler or even the UAW, its core competency is health care. As the expert in managing health care for the elderly, Medicare is ideally positioned to manage it for the near-elderly as well.
Medicare has remarkably low administrative costs: 2 percent. Other insurers have overhead as high as 20 percent. The program's broad risk pool will help keep costs down. Most of the costs in retiree health come from chronic care; under Medicare, it will be possible to insist on state-of-the-art management of chronic cases.
A Medicare buy-in for retirees ages 55 to 64 won't cost taxpayers. Companies could pick up most of the cost; instead of GM contributing $30 billion to a VEBA, that money would go to Medicare. Retirees would have to pay higher premiums than traditional Medicare beneficiaries do to receive health care.
Taxpayers would also benefit, because the more we can do to make Americans healthier from 55 to 64, the less Medicare will have to spend on chronic conditions later.
For many companies, buying into Medicare would be the most affordable option. It could make the difference in whether companies are able to compete -- and whether companies are able to provide retiree health coverage.
President Bush made a mistake in vetoing the bill that Congress passed to ensure that 10 million children in America have health care. Refusing to deal with the looming retiree health crisis would be another big mistake.
If GM, Chrysler and the UAW can reach across the bargaining table and find common ground on health care, Washington ought to be able to reach across party lines to do the same. America's economic prospects and competitive standing will be a lot healthier when we let employers buy their early retirees into Medicare. Quality, affordable coverage will make those retirees a lot healthier. It's the least we can do for people who've worked their whole lives to do right by their companies and their country, and it's a great chance for employers to do right by them.
Rahm Emanuelis a Democratic representative from Illinois and chairman of the House Democratic Caucus.Bruce Reedis president of theDemocratic Leadership Council. They co-authored "The Plan: Big Ideas for America."