06.15.09

Will Business Kill Health Care?

As Obama kicks off his summer drive for health reform, Matt Miller, who was in the White House during Hillarycare, on why corporate America wants to stay at the heart of the welfare state.

American business is about to miss a historic opportunity. The stars are finally aligning in Washington for major health-care reform to be enacted in the next few months. President Obama’s courtship of the American Medical Association on Monday was the start of a charm offensive aimed at keeping every major stakeholder at the negotiating table (in the docs’ case, by signaling his openness to malpractice reform).

But the biggest mystery of the debate is the peculiar feature of American health care that Obama isn’t tackling, because the interest group affected—big business—hasn’t asked. Despite the fact that soaring health costs are strangling business, employers are slated to emerge from reform still stuck at the heart of America’s welfare state. Why? Because that’s what business says it wants!

The persistence of business’ determination to remain at the heart of America’s welfare system doesn’t make sense.

Not long ago, union leaders representing thousands of workers at one of America’s best-known companies asked the firm to look at an interesting question. What would the impact be on profits and shareholder value, they asked, if national reforms were adopted that assured health coverage for every American while permanently lowering the amount the company contributed to such benefits? The company did the analysis, and a top executive called the union with the news.

“We looked at what you suggested,” he said, “and the impact is huge.”

“Great,” said the union leader. “We’d love to review it with you.”

“I’m afraid we’re not comfortable sharing it,” said the executive.

“What do you mean?” the union official said. “Why not?”

The executive paused.

“Because the numbers are so big you’d never understand why we won’t want to pursue this as a matter of policy.”

Think about the tangled mind-set that could produce that last sentence and you’ll see that American business is in the grip of a dead idea. America’s unique employer-based health-care system may have made sense 50 years ago, when health care was cheap, U.S. business faced little global competition, and fending off socialism was a Cold War priority. Today, though, despite radically changed circumstances, corporate America remains caught in a time warp in its attitude toward government. Business resolutely resists the idea of government funding a basic minimum health benefit (along the lines of Social Security providing a universal basic retirement benefit) that might supplant its own current funding and administrative role. Inexplicably, business’ message to Uncle Sam seems to be, “Whatever you do, don’t get me off the hook for this mess.”

When you ask business leaders why this is the case—why Americans in the 21st century should still look to their companies, not their country, for such support—you bump up against uncharacteristically muddled thinking or non sequiturs, sure signs that something beyond reason is at work.

“If I’ve got a good health-care program that you can go home and tell Muriel about, I’ve got a better chance of recruiting you than the guy down the street who doesn’t have one,” says Tom Donahue, president of the U.S. Chamber of Commerce, by way of explanation.

But if government assured a basic benefit, companies could still lure talent with supplemental offerings, as they do on the pension side.

“We’ll end up paying for it anyway, and we won’t have control over the costs this time,” says John Castellani, president of the Business Roundtable.

But our employer-based system already delivers the costliest health care on the planet. That hardly makes a case that it’s the answer. And business won’t pay, or won’t pay as much as today, if the powerful business lobby sensibly makes permanently lowering business’ contribution to health costs its reform aim, rather than mindlessly fighting off government altogether.

Steve Burd, Safeway’s CEO, who was praised by Obama in his speech Monday for his leadership on cost-effective benefit design, says that if government picked up the tab, we’d lose the innovation and efficiency that companies like his feel is essential for their employees. But that’s not clear, either. The Veterans Administration health-care system, for example, has been hailed as the leader in using technology and evidence-based medicine to improve health while lowering costs. And the reform proposals now on the table in Washington ask government to take to scale the preventive-care ideas that Safeway and others have helped pilot. Besides, on Burd’s logic, Safeway ought to be running its own schools for employees, too, and raising its own army to protect them. That can’t be right. So what’s really going on in the corporate mind?

History and common sense suggest only one answer: Corporate America’s reflexive anti-government ideology now stands in the way of its self-interest. This reflex is hardly new, but to the extent it now stops America from adapting successfully to the global economy, this mind-set has become an economic threat in itself. Business originally resisted many government actions that have become widely supported fixtures of American life: child labor laws, the Federal Reserve, the Securities and Exchange Commission, Social Security, the Marshall Plan, national parks, federal aid to education, Medicare. The list is endless, and embarrassing.

“Often it fought them with such gruesome predictions of awful consequences to our private enterprise system,” wrote Theodore Levitt of the Harvard Business School in 1968, “that one wonders how the foretellers of such doom can now face themselves in the mirror each morning and still believe themselves competent to make important decisions on major matters in their own companies.”

None of this means business needs to love government, or overlook its idiocies and inefficiencies. (I’ve worked at senior levels in both sectors, and while government has problems, business ain’t perfect, either, as businesspeople well know.) It just means realizing, as executives in every other advanced nation do, that government plays a legitimate, indispensable role in assuring the provision of certain public goods.

This kind of common sense is virtually taboo in American business today. One prominent Republican billionaire I know—who is appalled by our health-care woes and who is outspoken on just about every other subject—refuses to go on record with his private view that government should provide a basic benefit via some kind of single-payer plan and let folks who want more coverage add private plans on top. The gang at the club just wouldn’t understand.

Carl Camden, CEO of Kelly Services, whose “free agent” work force has sensitized him to the inanity of the American way of health, says that for too many CEOs, “blind allegiance to free-market principles has obscured the fact that our system isn’t working and that health care can’t be a free market anyway.”

For now, only one capitalist redoubt seems to realize that we’re living in a new world: the Committee for Economic Development, the business-led think tank. Its most recent health-care report doesn’t mince words: “The nation needs a new system to replace employer-provided health insurance.”

The CED would offer people access to private group coverage via regional insurance exchanges and would subsidize lower-income folks who need help. Over time, it would like government to pay for a basic plan for everyone and fund it via a consumption or value-added tax. The system would include new incentives for health-delivery systems to compete on value. Says the CED’s president, Charles Kolb: “Business needs to wake up and rethink this if we’re going to compete in a global economy and do right by ordinary Americans.”

Democratic Senator Ron Wyden of Oregon and Republican Senator Robert Bennett of Utah have a comprehensive bill with bipartisan support that reflects these principles, but for now it's been a sideshow to the main event taking shape under Max Baucus and Ted Kennedy.

I asked the Business Roundtable’s Castellani why another business group was coming down differently from his organization, which wants to keep employers at the center of things. Castellani thought a moment, then said maybe it’s because the CED is composed mainly of retired CEOs, whereas the Roundtable’s CEOs are still active.

I’m not sure what that means. Why would active CEOs want to have business continue to bear more of the health-care burden? It doesn’t make sense. And maybe that’s the point: The persistence of business’ determination to remain at the heart of America’s welfare system doesn’t make sense. I suspect the real difference between the Business Roundtable and the CED is that active CEOs are under the sway of their naysaying human-resources departments, whose benefits empires are threatened by fundamental change. The missing ingredient in every reform plan is a generous buyout package for human-resources chiefs at the Fortune 500, whom politicians in both parties privately tell me are part of the problem.

There’s still time for business to come to its senses before it signs up for another few decades of back-breaking health-care duties when it has better things to do—like compete with China and India. America vanquished communism and socialism after an epic struggle, and the employer-based benefit system deserves its share of the credit for the triumph. But that decades-old choice set in motion political patterns and habits of mind that have calcified to the point where we can’t do what global competitiveness (and social justice) now require.

The only force that can break this logjam is business, and business can only do it by looking at the facts and changing its mind. We won’t become socialist. Firms that want to can still serve as facilitators (if not primary funders) of coverage for their employees. And none of this means business is “walking away from the problem”; indeed, business will need, more than ever, to be a constituency for the changes that are necessary. All this is doable. But one tumbler first has to click into place, and fast.

As health-care legislation is negotiated this summer, business has to realize that when it comes to its pervasive role in America’s welfare state, it’s OK, and sensible, to let go.

Matt Miller is a management consultant, a senior fellow at the Center for American Progress, and the host of public radio’s popular political week-in-review, Left, Right & Center. His new book is The Tyranny of Dead Ideas, named this week by the U.S. Chamber of Commerce as one of the top books "Driving the Debate" in 2009.