Managing Automation - August 2008 - (Page 30)

H E AT H C A R E AN UNHEALTHY SITUATION Although rising healthcare costs are putting manufacturers in a competitive hole, there’s no consensus on how far government should go to reform the system. BY JEFF MOAD eneral Motors has estimated that its employee healthcare spending — $5.6 billion in 2006 — adds $1,500 to the cost of each vehicle it produces. In other words, GM’s per-vehicle cost for providing healthcare is 60% of the $2,500 retail price of the Nano, an ultra-compact, four-door car produced by Tata Motors in West Bengal, India. And GM has said its tab for providing healthcare could rise to the equivalent of $2,000 per vehicle this year. Clearly, even if GM wanted to compete in the burgeoning market for small, inexpensive vehicles targeting the growing middle class in developing countries such as India and China — something Chairman and CEO G. Richard Wagoner has said the company won’t do — its healthcare cost overhead alone would make that nearly impossible. GM isn’t the only U.S.-based manufacturing company whose rising healthcare costs threaten to put it into a competitive hole. According to a recent report by the Council on Foreign Relations, healthcare premiums in the United States have risen by 87% on average since 2000. In 2004, the report says, healthcare became the most expensive benefit that manufacturers and other employers provide. Moreover, the healthcare cost burden on U.S. manufacturers is much greater than that facing their offshore competitors. According to the Council on Foreign Relations report, the U.S. government, private sector, and individuals spend $1.9 trillion on healthcare annually. That’s 44% more per capita than the next highest-spending countr y, Switzerland. The National Association of Manufacturers has estimated that healthcare and other embedded costs — such as energy, litigation, regulation, and taxes — add 31.7% to the cost of production in the United States compared with this country’s major trading partners. Although many manufacturers report that the rate of healthcare cost increases has slowed somewhat in recent quarters — to 7% to 9% per year from 12% or more a couple of years ago — many have clearly reached a breaking point, no longer able to absorb rising healthcare costs. In fact, in the recent Thomas Publishing survey on U.S. Industrial Competitiveness (see p. 16), a surprisingly signifi- ma 30 2008 August

Table of Contents Feed for the Digital Edition of Managing Automation - August 2008

Managing Automation - August 2008 Contents Take 1 After 18 Months, the Oracle/SAP Suit Has Little Effect on Maintenance Sales At 100, Foxboro Reinvents Around Its Customers New Private Equity Firm Eyes Software A Software Suite Just for Manufacturers i2 Chief Focuses on Services Plan Notes It's Time for Action Examining U.S. Competitveness Leveling the Field An Unhealthy Situation Exploring Alternatives Math and Science: Key to the Future Product Scan Advertiser Index Next

Managing Automation - August 2008

For optimal viewing of this digital publication, please enable JavaScript and then refresh the page. If you would like to try to load the digital publication without using Flash Player detection, please click here.