Henry and I have written previously about the Toyota decision to base a new plant in Canada which some have maintained is due to health care costs in the U.S. (see
). My argument has been one about incidence. To clarify what I've been trying to say (for me as much as for you), look at a comparison of incidence of health care costs in two systems:
Take two identical countries (per capita health care costs, quality of health care, total labor compensation...). Each country consists of only workers in an automobile plant. There is no personal income tax, the only source of government revenue is a corporate tax. Government only provides health care. The first country, "Canada," has a a national health care system which is paid for entirely out of taxes. The second country, "America," has a private health care system where employers pay for the health care of their employees(there is thus no government at all). In "Canada," if workers total compensation equals $46,000 and the value of their health care plan equals $6,000 per worker, then workers take home $40,000 in wages, and $6,000 in health care. Where will this $6,000 per worker come from? Well, from corporate taxation (since there is no individual taxation). And since all we've done in the "American" case is changed the name of government to a private health insurer, the corporation pays exactly the same amount to the private health insurance company as it would have payed in "Canada" to the government. This is the incidence point at its simplest: a priori,
a national health care system can cost a given corporation exactly as much as private health insurance.
Now we can start adding in more features to the economy. Let's add a government that does more than provide health care and a personal income tax. Let the government require $1000 a year per worker, but it taxes each worker only $500. Then in "Canada" the corporation pays $6500 a year in taxes per worker; and in "America" it pays "$500 a year in taxes and $6000 in health insurance. In both countries workers still take home $40,000 a year, but have only $39,500 to spend, but consume $45,500 in services, since the government just wastes money in its non-health care expenditures.
Now add people, the same number as there are workers, who don't work for the corporation and so don't work at all. Further, in "America" let's add a government run health care plan to cover those people. Since "Americans" hate the unemployed, they provide them with worse health care coverage, costing $4750 a year (this is somewhat realistic: medicaid spending
spending is approximately 80% of per capita health care spending
as a whole on a per capita basis, though this data isn't strictly comparable). Since "Canadians" are fuzzy socialists, they give those unemployed people the coverage costing $6000 a year. So now in "America" they'll have to come up with $4750 per worker, and in "Canada" $6000 per worker. Since so far there is no corporate profit to tax, the respective governments will have to fund this plan out of workers income. Suddenly, in "America" worker's after tax wage is $35,750, but in "Canada" it's fallen to $34,500. But we want total labor compensation to be the same, so let's add corporate profit of $10,000 per worker, and fund the health care for unemployed people out of that: then in "Canada" the corporation makes $4,000 per worker in profit and workers take home $39,500 in cash and $6,000 in health care; and in "America" the corporation makes $5,250 per worker and workers take home the same amount as in "Canada."
We now let health care costs in "Canada" be 2/3 that of the U.S. (see here
: true figure in the U.S. about 13% of GDP and in Canada 9.1% of GDP). So then to provide the same quality of care, and the same implicit value to each worker, "Canada" only spends $4000 per worker. Now "Canadian" workers take home $41,500 in cash and the firm makes $6000 per worker in profit. The "American" workers still take home $39,500 and the corporation makes $5,250 per worker in profit.
And so, after all this work, I seem to have shown the opposite of what my initial claim was: "Canada" is, in fact, a far better place to do business than "America." Toyota was right and I was wrong.
But we haven't yet introduced any realism into the way taxes are balanced between the corporation and the individual (which would make "America" seem more profitable for the company), haven't yet looked at how much an auto company pays per worker and...All things which could push it the other way. Plus, the broader point still stands: getting national health insurance in the U.S. right now won't reduce health care costs, it will only potentially change their growth path, and even that isn't certain. National health care systems across the OECD are having trouble containing costs. Further, saying that health care costs is a "competitive advantage" for Canada is like saying that low corporate taxes is a "competitive advantage" for the U.S.: true, but it's not like the one factor is ever determinant in decisions to locate businesses. So my attempts at clarifying my thinking didn't really work out...Ah well...