Recently, Texas made national headlines as a result of Toyota Motor Corporation
announcing the consolidation of the North American headquarters from Torrance,
California and Erlanger, Kentucky to Plano, Texas. Ironically, I lived
in Northern Kentucky at the time Toyota moved the North American manufacturing
headquarters to Erlanger, Kentucky. It was a huge boost to the economy
of the area.
After Toyota’s press release, Texas Governor Rick Perry was touting
the attractive business climate of Texas, simpler regulatory environment,
lower cost of living, and no personal state income tax as critical factors
in attracting this company. Immediately the local press generated stories
comparing taxes (Texas doesn’t have an individual state income tax),
cost of living, real estate prices, and other speculative factors as part
of the decision making process. California Governor Jerry Brown was not
to be outdone and in true trash talking form fired back with a list of
his state’s positive attributes.
After the politicians finished the political bantering. at each other,
Toyota’s North American CEO, Jim Lentz, came out in a press release
explaining the move in much more mundane, corporate speak terms. While
unsubstantiated, one article I saw indicated there was $40 million in
financial incentives provided to Toyota. Other articles compared the difference
in housing costs. The difference in tax rates was analyzed in another
article. Public school comparisons were made in another article. All of
this comparative data made me curious about what wasn’t mentioned.
Healthcare.
If this would have been some other major company, I probably wouldn’t
have paid much attention. Toyota, however, is a company I follow and support
(as evidenced by the vehicles in my garage). Toyota is meticulous about
operational excellence. So I thought to myself, why isn’t healthcare
a more visible component of the economic development process? I went to
the state of Texas economic development website and found an amazing amount
of information. There’s a drop down button titled “Business
Climate” under which is a list of factors including: Economic strength;
Low taxes; Fair legal system; Skilled work force; Infrastructure; Quality
of life. Clicking on the Quality of life button takes you to another page
where the following are listed: Education; Culture; Parks & Recreation;
Living; Sports; Texas Tourism. If you click on Living, you then finally
see healthcare references-“#1 World’s Largest Medical Center”
and #1 Hospital for Cancer Care.” Really, that’s it!
So this surprised me. I went on the new marketplace exchange website for
medical insurance in Texas and found a modest plan with coverage for a
family of four at a monthly premium of approximately $1,300 per month.
In another article about the transition, Toyota expects approximately
5,000 people to be at the Plano location. This amounts to an estimated
$78 million in annual health insurance costs. I have no idea how close
or far my estimate is from Toyota’s actual healthcare costs. For
sake of discussion, let’s use an error factor of 20% and, therefore,
on the low side, the costs would be approximately $62 million. One article
showed the average home cost in Torrance was $552 thousand and in Plano
less than $200 thousand. So in this context, I’m going to say a
10% savings on healthcare is plausible. That’s $6 million a year
times whatever factor you want to apply. Even for a company the size of
Toyota that has to get someone’s attention.
With healthcare on the topic of every domestic list of issues we face in
this country, why is healthcare no where to be found (other than the two
superficial references I mentioned) in this entire process? It seems to
me a huge opportunity is being missed by not having a more robust analysis
of this major cost available to companies looking at Texas. I further
contend this cost could be managed to a level of even greater than 10%
savings. If say a savings rate of 20% were used and the annual amount
was $12 million, then serious money would be on the table. We saw what
healthcare costs did to General Motors. I’m intrigued by what is
possible in this area. Stay tuned for further research on this topic with
someone at the Texas Economic Development organization.