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.