By Ted Evanoff, Maureen Groppe and Shari Rudavsky The Indianapolis Star October 7, 2007
A plan by the nation's largest industrial corporation to shed responsibility for retirees' health care could transform how employers nationwide confront escalating health-care costs.
GM agreed last week to hand the United Auto Workers $51 billion over time to fund a union-run trust that would help pay for the health-care costs of 423,000 retirees and their dependents. That number includes 91,000 in Indiana.
Rather than wait on the government to do something about escalating health-care costs, more corporations may take matters into their own hands, many in the industry say. This could mean more employee-operated health insurance plans, higher costs and fewer insurance options.
"It's something we're going to be seeing across the board from distressed industries to Triple-A-rated companies,'' said Mark Olean, industrial analyst at Fitch & Co., a credit rating agency in Chicago.
Today, 60 percent of U.S. workers have employer health plans, but rising medical and drug costs have forced employers to impose larger bills on their workers.
In 2006, about 40 percent of U.S. workers had deductibles of $500 or more, compared with 14 percent a few years ago.
When the National Association of Manufacturers surveyed small and medium-sized manufacturers last year, 87 percent ranked escalating health-care costs as their most pressing problem.
"Runaway health-care spending is crippling U.S. industry and small business," said Jay Timmons, senior vice president of policy and government relations for the association. In 2005, Chrysler and Ford officials, along with GM and UAW leaders, traveled to Washington to urge health-care reform but they found little appetite for change. Executives from Wal-Mart, Intel Corp., AT&T and Kelly Services joined with union leaders in February in calling for health-care coverage for all Americans by 2012.
But no major action on health care is expected in Washington until after the 2008 elections at the earliest.
Conflicting priorities
"I don't think General Motors, nor Ford or Chrysler, think they can take on the federal government,'' said analyst Brett Smith of the Center for Automotive Research, a think tank in Ann Arbor, Mich.
While Democrats say they believe the government must lead the change in financing the costs, Republicans figure health-care markets can work on their own, so reform has not been a GOP priority, said Jonathan Gruber, a health-care expert and professor at the Massachusetts Institute of Technology.
Among Republicans, former Massachusetts Gov. Mitt Romney and former New York City Mayor Rudy Giuliani would offer tax benefits to help people pay for insurance and care. The leading Democratic presidential candidates have proposed reform plans as well.
In the meantime, escalating costs are forcing employers to react. GM spends $4.8 billion a year on health care, an increase of 80 percent in a decade. The company estimates health-care costs account for about $1,200 per vehicle, which is more than the cost of steel.
"The joke is that General Motors is a health insurance company which makes cars to fund its health insurance," said labor expert Nelson Lichtenstein, director of the Center for Work, Labor and Democracy at the University of California-Santa Barbara.
"GM is saying, 'No, we don't think there will be a national solution, so we're going to cut our own deal.' "
Consumer impact
If national reforms ever do occur, they could wipe out some of the 500,000 jobs in the private health insurance industry. That would include many with Indianapolis-based WellPoint, which employs more than 20,000 workers nationwide.
One bill, introduced by Rep. John Conyers, D-Mich., supports a national health-care system that would build off of Medicare and give insurance industry employees two years of unemployment benefits and priority in hiring.
In August, the Kaiser Family Foundation's survey of U.S. residents ranked health care as the top domestic issue they want addressed by the government, especially reducing costs and dealing with the uninsured.
In Indianapolis, bankruptcy lawyer Mark Zuckerberg traces the city's sky-high bankruptcy rate in part to medical costs. He said a large number of his clients run up unaffordable medical bills on credit cards, forcing them into bankruptcy.
A retired steelworker in Northwest Indiana got national attention in August at a presidential candidate forum when he asked former North Carolina Sen. John Edwards about health care.
"Every day of my life I sit at the kitchen table across from the woman who devoted 36 years of her life to my family, and I can't afford to pay for her health care," said Steve Skvara. Choking back tears, Skvara told Edwards he lost one-third of his pension and his health coverage when LTV Steel, strapped by rising legacy costs including retiree health benefits, filed for bankruptcy.
A separate peace
While it's not unique, insiders say the GM-UAW deal is significant for the auto industry. "In the last contract talks in 2003, the UAW went in and said health care was off the table. Now we see this agreement,'' said Olean, the auto analyst.
Other corporations have used independent funds for retiree health coverage, but the high-profile deal at General Motors refocused attention on the nation's $1 trillion-plus health-care system. "This shows that it's very important for companies to get these retiree health-care liabilities off the books," said Richard Block, a professor of labor and industrial relations at Michigan State University.
Yet Lichtenstein criticized GM for what he called the company's abdication on an issue by choosing a solution that won't help the entire nation.
"When you ask yourself, 'Could other companies follow the GM model?', a few could," Lichtenstein said. "But it's not going to solve the problem for workers at Wal-Mart. It's not going to solve the problem for workers at parts plants who don't have good health insurance now, or the company that doesn't have the money to fund a huge trust. It's not a pioneering innovation that others can really copy."
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