GM and the Unions…
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Many people have asked me if the recent agreement between General Motors and the UAW to establish a union-run, independent health benefits trust is a prelude to a major change in health insurance operations and finance in this country. I say no. The auto manufacturers and the auto unions have a particular set of problems that are profoundly more difficult than the problems faced by most of private industry. First, the auto makers pay for the health care costs of more retirees than they have active employees. This is kind of unusual. Second, the benefit plans offered to both the active employees and the retirees are much richer (and therefore more expensive) than the plans you’d find in most other industries. Third, there’s a tremendous difference in plan design and funding obligation between what the Big Three stateside (Ford, Chrysler and GM) are on the hook for, and what their competition (Toyota, Nissan, etc.) are on the hook for. I think Toyota has about 100 retirees it offers coverage to — and its plan designs here in the states look a lot more like other industries’ plan designs — not like the plans offered by the Big Three.
Managing health benefits is a pain in the neck for most employers — no doubt about that — but very, very few employers — or industries — face the kind of pressure to do something dramatic that’s faced by the auto industry in this country. The move by the automakers and the unions they work with is significantly beyond the approaches considered and/or pursued by most other employers — and there’s a reason for that. Very few find themselves in such a terrible spot.
Clearly — if nothing changes over the next few years and costs continue to climb at annual double digit rates — there may be more folks out there seeking very, very different solutions. But in the meantime, I suspect the approaches pursued by employers and employees — unionized or not — will look like variations on the existing themes. Huge disruptions into unchartered territory, like the trust model being pursued by GM and the UAW, are unusual. Most employers prefer changes that don’t come with huge, wholesale disruption. Think of it as relentless incrementalism, instead of one big bang.
Once the VEBA is funded and the union assumes control over its management, the UAW may develop a new found interest in and different attitude toward the following:
1. Higher co-pays, deductibles, and, perhaps, a higher contribution toward the premium from its retirees.
2. Replace the current medical malpractice system with specialized health courts to reduce defensive medicine.
3. Interoperable electronic medical records, especially in hospitals, in order to reduce duplicate testing and adverse drug interactions.
4. Make living wills and advance medical directives a requirement of insurance in order to reduce futile and often unwanted care at the end of life.
5. Better data regarding the comparative effectiveness of drugs, medical devices and therapies.
6. Robust price and quality transparency tools to allow both patients and referring doctors make more cost-effective medical decisions.
The UAW knows that it will be responsible for making the VEBA money last in order to provide health insurance to retirees (especially pre-Medicare eligible retirees) in the future. Any strategy that could lower current medical costs by eliminating waste or low value care and drive future medical cost growth to a lower and more sustainable level will be clearly in its interest to pursue. Moreover, it will presumably not be shy about communicating its new views to our politicians in Washington.
To put some numbers in here, figures that I’ve read:
73,000 General Motors employees
90,000 General Motors retirees
$51 billion obligation
$700,000 per current worker
Mike — That is one astonishing set of statistics. I said they had issues and problems. Those numbers are far more dramatic than anything I put down. Thanks for sharing.
Charlie - Caterpillar already tried this back in 1998 and the health trust ran dry in six years. The retirees for Caterpillar are now suing saying they deserve the old benefits they were promised when they retired. The problem is so big you could see the auto makers follow the airlines lead by ducking into bankruptcy to shed their pension and healthcare obligations and come out with a clean balance sheet. Granted they are making big SUVs that nobody wants with $3 per gallon gas but these pensions and healthcare benefits would bring just about any company to its knees.