Controlling health care costs key issue in UAW talks
This article has been updated to clarify information about worker benefits.
Automaker spending on health care for hourly workers and their families likely will top $2 billion this year. In just the past four years, it's grown 45 percent for Ford Motor Co. and 77 percent for Fiat Chrysler Automobiles US.
The United Auto Workers has been resistant to giving up the gold-plated health care coverage it has for more than 135,000 hourly workers. But with surging costs, Detroit automakers are looking for relief in contract negotiations that officially kick off Monday between General Motors Co. and the UAW.
UAW hourly workers enjoy some of the best health care benefits in the country: There are virtually no premiums or deductibles and minimal co-pays for doctor visits and prescriptions. Two-tier workers have higher deductibles.
That comes at a high cost. Ford says its health care cost for hourly employees is about $800 million this year — up from $550 million in 2011. FCA says it will pay $615 million this year, compared to $347 million it spent in 2011. GM reportedly spent $665 million on health care for hourly employees and families in 2011. The automaker would not say what its current spending is, but said its increases are "on par" with Ford and FCA.
Health care is a "go to war issue" for the UAW as it seeks to maintain or expand benefits without adding more cost-sharing, said Kristin Dziczek, director of the Industry & Labor Group with the Center for Automotive Research. But the automakers see it differently, Dziczek said during a recent event in Detroit.
"They need to cut the cost of their single most expensive benefit, and they think that people who have skin in the game make different decisions about their health care," she said.
"They're going to push for some cost-share," she added. "And that's going to be a hard fight."
Health care costs are not the only top issues the UAW and automakers will hash out over the next few months ahead of the current contract expiring Sept. 14. Others include pay raises for tier-one workers who haven't had one in a decade; bridging the pay gap between tier-one and tier-two workers; and securing product commitments for U.S. plants instead of Mexico.
Labor experts say challenges to the UAW's health care coverage could be a strikeable issue. GM and FCA workers have the ability to strike for the first time since the 2007 talks; the UAW gave up that right for the 2011 talks as a condition of GM and Chrysler's government bailouts.
"I doubt if it's untouchable; we're not the only ones putting demands on the table," Jimmy Settles, vice president of the UAW-Ford department, said about health care in a recent interview. "There's always ways to do things better."
UAW President Dennis Williams last month told reporters he is considering creating a pool for active workers to help reduce overall health care costs, similar to the program it has for retirees.
"The more people that pool together in this health care system, the more leverage you have against institutions such as hospitals, clinics and insurance companies, and that's the focus right now," Williams said. "The fact of the matter is health care is very important to corporations, as it is to our members. The healthier the employee, the more productive the employee is."
Beginning in 2018, Detroit automakers will be on the hook for the so-called Cadillac tax, a 40 percent excise tax on company-sponsored health plans as part of the Affordable Care Act. Employers will be taxed on health coverage that costs more than $10,200 for individuals or $27,500 for a family.
FCA said its average health care cost for a tier-one employee is $18,000 a year and is less for entry-level workers, though FCA expects new hires will cost just as much in the future.
Currently, FCA hourly workers pay about 6 percent of costs; that compares to FCA salaried employees who pay about a third.
Ford spends an average of $15,000 on each hourly employee per year for health care. Ford hourly workers pay between 5 percent and 10 percent of their total costs, the company said.
The average person in the United States pays nearly 29 percent of their health care costs a year, or $4,823, according to a Kaiser Family Foundation survey.
It found premiums for company-sponsored health coverage hit $16,834 last year.
"We look forward to discussing many different options with our UAW partners that will allow us to have a fair and competitive labor agreement, and to provide jobs and investment here in the U.S.," Ford said in a statement.
An FCA spokeswoman declined to comment on whether FCA hopes to have hourly workers pick up a bigger share of costs.
A GM spokesman said in a statement, "Health care cost is one element of doing business that continues to grow for all employers. We're committed to working with our UAW partners to continue delivering benefits our employees value, while improving the long-term competitiveness of the company."
The UAW VEBA (Voluntary Employee Beneficiary Association) is a health care trust used by Detroit's Big Three automakers to fund health care for about 750,000 UAW hourly worker retirees and dependents. The trust, created as part of UAW talks with carmakers in 2007, reduced the companies' labor cost by about $15 an hour, according to Labor and Economic Associates.
Ultimately, Dziczek said she thinks the automakers and UAW will agree to put active employees into a pool like they've done with retirees in the VEBA — or possibly use the VEBA.
"Your health care costs don't come from a little bit from everybody. There's a little bit from everybody, and there's a few people who are very costly to manage," Dziczek said. "And if you help those folks, make sure they take their medications, make sure they see their doctors, make sure their doctors are talking to each other, you end up with less hospitalizations and less chronic disease and problems that cost a lot of money.
"Managing the VEBA has taught the UAW some very interesting things about health care. And now they have the largest health care pool in the world."
The ceremonial handshakes that officially kick off contract talks between the UAW and the Detroit automakers begin this week.
Monday: General Motors Co.
Tuesday: Fiat Chrysler Automobiles US
July 23: Ford Motor Co.