Health care: From benefit to crisis

Benefit began in the 1940s and gained star status in the why-we-can't-compete debate

Benefits such as health care began during World War II, when companies could not raise wages. They were an innovative way to bring union peace and attract good employees.

General Motors began paying a small portion of employees' health care costs in the 1940s. They became a part of the collective bargaining process in the 1950s, and by 1964 all active hourly workers, retirees and their dependents had full health care benefits paid for by GM.

And over the decades, the molehill became a mountain.

In 2007, GM covered 1 million people on its health care rolls, at a cost of $4.6 billion. The vast majority of those beneficiaries were retired hourly workers and their dependents.

With no end in sight to soaring health care costs, GM, Ford Motor Co., Chrysler LLC and the UAW entered into revolutionary agreements in 2007 that will set up trust funds for the UAW and place hourly retiree health care benefits under the control of the union beginning in 2010.

How it grew

Janice Uhlig, executive director for GM Health Care, says GM will contribute $31 billion — compared with $25.5 million for Ford and Chrysler combined — of the $56.5 billion to pay for the voluntary employee beneficiary association fund, which is known as VEBA. Then GM no longer will have responsibility for hourly retiree health care benefits.

"We started with health care because we thought it was a good thing," Uhlig said. "It was part of the way to get a good work force and part of the overall compensation for employees. And, of course, you want healthy employees.

"In 1950, when it became part of the collective bargaining, we paid about half," she said. "In 1957, it was granted to salaried employees. Then in the '60s, to retirees.

"If you think about that period, there was a low ratio of retirees to actives," Uhlig said. "Today it is 4 to 1, retirees to actives."

By the end of 2007, Uhlig said, "Because of the retirees, our post-retirement obligation for UAW hourly was nearly $47 billion. That's on the balance sheet as an obligation event though we're not paying it now. With VEBA, we get to take it off the books. That will strengthen our balance sheet.

Under the new system, Uhlig said,"GM is no longer responsible. That is permanent. What's important is that the trust is actually funded with cash. It protects that retiree.

"It's now up to the trust. The union will have to recognize all future health care costs for retirees."

GM also has addressed the issue of health care costs for salaried retirees. In July it said it would end coverage for those retirees and increase pension benefits to defray, in part, the cost of private coverage.

The VEBA Trust

The VEBA Trust for hourly retirees goes into effect Jan. 1, 2010. The funds can be used only to pay for retiree health care or life insurance benefits. Money earned on the trust's investments is tax-free.

It covers hourly retirees only — those now retired and future retirees hired before Sept. 14, 2007. For workers hired after that date, GM will put $1 per compensated hour into a savings plan they can use for health care after retirement.

All active hourly workers still will receive health care benefits paid by GM, but those hired after Sept. 14, 2007, will pay a larger percentage of their costs than workers on the payroll before that time.

The new VEBA Trust, managed by the UAW, will make the union one of the nation's largest purchasers of health care. Cal Rapson, vice president of the UAW's GM department, says the benefits will be "every bit as good" as what GM hourly retirees are getting today.

"You'll see more disease management and working with providers, the Blue Crosses of the world," Rapson says. "We'll be very deliberate about what we want.

"Anybody who was hired before September 2007 will have health care for as long as he or she lives after they retire, and we have the money to do it."

Contact Automotive News