NEWS ANALYSIS

Detroit 3 see no relief on UAW health care costs

Wary workers prompt union to kill co-op plan

At FCA, whose four-year contract is done, the UAW has maintained health care benefits for traditional workers that are among the richest in industrial America. They pay no premiums or deductibles. Photo credit: BLOOMBERG

The Detroit 3 entered contract negotiations with the UAW this summer determined to rein in soaring health care costs.

The union seemed to oblige early on, proposing an innovative health care cooperative concept.

The idea was to pool all 146,000 active auto workers at the Detroit 3 into a single plan and use that purchasing leverage to negotiate better fees with hospitals and doctors than would be possible by the carmakers individually.

But now halfway through this year's bargaining, any promise of meaningful reform has been thrown out the window. In fact, the Detroit 3, riding massive profits and near-record vehicle sales volumes, have been maintaining health care benefits or adding to them to settle contracts without having to endure strikes.

The UAW also last month killed the idea of a co-op when hourly workers at Fiat Chrysler Automobiles viewed it suspiciously as a Trojan horse to raise their nominal out-of-pocket cost of health care.

"The UAW had no interest in going backward on health care," said Art Schwartz, a labor consultant and former contract negotiator at General Motors.

At FCA, whose four-year contract is done, the UAW maintained health care benefits for traditional workers that are among the richest in industrial America. They pay no premiums or deductibles.

In fact, across the self-insured Detroit 3, hourly workers on average pay for about 6 percent of their total health care costs vs. more than 30 percent for salaried employees.

General Motors last week went even further than FCA on health care. In a tentative agreement still subject to rank-and-file ratification, GM granted full traditional health care benefits to its 10,500 entry-level Tier 2 workers who previously had to pay small premiums and deductibles. The carmaker has about 52,600 hourly workers in total.

GM also agreed, for the first time, to provide some health care coverage to its temporary employees.

Ford Motor Co. negotiations come next. But UAW President Dennis Williams has signaled that Ford and GM can expect similar treatment, considering their strong profits.

Schwartz said the UAW made a tactical mistake by including the co-op concept in its negotiations. The union could have waited until after bargaining to sit down with Detroit 3 management to flesh out how the proposal might work, he said.

The idea, which could be revived later, has merit not only for driving down provider fees but also for helping the union and carmakers manage chronic illnesses, he said.

Health care cost inflation combined with additional employees pushed Ford's estimated health care cost for bargaining-unit employees to $800 million this year from $550 million in 2011, Ford said in a statement earlier this year. FCA US said its cost is on pace to jump to $615 million this year vs. $347 million in 2011.

That said, the expediency of achieving contracts and keeping factories humming prompted the Detroit 3 to push health care cost-containment down the road.

Said Schwartz: "This was just not the window to do it."

You can reach David Barkholz at dbarkholz@crain.com -- Follow David on Twitter: @barkholzatan

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