Immediately, GM should begin talking with the UAW about moving all employees into a unique auto industry health care plan in 2006. Employees would be given the option of obtaining health insurance equal to or better than today's policies but with contributions made from their pre-tax earnings.
The plans then could be customized to appeal to other auto industry companies, thus absorbing some of GM's costs. The magnitude of the financial opportunity is real, immediate and equal to that of General Motors Acceptance Corp.
Getting the UAW to play along willingly, cooperatively and creatively from the outset will require an enticement: the offer of a unique class of stock, owned by the UAW in trust into perpetuity for its members, current, retired and future. The dividend on the UAW class of stock will reflect the success that the GM program has in controlling health care inflation vs. the industry.
The UAW-class stock would be listed, liquid and valuable. The UAW would be represented on the insurance company's board of directors, and GM's board and the UAW's interests would be aligned in controlling costs while providing a premier network of doctors, specialists and hospitals.
The number of potential clients would be sufficient to make this insurance company an important player in the health care services market. That status, in turn, would lead to excellent market capitalization opportunities that would boost the balance sheets of both GM and its employees via the UAW trust.
As a hypothetical example, GM could acquire a 40 percent controlling interest in Cigna Corp., with a market capitalization of $14.9 billion. For a contribution of approximately $6 billion, GM would get convertible preferred stock.
While at first blush that may seem too large an investment for a company with GM's financials, it would actually provide yields far higher than GM's recent returns. GM's gains would arise from multiple factors.
First, Cigna, which has been shrinking in the face of competition, would substantially increase the number of people it insures and the premiums it collects. The addition of GM as an investor and its employees to the insurance rolls would increase its revenue 30 percent.
The transaction would cut GM's costs as well, but even assuming no cost savings, 40 percent of Cigna's net income of $1.8 billion would show up on GM's balance sheet, adding more than $700 million a year based upon Cigna's 2004 results.
In addition, with all that GM brings to Cigna's table, the insurer would have to promise an above-average dividend yield.