Automakers aim to curb health-care costs

The Detroit 3 think relieving the soaring price of health insurance could be one of the most effective ways to curb labor costs.

The UAW, meanwhile, insists on preserving the generous plans that allow many members to pay little or no premiums, copays and deductibles.

Those opposing viewpoints could make health care one of the most divisive issues in this year's national contract negotiations, which formally begin this week. A previous joint effort between the two sides on insurance reform, as well as brief flirtations with a co-op in 2015, could leave room for collaboration.

But it will be a tough road to reach a compromise.

Union leaders, still acutely aware of painful concessions made during the Great Recession, view health care as a virtually untouchable benefit.

The automakers, however, will argue that failure to rein in ballooning costs could threaten what money would be available to invest in future jobs and product.

"I don't think the UAW wants to take any concessions but I don't think they want to see their plants closed either," Art Wheaton, a labor expert at Cornell University, told Automotive News. "It's one of the biggest bread-and-butter issues on the table. It's not an easy one to touch, but there's room for savings."

The auto companies hope so.

Ford Motor Co.'s annual cost to provide health care to its hourly workers and their dependents will surpass $1 billion next year, according to a source familiar with the situation. Costs at General Motors and Fiat Chrysler Automobiles are increasing to similar figures.

If nothing changes at Ford, inflation costs alone over the next four years would be equivalent to a nearly $3-an-hour pay increase, the source said.

And a potentially crippling wild card looms next decade: a 40 percent "Cadillac tax" on rich plans such as the UAW's under a provision in the Affordable Care Act that's to take effect in 2022, although that deadline has been pushed back in the past.

UAW members at the Detroit 3 pay about 3 percent of their health care costs, considerably lower than the 18 percent of the premium the average U.S. worker pays for single coverage and 29 percent of the premium for family coverage.

"This is a go-to-war issue for the union," said Art Schwartz, a former GM negotiator who's now president of Labor and Economics Associates.

It appeared that way when the union listed health care as a priority during the UAW's bargaining convention in March. The union said it would "insist that quality, comprehensive, affordable health-care is a minimum standard," in addition to pushing for larger employer contributions to retirement savings plans.

"It is the biggest benefit, really," said Kristin Dziczek, vice president of industry, labor and economics at the Center for Automotive Research in Ann Arbor, Mich. "They like the health care they have. They don't want to see changes that are seen as limiting choice or constraining their benefits."

But there's belief among some bargainers that adding deductibles or premiums may be the easiest way to achieve "significant" savings.

They point to the fact that UAW retirees, as part of the Voluntary Employees' Beneficiary Association created in 2007, pay such costs.

Wheaton said adding a higher copay or deductible is "certainly a possibility" in the upcoming contract, arguing that workers "having more skin in the game would give more incentive to keep costs down."

Other possibilities, experts say, could be demands for workers to visit primary-care doctors instead of heading straight to the emergency room for certain problems, or removing barriers to preventive treatment.

"It could be innovative, or it could just be smaller improvements," Wheaton said.

Despite both sides' entrenched positions, there are precedents for the union and Detroit 3 working together on health care.

During contract talks in 2007, the sides formed and financed the National Institute for Health Care Reform, a nonprofit meant to be a research think tank "dedicated to understanding, evaluating and developing thoughtful and innovative reform measures."

The nonprofit was funded with millions of dollars of obligations from the Detroit 3 over a number of years.

Although the organization has not received automaker funding for a number years, Dziczek said, it's an example of the two sides coming together and finding ways to cut costs.

Another example: The union in 2015 pushed for the creation of a co-op pool that would include salaried and hourly employees from all three automakers to ease costs, increase buying power and maintain future benefits. The pool was part of the first tentative contract reached with FCA that year, but the idea was abandoned after members voted down the deal and sent bargainers back to the table.

It's possible the two sides would be open to further exploring such a route.
"The larger the pool of employees, the easier it is to see cost savings," Wheaton said. "This is really one of the spots they have room for agreement."