UAW chief aims to address health care costs in talks

Aug. 23--The UAW's radical idea for a massive health care benefits co-op designed to save the Detroit Three money and avoid worker concessions could be the pillar of a groundbreaking labor agreement that changes the auto industry forever.

But creating an independently governed health care co-op that actually saves money when health care costs stubbornly rise year after year would be difficult to pull off, experts and others say.

--Related:What is a Taft-Hartley medical plan?

Even UAW President Dennis Williams knows it's a risky proposition, but he and UAW leadership say controlling Detroit Three health care costs is paramount to preserving worker benefits and keeping the automakers healthy. It has emerged as one of the UAW's top priorities with less than a month before the current contract expires on Sept. 14.

Money saved through a massive health care pool that would include all Detroit Three employees -- union and salaried -- could be used as a bargaining chip to bring up UAW worker wages, especially for entry-level workers paid less for doing the same work as colleagues hired before 2007. Bringing up the second tier, or eliminating it, also is one of the biggest issues on the bargaining table.

"This could be a transformational contract if they are able to say they eliminated the second tier -- and there are several routes available to do that -- and if they are able to get an agreement that the companies like on health care that they can sell to their members," said Kristin Dziczek, director of the labor and industry group at the Center for Automotive Research in Ann Arbor.

The new health care purchasing pool that Williams envisions would be independent and could represent 800,000 to 900,000 people, gaining leverage with insurance companies, hospitals, clinics and health care providers to get better care at more affordable rates. The idea is that a co-op of active workers, both unionized and salaried from all three companies, would work with the group that manages retiree benefits. While they would be separate entities, their combined purchasing power would benefit with the ability to strike better deals for care.

Ford and Fiat Chrysler Automobiles said in separate statements they're pleased the UAW is exploring new ideas as opposed to viewing health care as a contentious issue. General Motors didn't respond for this report but has previously raised the issue of rising health care costs.

As it stands now, each of the Detroit Three runs health care benefits programs for salaried employees and for workers based on what's spelled out in the UAW contract. FCA says its health care costs have risen to more than $600 million today from $347 million in 2011, or by about 73%. Ford's costs have risen over the same period to about $800 million from $550 million, or by 45%. GM did not disclose figures.

UAW members have what most consider to be generous health care coverage with little or no deductibles or copays. About 750,000 Detroit Three retirees and dependents have a less-generous plan that was funded by the automakers and administered by an independent organization called the VEBA, or UAW Retiree Medical Benefits Trust. Another 100,000 Detroit Three employees are covered by individual plans.

Williams' idea is to somehow pull them all together under one benefits umbrella that would wield extra stout purchasing power.

The union would rather drive down health care costs through volume purchasing and better management of care, such as recognizing and treating diabetes early on when it's cheaper, than ask about 140,000 UAW workers at GM, Ford and Fiat Chrysler to pay more for their benefits.

This next contract is being negotiated with the UAW's right to strike at GM and Chrysler restored for the first time since it gave up that right in 2009 as part of bankruptcy restructuring.

This year's negotiations are especially challenging because longtime UAW workers haven't received a base wage increase in 10 years, and many are unhappy about the two-tier wage system. Union members also know the Detroit Three are logging record profits in North America and want to share in that bounty after making concessions through the roughest times.

Automakers argue the industry goes in cycles, and they cannot afford to return to old expensive habits that led to UAW contracts of the 1990s and early 2000s that increased Detroit Three labor rates far beyond international competitors operating nonunionized plants in the U.S. Those higher labor rates were among the factors that led to the Detroit Three's financial troubles.

Some UAW critics also point out that the second-tier wage of $15.78 per hour is more than some entry-level schoolteachers, police officers and other unionized and nonunionized workers make, particularly when health benefits and other perks, such as discounts on vehicle purchases, are factored in.

Even so, FCA CEO Sergio Marchionne and others on the automaker side of the negotiating fence agree a two-tier wage system is fundamentally unfair and unsustainable. But Marchionne and others haven't said where a unified wage might be set.

Risky proposition

Creating a new health care co-op out of whole cloth could take a year or two to work through regulatory hurdles, form a board and create the structure.

Williams said the UAW could hire professionals to develop and manage the co-op with the help of automakers and the existing VEBA, which operates under the name UAW Retiree Medical Benefits Trust. The new co-op would be overseen by an independent governing board.

Many big questions remain. Will all three automakers agree to it? Can Williams sell the idea to his membership? How long would it take to implement? And would the plan actually reduce total health care costs?

"It's risky ... I am not naive," Williams told the Free Press in an editorial board meeting last week. "But I've examined this in every damn direction I can. I don't know of any other way to tackle the problem."

Williams said the UAW must act now to contain rising health care costs before a crisis backs the union into a corner. The current UAW contract is for four years. Williams declined to discuss the desired length of the next contract because it is part of the talks that are under way.

But a longer contract could provide more time to shrink or erase the wage gap between newer and older workers. There could be even more classifications of workers in the future if union and management bring in outsourced, noncore work now done by suppliers.

Williams' first time in hot seat

Williams will be a speaker during the Labor Day events on Sept. 7 in Hart Plaza to mark the 80th birthday of the UAW but he's not expected to identify during his speech a target or lead company for negotiations.

Williams, who got his start in the UAW's ranks working with companies such as John Deere and Caterpillar, is negotiating his first Detroit Three contract as UAW president. He already has taken some unconventional steps in his new role.

For example, he traveled with his team to New York to meet with some large Detroit Three stockholders to hear how they view the companies. It's part of a desire to look at the automakers from as many perspectives as possible and learn why Wall Street values auto companies the way it does, he said.

His health care benefits pool is not a new idea, but there doesn't appear to be an exact replica anywhere.

Williams says the 2007 agreement to form the VEBA to handle retiree health care could be used as a model. The VEBA, or UAW Retiree Medical Benefits Trust, provides health care benefits to 750,000 retirees and dependents. Launched on Jan. 1, 2010, it became the largest nongovernmental purchaser of retiree health care in the U.S. The trust is governed by an 11-member committee that includes Williams.

"We've got to do what we did with the VEBA for our (active) members," Williams said.

But there are some key differences. The retiree trust fund was initially funded with $56.5 billion in contributions from the Detroit Three. That included $31.9 billion from GM, $13.6 billion from Ford and $11 billion from Fiat Chrysler. The contributions were tax deductible for the automakers. But for complex legal reasons, contributions to a co-op are unlikely to be deductible, making automakers less likely to provide big chunks of upfront money.

"That's a massive hurdle for a plan like this," said Roberta Watson, head of the welfare benefits group for the Wagner Law Group, which has offices in Boston, Tampa, St. Louis, San Francisco and Palm Beach Gardens, Fla.

Automaker reaction

Reducing health care costs has been an ongoing challenge for the automakers. Negotiators wanted to address it in 2011 but made little progress. Since then, health care costs have continued to rise with more workers -- union and salaried -- on the payroll. Health care is the second-largest component of the automakers' overall labor cost -- second only to wages.

"As the cost of health care continues to increase at an unsustainable rate, FCA US is open to discussing with the UAW options that will reduce cost while both improving the quality of care and the health of our employees," Fiat Chrysler said in a statement last week.

FCA US has said that its hourly employees pay about 6% of their health care costs while the national average is closer to 30%.

In this set of talks, "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 its statement.

Williams also knows that the idea could meet resistance from members.

"Yeah, so they get us a raise in pay so we can pay more for our health care," one UAW member said on Facebook Thursday.

The UAW also knows it must deal with the "Cadillac tax," which is part of President Barack Obama's Affordable Care Act, in this year's contract talks.

Beginning in 2018, any individual health insurance plan costing more than $10,200 annually or any family plan costing more than $27,500, will be subject to a 40% tax on the amount over those thresholds. That would apply to the current UAW plan, which has no deductibles for those hired before 2007 and features comparatively generous benefits.

Given those realities, Williams and automakers are open to innovative solutions to keep costs in check now to avoid the need for concessions in the future.

"We know the Cadillac tax is coming," he said. "We've got to redesign health care in a way that can actually deliver quality care at a different cost."

Contact Brent Snavely: 313-222-6512 or bsnavely@freepress.com. Follow him on Twitter @BrentSnavely

Contact Alisa Priddle: 313-222-5394 or apriddle@freepress.com. Follow her on Twitter @AlisaPriddle. Free Press Reporter Greg Gardner contributed to this report.

Detroit Three health care costs

Health care is the second-largest component of the automaker's overall labor cost -- second only to wages.

* Fiat Chrysler estimates its health care costs for UAW-represented workers will top $600 million this year compared with $347 million in 2011, or up by 73%.

* Ford said its health care costs will top $800 million this year compared with $550 million in 2011, or up by 45%.

* General Motors declined to share its costs.

Major UAW negotiating goals

* Health care reform: Create radical health care benefits pool that would cover everyone at the Detroit Three. It would be independently run.

* Change two-tier system: Win a pay increase for members or create a career pathway from the second to the top tier. Currently the second tier wages starts at $15.78 and tops out after four years at $19.28. Those hired before 2007 make about $28 an hour.

* Create new supplier jobs: The UAW also is exploring ways for the Detroit Three to create new jobs to bring work currently done by suppliers into Detroit Three facilities, potentially at lower wages and under new job classifications allowed under a new contract.

UAW health benefits

The automakers don't break down their UAW workers' health insurance premium costs by family and individual, but data from each company show that they spend on average $14,800 per worker, including both single and family plans.

Tier 1: The UAW health care plan for those hired before 2007 is considered generous, or a 'Cadillac' plan.

Tier 2: Those hired since 2007 pay $300 deductibles for individual coverage and families pay a $600 deductible. Individual plans also carry a 10% co-insurance contribution up to $700 a year, with family plans incurring co-insurance of up to $1,400 a year.

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* Unlimited doctor's office visits with a $25 co-pay ($20 at Ford). Visits to urgent centers or emergency rooms carry co-pays of $50 and $100, respectively.

* Prescription drug co-pays are $6 for generics, $12 for brand names and $17 for erectile dysfunction drugs. Mail order co-pays are higher, but one gets larger quantities by mail.

* They also pay no deductibles or co-insurance contributions, with one exception. Choosing a doctor outside the preferred provider network will mean the member pays 20% above the first $100 of service.

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