Detroit auto companies such as Chrysler and Ford have begun negotiations over employee health care benefits with the United Auto Workers (UAW) union, which represents 135,000 hourly workers.
Auto companies’ spending on health care for their workers and their families will likely exceed $2 billion in 2015, according to The Detroit News.
Health insurance costs for auto companies have risen quickly in recent years. Ford is spending $800 million in health care benefits for its employees this year, up from $550 million in 2011. Chrysler, which spent $347 million in 2011, is spending $615 million this year. General Motors, another large auto company, reports comparable increases in its health care coverage costs for 2015.
UAW hourly workers have some of the nation’s best health care coverage. Workers can opt for traditional Blue Cross Blue Shield insurance or an HMO or PPO plan. Deductibles and premiums are nearly nonexistent, and copay and prescription costs are minimal. “Tier Two” workers, those hired after 2007, are required to pay higher deductibles than their counterparts.
Increased Benefits Have Tradeoffs
The “Cadillac tax,” one of the defining features of Obamacare, is a 40 percent excise tax on any employer-provided health care plan the government deems to be too generous. The auto unions particularly dislike the tax because generous health care benefits are a strong recruitment tool for the unions.
Beginning in 2018, when the Cadillac tax kicks, Detroit automakers, or possibly their workers, will have to pay the extra tax on health care benefit plans that cost more than $10,200 for individuals, or $27,500 for a family, per year.
On average, Ford currently spends $15,000 on each hourly employee per year for health care, with hourly workers paying between 5 percent and 10 percent of the total costs.
The average person in the United States pays nearly 29 percent of his or her health care costs each year, or $4,823, according to a Kaiser Family Foundation survey.
Let’s Make a Deal?
UAW wants the Big Three automakers, Chrysler, Ford, and General Motors, to absorb the added costs of the Cadillac tax.
F. Vincent Vernuccio, director of labor policy at the Mackinac Center for Public Policy, a free-market think tank, says under no circumstances should President Barack Obama exempt the unionized autoworkers from the Cadillac tax, nor should the Big Three carmakers pick up the tab for it.
“They wanted and fought for Obamacare for years, and they finally got it, so they should have to pay for it,” says Vernuccio.
Providing high quality health care benefits is a critical issue for UAW, because if an exemption from the Cadillac tax for autoworkers isn’t achieved and the automakers don’t absorb the costs, the union will no longer be able to use superior health benefit plans as a recruitment tool.
Since the UAW’s previous collective bargaining agreement with the Big Three automakers was formulated, right-to-work laws were passed in Indiana and Michigan, which means unions have to show value for the dues the workers pay.
“This is the first time workers in [Michigan and Indiana ] will have the freedom to decide if they want to financially support labor unions,” Vernuccio said.
Having to pay more for health care could spark a rebellion among the second-tier workers in the two-tiered salary system union employees now work under. Under the current arrangement, new workers receive far less pay than their predecessors.
“Without the benefits, the lower half of the automaker’s two-tiered workforce is probably asking themselves, ‘What do I need the unions for?'” Vernuccio said.
Calls for HSAs
Greg Scandlen, an independent health care analyst, says UAW should consider adopting health savings accounts (HSA), in which employers and policyholders deposit tax-free funds that roll over from year to year and can be used to pay deductibles, copays, and other health care expenses, usually paired with high-deductible catastrophic health insurance.
“A well-funded HSA can deliver the same kind of rich benefits labor values while getting employees to be cautious in their use of services, because they get to keep the savings,” Scandlen said. “The UAW could even become the administrator of the HSA program, adding value to membership in the union. Public sector unions have successfully used this approach in the past.”
Scandlen says health care benefits ultimately come out of workers’ wages.
“Every dollar that goes into health care is a dollar not available for wages,” Scandlen said. “This is the primary reason wages have not increased in the past 10 years.”
Dr. Jane Orient, executive director of the Association of American Physicians and Surgeons, suggests the auto companies or the UAW could provide better health care plans by taking them over and creating incentives for saving.
“Union members, like everybody else, would benefit from a self-funded employer plan that avoids expensive mandates and combines coverage for catastrophic events with a medical savings plan that puts patients in charge of spending and allows patients, rather than third parties, to benefit from economizing,” said Orient.
Danni Ondraskova ([email protected]) writes from Chicago, Illinois.
Melissa Burden and Michael Martinez, “Health Care Costs Key Issue in UAW Talks,” The Detroit News, July 13, 2015: http://www.detroitnews.com/story/business/autos/2015/07/12/auto-health/30059775/
Brent Snavely, “FCA CEO Marchionne aims to eliminate 2-tier UAW wages,” The Detroit Free Press, July 15, 2015: http://www.freep.com/story/money/cars/chrysler/2015/07/14/fiat-chrysler-uaw-contract-talks-marchionne-williams/30102071/
Greg Scandlen, “Health Savings Accounts: Ten Years On,” Somewhat Reasonable, December 16, 2013: http://blog.heartland.org/2013/12/health-savings-accounts-ten-years-on/