GM, UAW, and Health Care

GM, UAW, and Health Care

After months of negotiations, the General Motors Corporation and the United Auto Workers reached an agreement last October to cut UAW retiree health-care liabilities by about 25%, or $15 billion, and reduce the automaker’s annual employee health-care expense by about $3 billion. The news hit just as GM announced a $1.6 billion loss in its third quarter. The Detroit Free Press hailed the agreement as “a good start,” adding, “more needed.” A New York Times headline read: “Health Care Reality Intrudes: GM Retirees Confront the Way It Is Now.” Ford and Daimler/Chrysler announced that they would seek similar concessions from the union. On March 31st, a federal court approved the GM–UAW agreement.

Adam Miller was part of the UAW team that negotiated the agreement. A senior benefits consultant in the UAW Social Security Department, Miller says it was clear from the moment GM approached the union last March that the world’s largest carmaker was in trouble. Miller spoke to Findings about the new UAW contract and what it represents and portends.

Findings: The existing UAW contract with GM wasn’t due to expire until 2007, so why was the union willing to revisit the agreement?

Miller: You’re right. Typically we do not reopen an agreement in the middle of a contract. But we became convinced— both through GM’s representations as well as through the findings of our outside advisors—that GM would be in a very difficult situation over the next several years.

Findings: What are the underlying reasons for this situation?

Miller: In my view, the basic problem GM faces is increased competition from lower-cost producers. The demand for cars and trucks is relatively stable, but there are far more companies who produce them. Further, almost all of these companies have lower fixed costs than GM because they carry miniscule pension and health care liabilities—so-called legacy costs. So not only is GM losing market share simply due to higher numbers of competitors, but it’s losing market share to lower-cost producers. Wall Street puts enormous pressure on GM to resolve this problem.

Findings: Did you see this agreement as a matter of survival for the UAW?

Miller: Not really. It’s more a matter of survival for GM. They must right the ship in the context of more competitors and, unfortunately, very little help from Washington. And just as we are taught in public health to look at upstream determinants of health, the American consumer must begin to look upstream and consider the ethics behind what they are purchasing.

Findings: Among union members, was there significant resistance to the retiree benefits reduction?

Miller: There was resistance, but overall the members recognized the problem needed to be addressed in a durable, responsible manner. The agreement was ratified, which meant that over 50 percent supported it. I will add the media did not cover very well how committed the active workers were in ensuring that retirees continue with affordable health care. The actives made very large sacrifices in terms of wage increases and other changes.

Findings: Is this the first time the UAW has made benefits concessions?

Miller: In terms of the Big Three, I can’t say for sure. But the UAW has been dealing with the effects of globalization, which pushes wage and benefit costs down, in contract after contract in the manufacturing sector. It’s not pretty. It’s not fair. In my view, globalization and free trade deals like NAFTA have brought us to this day, where a broad-based yet modest American standard of living is somehow viewed as a threat to corporate survival. It is sadly ironic that GM is being punished today for what it was once praised for—providing jobs with good wages and benefits. That said, the legacy-cost burden is enormous. If GM could write-down its post-retirement health care liabilities, or legacy costs, roughly $77 billion would flow to the bottom line, and the $5 billion GM spends every year for health care could go to core business functions like new product development.

Findings: You’re suggesting this is part of a much bigger problem.

Miller: Absolutely. GM’s legacy- cost problem represents a very visible failure of the employer-sponsored health care system’s ability to deal with out-of-control costs. That’s why companies are shifting costs, putting people in restrictive plans, or terminating benefits altogether. The administrative burden on business is high, too. There is a small army of people and consultants at GM who administer health care benefits, and I look at that, and think, don’t you guys want to be building cars and get out of this business?

Findings: That makes sense.

Miller: Now what we do about it is another question, and it’s one where we have secured unprecedented commitments from GM to work with the UAW and other groups toward a national health system of some type. Why not have the government socialize the costs of care so that American corporations can compete on a level playing field? The upside benefits are enormous. But we have a long way to go to get to this point, and there are major ideological divides that need to be crossed.

Findings: You’re saying a major shift in attitude is needed.

Miller: Yes, because the most prominent theme in social policy today relates to shifting financial risk from large groups to individuals. The UAW’s view is that when it comes to health care, individuals are better off in large groups. Most of corporate America disagrees. Many are using legal tools like bankruptcy court to escape retiree promises and obligations. That’s also why Medicare was specifically prohibited from negotiating with the drug industry in the Medicare Part D program. Large groups—they work in health care, but the pressure is for individuals to do it themselves. Like you said, a major shift in attitude is needed.

Findings: What’s next?

Miller: Now that it’s been approved by federal court, the agreement will be implemented this summer. Importantly, the agreement stipulates that there can be no changes to current retiree health until at least 2011. So, we will only negotiate for active workers in 2007.

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Although it may lack the drama of a hurricane or tsunami, America's employer-based health care coverage system is a disaster in the making, says alumnus Adam Miller, MPH '94, who helped negotiate last fall's historic agreement between GM and the UAW.