The GM-UAW health care deal is momentous. And not just because it saves GM a lot of money and transfers the liability for the UAW’s health benefits from GM to the union.
The tectonic shift is the change from a ‘defined benefit’ to a ‘defined contribution’ program. The UAW has essentially agreed to a cap on future health care costs. Now they will have to figure out how to deliver on members’ expectations without going broke.
For decades auto workers have enjoyed very rich health care benefits – in some cases, first dollar, every dollar coverage for which they pay nothing. Back in the early nineties when I was selling group insurance, one client’s workforce was represented by the UAW – the plan had no deductibles, no copays, and free drugs. Boy was that expensive (although the commissions were sure nice!).
Not surprisingly, a couple years into the program, the plant was shut down and most of the work moved to Mexico.
That’s exactly what the UAW is looking to avoid. The fact that the union was actually willing to take over the financial risk for GM’s health plan can be interpreted two ways. One, the UAW has finally accepted that the big three can’t survive unless their health care liabilities are mitigated.
Two, the union has no idea what it just agreed to. Brian Klepper is one who thinks the latter may be true; but despite that the UAW healthplan takeover may actually succeed. He also notes that another union has had notable success in reducing health care costs, enough success to enable the union to increase wages.
The real question is bigger than the UAW or GM. It is simply this – is the deal the latest, and greatest, step in the march away from defined health benefits programs? Are we heading towards global cost caps?
Because that’s exactly what the UAW GM deal is. And if so, rationing is sure to follow.
