Painful new reality on health care

By A TIMES EDITORIAL
Published October 2, 2007

There is much ado about the new labor agreement between General Motors and the United Auto Workers. GM managers say the contract, if approved by union members, will make the company competitive again. Union officials, who convinced workers to go on strike for the first time in more than three decades, say it will save jobs. We hope both are right, but the only thing certain if the deal is struck is that GM retirees could feel as insecure about their health care benefits as the rest of us.

The key issue is creation of an independent trust that would relieve GM of responsibility for providing retirees with medical insurance. GM would contribute about $35-billion to the trust, which might sound like a lot, but in return the company could erase a liability that is currently priced at more than $50-billion. It's not an easy choice for union members, but if they reject the offer, GM could face financial loses so great that retiree benefits would end up being settled in bankruptcy court.

Neither is an ideal situation, but that is the new reality. Increasingly, workers and retirees alike are either losing employee-sponsored medical coverage or paying more for less of it. The problem is that while medical costs have risen much faster than overall inflation, global competition has forced companies to cut costs.

It's all going to come as a shock to UAW retirees, the last of what the Wall Street Journal referred to as "an industrial aristocracy of blue-collar workers." When times were good, GM found it easy to offer the Cadillac of health care coverage to retirees and their spouses. Now, the 340,000 UAW retirees and spouses far outnumber the 74,000 active hourly workers at the company. The cost of health care adds nearly $2,000 to the sticker price of a GM car.

Even if union members accept an independent health care trust for retirees, it doesn't mean that existing benefits are guaranteed. A similar fund established in 1998 by Caterpillar, after negotiations with the UAW, collapsed in 2005.

Outside the auto industry, fewer employers are offering their workers medical insurance at all - down from 69 percent of companies in 2000 to 60 percent this year. As for retirees, companies are increasingly turning to fixed health benefits that shift the burden of managing medical expenses to individuals. And Medicare is rapidly becoming unsustainable, with the hospital-insurance trust fund expected to fall short in 12 years.

No wonder medical insurance is the main topic of domestic policy in the presidential debate. While proposals are a bit vague, at least the Democratic candidates are offering some form of universal coverage that would avoid a GM-like surprise for many workers and retirees. Neither party has the courage to address the Medicare shortfall, which will require a combination of tax increases, benefit cuts and medical cost controls.

So UAW members, you have our sympathy. Welcome to the real world of health care costs.

[Last modified October 1, 2007, 20:44:54]