GM's Health Care Costs

tgagneguam · 10-26-2004, 10:52 AM

Huge health care costs handicap GM in cutthroat world market

More so than what sage people on this site say about GM's interiors, this seems to be one of the automaker's larger problems...

Watching General Motors Corp. wobble under the burden of its health-care obligations seems to confirm Clare Booth Luce's maxim: No good deed goes unpunished.

Like many old, unionized U.S. manufacturers, GM agreed in its heyday to offer retired workers and their families magnanimous health-care benefits.

Whether GM's generosity was naive or virtuous, it's clear the automaker can no longer afford its obligations. They are sapping GM at a time when competitive pressures are tougher than ever.

This year, GM is spending $5 billion to cover health-care expenses, up from $3 billion in 1996. The rise reflects soaring U.S. health-care costs and a large number of retirees - more than two now for every active GM worker.

To a lesser extent, Ford Motor Co. and DaimlerChrysler AG's Chrysler Group are also grappling with higher health-care costs than overseas rivals.

"Our worry is that these health-care costs will rob us of our ability to be competitive," says GM Chief Financial Officer John Devine. "We're seeing Japanese companies spend more and more on products."

While Wall Street bemoaned GM's sagging finances this month, archrival Toyota Motor Co.p. boosted its capital spending plans for this year by 11 percent, to $10 billion. That compares with GM's $7 billion budget.

In 1999, French carmaker Renault SA paid roughly what GM is spending this year on health care to buy control of Nissan Motor Co.

Japanese and European automakers have pensioners, too. But most industrialized countries have nationalized health systems that spread the cost across a broad base. The cost typically shows up as a hefty payroll tax.

Just over 10 percent of the gross salaries that Renault pays its French workers goes to fund the health-care system, ranked the world's best by the World Health Organization. "We have then fulfilled our obligations," says Renault's human resources director Michel de Virville.

Obligations

Joe Ego · 10-26-2004, 01:49 PM

So the choices are simple:

1. Leave it the way it is. GM and the unions can figure it out. GM then continues to have an interest in reducing the costs of health insurance.

2. Subsidize or provide everybody's health insurance with tax-payer dollars to some degree. Yay, my Pontiac costs $2-3k less! What do you mean it costs me $1-2k _every_single_year_ regardless of whether I actually buy a car?

McG · 10-26-2004, 02:00 PM

actually Joe Ego, what the consumer would say is:

1. "Hey! What happened to GM, and why do we only have import car manufacturers."

or

2. "Hey! That Toyota is cheaper for superior quality and features!"

In other words, the citizens of France, or Japan, or wherever are picking up the health tab for manufacturers in order to make them more competitive...

One thing is for certain, however: American Labour is a competitive disadvantage.

mbukukanyau · 10-26-2004, 02:13 PM

UAW needs to be reasonable. Otherwise they will sink with GM and have nothing left

Canuck · 10-26-2004, 02:48 PM

Bigger question is what long term will GM do to address labor issues of retirement and health care costs. The UAW will have to learn to work with GM if there is to be a GM in 50 years.

goblue · 10-26-2004, 02:57 PM

Unfortuantely this problem affects everyone, in every industry. As someone in the field, all I'll say is that the only good option I've ever heard is to force people to buy their own coverage and take the companies out of the picture.

You would do this by,
1) making all health care expenses tax deductable (it should be anyway)
2) passing a law requiring all companies to give employees a raise equivalent to what the company was paying for their healthcare
3) forbid companies from paying for healthcare
4) cover low income people with a government catastrophic policy - we do now anyway, it's called the ER, and we pay now in higher premiums to pay for these people.
5) increase medicare spending such that our retirees have good coverage and companies could drop retirees from their rolls. That includes a perscription drug benefit similar to what most people now, not the joke that was passed a year ago.

This would then cause people to buy their own coverage, and by competitive pressure make it affordable to everyone, and give all people choice. Thus, the employer is no longer responsible for increases.

The larger problem, however is the pension obligations. GM employs a ridiculous amount of people, think Walmart and GE and you're getting the idea. We as a country may have to, at some point, bail these companies out. Think about it, we pay either way, we either fund the pension gurantee corp when they go under, or we give our biggest employers a boost to keep good paying jobs here.

Normally, I'm very much against the government getting involved in anything, but in a competitive global market, you have to match your competitiors. If that means they have no health care obligations and low pension obligations, we may have to match that, or make a decision as a country to let these companies go under. The unions will weaken the company to the point that the imports will have an insurmountable advantage before they give in. They are not the answer, they simply won't give in enough to fix it until GM already has one foot in the ground.

It will be a very slow, painful death, but rest assured, if these problems are not addressed, and ignored, we may lose GM and Ford. Once the imports can spend vast sums more on product and research, they will win eventually.

mjd1001 · 10-26-2004, 03:38 PM

Go blue, excelent article. It's not a case of finding a "perfect" solution that pleases everyone...but instead finding a solution that hopefully "most" people can deal with. Kinda the same as what our govt. is looking at with medicar and social security and how to fund it.

We won't have a system that pays for everyting we all say we want and need. If we do get one, you see the problems it presents down the line when the issue comes up to fund it. Hopefully GM and the Union will see this (although the union members might not like everything they hear) and act upon it. Also, hopefully whoever gets elected president will also do the same and stop promising us all everything we want.

mrfunji · 10-26-2004, 04:07 PM

It's always easier to spend other people's money. A big reason GM's bill is so steep is because of frivolous office visits. If you don't pay a dime for healthcare, why not go see the doctor for a chipped toenail, it's not your money.

If a portion were put on employees, I'd be they'd think twice before submitting a claim!

goblue · 10-26-2004, 05:36 PM

Quote:

Originally Posted by mrfunji

It's always easier to spend other people's money. A big reason GM's bill is so steep is because of frivolous office visits. If you don't pay a dime for healthcare, why not go see the doctor for a chipped toenail, it's not your money.

If a portion were put on employees, I'd be they'd think twice before submitting a claim!

They have that now, its a copay, currently $15-30, per visit. They also pay perscription copays, for every perscription and again for refills, ranging from $10-30. A person with a disease of no fault of their own, say type I DM, would have approx $1,000+ in copays for visits, care and perscriptions each year. Also, empliyees pay a certian amount of their pay each pay period towards health insurance, even if they don't use it at all. This goes up every year now, or every negotiation for hourly. Also, as someone in the profession, the vast majority of office visits are for legitimate reasons.

zaxxis · 10-26-2004, 07:19 PM

Quote:

Originally Posted by mrfunji

It's always easier to spend other people's money. A big reason GM's bill is so steep is because of frivolous office visits. If you don't pay a dime for healthcare, why not go see the doctor for a chipped toenail, it's not your money.

If a portion were put on employees, I'd be they'd think twice before submitting a claim!

It's more than that. It's many many things.

1. UAW needs to loosen up a little bit. The unions are KILLING the Big 3 right now. GM is partly to blame with agreeing with UAW's demands in the past. They made the bed, time for them to lay in it.

2. Medical costs are going up for everyone here. The medical industry is trying their hardest to get every penny out of everyone and blaming it all on lawsuits. Doesn't explain why my grandfather's pills are 95% cheaper in Toronto. My company paid 18k for my benefits last year. I've not been to the doctor in 4 years. Why?

3. People abusing the system. Everyone is such wusses these days and if their kids get a cough it's a trip the emergency room. Times that by a million families and it starts to add up.

4. Medical companies are way to greedy.

I'm sure there are 50 more things that are causing the problems in the health care industry. It's a collective effort.

-Z

ibechip · 10-26-2004, 10:17 PM

I'm sure GM would love to get some of that 5 billion back for some product development.

1BadPig · 10-27-2004, 08:18 AM

I am as far as can be for supporting unions but GM is partially to blame for not investing in technology in its hay-day so this is just the lack of foresight. Many companies are experiencing this and I suspect Japan will experience this soon as their system of "employed for life" started to crumple recently as well as decline in population to support their socialized and subsidized system. Those countries who subsidizes their industry with health care system are also the ones with the most stringent import tariffs. Perhaps we should have a reciprocating tariff system where the tariff varies by countries...

LGRpup · 10-27-2004, 02:12 PM

I agree to an extent about some people being big wusses, when it comes to there health. As a GM employee I was hired in the last year of them offering BCN, which only requires small co-pays. Newer employees have health coverage that doesnt even cover office vists, you pay out of pocket. Which I am sure has to save GM some money. To our Canadian guys how is the service and treatment at your doctors or hospitals with the Govts. health system?

Laffer98 · 10-27-2004, 06:47 PM

GoBlue, I agree we need to take health care away from the big companies.

No brainer, should be done.

1) making all health care expenses tax deductible (it should be anyway)

I'm not sure it needs to be a law but I advocate this totally because it allows for the end user to pay and police what he is paying for.

2) passing a law requiring all companies to give employees a raise equivalent to what the company was paying for their health care

I think the easy way to do this is just to just adjust the accounting practices so it's not advantageous for them to directly pay for health care.

3) forbid companies from paying for health care

cover ALL

4) ... people with a government ***catastrophic policy*** - we do now anyway, it's called the ER, and we pay now in higher premiums to pay for these people.

That includes a prescription drug benefit that benefits the retirees and not the drug companies(set a reasonable ceiling on profit that can be earned from retiree/medicare drugs.

5) increase medicare spending such that our retirees have good coverage and companies could drop retirees from their rolls

I'd also suggest we quit taxing unemployment.

1. It's not earned income, it's a benefit.
2. Employee's struggling to get by after being lay-ed off do not need the burden of a tax on the small unemployment check they get.
3. Simplifies tax law.

Laffer98 · 10-27-2004, 07:03 PM

Lets understand something here GM has had X number of employees for how many years? How many years have they had to prepare for all of these employee's retirements? The retirement plan we are discussing is not a new obligation is it? The employees did satisfactorily complete their obligations, did they not? GM has managed to become quite a large diversified company using profits from these autoworkers have they not? The real problem is, companies without the same obligations, are being allowed to unfairly market their products within the US. Is this because the autoworker actively campaigned for NAFTA or GATT? Is this because the autoworker wanted the free-trade policies our politicians and business leaders have been advocating? What is GM's official position on NAFTA, GATT, Free Trade? If they support them how can they in good conscious ask the autoworker to shoulder the burden on retirement they created for themselves. Remember GM leveraged it's business's all over the world using the earnings that GM auto-worker's initially created.

10-26-2004, 10:52 AM	#1 (permalink)
tgagneguam 7.0 Liter LS7 V8 Join Date: Aug 2003 Posts: 6,951	GM's Health Care Costs Huge health care costs handicap GM in cutthroat world market More so than what sage people on this site say about GM's interiors, this seems to be one of the automaker's larger problems... Watching General Motors Corp. wobble under the burden of its health-care obligations seems to confirm Clare Booth Luce's maxim: No good deed goes unpunished. Like many old, unionized U.S. manufacturers, GM agreed in its heyday to offer retired workers and their families magnanimous health-care benefits. Whether GM's generosity was naive or virtuous, it's clear the automaker can no longer afford its obligations. They are sapping GM at a time when competitive pressures are tougher than ever. This year, GM is spending $5 billion to cover health-care expenses, up from $3 billion in 1996. The rise reflects soaring U.S. health-care costs and a large number of retirees - more than two now for every active GM worker. To a lesser extent, Ford Motor Co. and DaimlerChrysler AG's Chrysler Group are also grappling with higher health-care costs than overseas rivals. "Our worry is that these health-care costs will rob us of our ability to be competitive," says GM Chief Financial Officer John Devine. "We're seeing Japanese companies spend more and more on products." While Wall Street bemoaned GM's sagging finances this month, archrival Toyota Motor Co.p. boosted its capital spending plans for this year by 11 percent, to $10 billion. That compares with GM's $7 billion budget. In 1999, French carmaker Renault SA paid roughly what GM is spending this year on health care to buy control of Nissan Motor Co. Japanese and European automakers have pensioners, too. But most industrialized countries have nationalized health systems that spread the cost across a broad base. The cost typically shows up as a hefty payroll tax. Just over 10 percent of the gross salaries that Renault pays its French workers goes to fund the health-care system, ranked the world's best by the World Health Organization. "We have then fulfilled our obligations," says Renault's human resources director Michel de Virville. Obligations

10-26-2004, 01:49 PM	#2 (permalink)
Joe Ego 1.8 Liter ECOTEC Join Date: Sep 2004 Location: So. Cal. Posts: 39	So the choices are simple: 1. Leave it the way it is. GM and the unions can figure it out. GM then continues to have an interest in reducing the costs of health insurance. 2. Subsidize or provide everybody's health insurance with tax-payer dollars to some degree. Yay, my Pontiac costs $2-3k less! What do you mean it costs me $1-2k _every_single_year_ regardless of whether I actually buy a car? __________________ 2003 Grand Am GT - mine 2000 Grand Prix GT - hers 1989 Buick Century - getting hauled away

10-26-2004, 02:13 PM	#4 (permalink)
mbukukanyau 7.0 Liter LS7 V8 Join Date: Dec 2003 Location: In front of my computer Drives: 2006 HHR 2002 Corolla-Before I saw the light Posts: 8,058	UAW needs to be reasonable. Otherwise they will sink with GM and have nothing left __________________ Before Understanding comes Faith "Legislatures represent people, not acres or trees"-Earl Warren

10-26-2004, 02:57 PM	#6 (permalink)
goblue 5.3 Liter LS4 V8 Join Date: Oct 2004 Posts: 3,497	Unfortuantely this problem affects everyone, in every industry. As someone in the field, all I'll say is that the only good option I've ever heard is to force people to buy their own coverage and take the companies out of the picture. You would do this by, 1) making all health care expenses tax deductable (it should be anyway) 2) passing a law requiring all companies to give employees a raise equivalent to what the company was paying for their healthcare 3) forbid companies from paying for healthcare 4) cover low income people with a government catastrophic policy - we do now anyway, it's called the ER, and we pay now in higher premiums to pay for these people. 5) increase medicare spending such that our retirees have good coverage and companies could drop retirees from their rolls. That includes a perscription drug benefit similar to what most people now, not the joke that was passed a year ago. This would then cause people to buy their own coverage, and by competitive pressure make it affordable to everyone, and give all people choice. Thus, the employer is no longer responsible for increases. The larger problem, however is the pension obligations. GM employs a ridiculous amount of people, think Walmart and GE and you're getting the idea. We as a country may have to, at some point, bail these companies out. Think about it, we pay either way, we either fund the pension gurantee corp when they go under, or we give our biggest employers a boost to keep good paying jobs here. Normally, I'm very much against the government getting involved in anything, but in a competitive global market, you have to match your competitiors. If that means they have no health care obligations and low pension obligations, we may have to match that, or make a decision as a country to let these companies go under. The unions will weaken the company to the point that the imports will have an insurmountable advantage before they give in. They are not the answer, they simply won't give in enough to fix it until GM already has one foot in the ground. It will be a very slow, painful death, but rest assured, if these problems are not addressed, and ignored, we may lose GM and Ford. Once the imports can spend vast sums more on product and research, they will win eventually. Last edited by goblue : 10-26-2004 at 02:59 PM.

10-27-2004, 02:12 PM	#13 (permalink)
LGRpup 3.9 Liter V6 Join Date: Apr 2003 Location: Lansing, MI Posts: 843	I agree to an extent about some people being big wusses, when it comes to there health. As a GM employee I was hired in the last year of them offering BCN, which only requires small co-pays. Newer employees have health coverage that doesnt even cover office vists, you pay out of pocket. Which I am sure has to save GM some money. To our Canadian guys how is the service and treatment at your doctors or hospitals with the Govts. health system? __________________ 2005 Chevrolet Malibu Maxx 1993 Oldsmobile Bravada GM, Then and Now... Before you go and buy a import brand car because of the perception of quality, do a little research and you will find GM has as good or better quality than most of those other brands. It's not cool to hate America people!

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10-26-2004, 02:00 PM	#3 (permalink)
McG 3.8 Liter V6 Join Date: Oct 2004 Location: Canada Posts: 438	actually Joe Ego, what the consumer would say is: 1. "Hey! What happened to GM, and why do we only have import car manufacturers." or 2. "Hey! That Toyota is cheaper for superior quality and features!" In other words, the citizens of France, or Japan, or wherever are picking up the health tab for manufacturers in order to make them more competitive... One thing is for certain, however: American Labour is a competitive disadvantage.

10-26-2004, 02:48 PM	#5 (permalink)
Canuck 6.0 Liter Vortec V8 Join Date: May 2003 Location: Vancouver Drives: 2005 CTS 3.6, 2005 Envoy Posts: 1,959	Bigger question is what long term will GM do to address labor issues of retirement and health care costs. The UAW will have to learn to work with GM if there is to be a GM in 50 years.

10-26-2004, 03:38 PM	#7 (permalink)
mjd1001 6.2 Liter Vortec V8 Join Date: Apr 2003 Location: Daytona Beach, FL and Upstate NY Drives: 2008 Saturn Vue Redline Posts: 2,629	Go blue, excelent article. It's not a case of finding a "perfect" solution that pleases everyone...but instead finding a solution that hopefully "most" people can deal with. Kinda the same as what our govt. is looking at with medicar and social security and how to fund it. We won't have a system that pays for everyting we all say we want and need. If we do get one, you see the problems it presents down the line when the issue comes up to fund it. Hopefully GM and the Union will see this (although the union members might not like everything they hear) and act upon it. Also, hopefully whoever gets elected president will also do the same and stop promising us all everything we want.

10-26-2004, 04:07 PM	#8 (permalink)
mrfunji 3.8 Liter Supercharged V6 Join Date: Sep 2003 Location: Red Sox Nation Drives: '05 GTO Posts: 730	It's always easier to spend other people's money. A big reason GM's bill is so steep is because of frivolous office visits. If you don't pay a dime for healthcare, why not go see the doctor for a chipped toenail, it's not your money. If a portion were put on employees, I'd be they'd think twice before submitting a claim!

10-26-2004, 10:17 PM	#11 (permalink)
ibechip 3.9 Liter V6 Join Date: Nov 2003 Location: Minot, ND Posts: 819	I'm sure GM would love to get some of that 5 billion back for some product development.

10-27-2004, 08:18 AM	#12 (permalink)
1BadPig 4.4 Liter Supercharged Northstar Join Date: Sep 2004 Location: Florida Posts: 2,104	I am as far as can be for supporting unions but GM is partially to blame for not investing in technology in its hay-day so this is just the lack of foresight. Many companies are experiencing this and I suspect Japan will experience this soon as their system of "employed for life" started to crumple recently as well as decline in population to support their socialized and subsidized system. Those countries who subsidizes their industry with health care system are also the ones with the most stringent import tariffs. Perhaps we should have a reciprocating tariff system where the tariff varies by countries...

10-27-2004, 06:47 PM	#14 (permalink)
Laffer98 3.8 Liter Supercharged V6 Join Date: Jul 2004 Posts: 663	GoBlue, I agree we need to take health care away from the big companies. No brainer, should be done. 1) making all health care expenses tax deductible (it should be anyway) I'm not sure it needs to be a law but I advocate this totally because it allows for the end user to pay and police what he is paying for. 2) passing a law requiring all companies to give employees a raise equivalent to what the company was paying for their health care I think the easy way to do this is just to just adjust the accounting practices so it's not advantageous for them to directly pay for health care. 3) forbid companies from paying for health care cover ALL 4) ... people with a government *catastrophic policy* - we do now anyway, it's called the ER, and we pay now in higher premiums to pay for these people. That includes a prescription drug benefit that benefits the retirees and not the drug companies(set a reasonable ceiling on profit that can be earned from retiree/medicare drugs. 5) increase medicare spending such that our retirees have good coverage and companies could drop retirees from their rolls I'd also suggest we quit taxing unemployment. 1. It's not earned income, it's a benefit. 2. Employee's struggling to get by after being lay-ed off do not need the burden of a tax on the small unemployment check they get. 3. Simplifies tax law.

10-27-2004, 07:03 PM	#15 (permalink)
Laffer98 3.8 Liter Supercharged V6 Join Date: Jul 2004 Posts: 663	Lets understand something here GM has had X number of employees for how many years? How many years have they had to prepare for all of these employee's retirements? The retirement plan we are discussing is not a new obligation is it? The employees did satisfactorily complete their obligations, did they not? GM has managed to become quite a large diversified company using profits from these autoworkers have they not? The real problem is, companies without the same obligations, are being allowed to unfairly market their products within the US. Is this because the autoworker actively campaigned for NAFTA or GATT? Is this because the autoworker wanted the free-trade policies our politicians and business leaders have been advocating? What is GM's official position on NAFTA, GATT, Free Trade? If they support them how can they in good conscious ask the autoworker to shoulder the burden on retirement they created for themselves. Remember GM leveraged it's business's all over the world using the earnings that GM auto-worker's initially created.

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