Ford’s healthcare costs said to top RM4b in 2020

SOUTHFIELD • Ford Motor Co expects the cost of health insurance for its 56,000 hourly workers in the US to top US$1 billion (RM4.09 billion) for the rst time next year, according to a person familiar with the situation, highlighting a growing expense for automakers even as car sales slow.

Those mounting healthcare costs represent a potential sticking point in this year’s contract talks between the United Auto Workers (UAW) and the three US automakers that tried and failed four years ago to address an expanding outlay that threatens profits and jobs. At Ford, General Motors Co (GM) and Fiat Chrysler Automobiles NV, the tab for health insurance topped US$2 billion in 2015 and has only grown since.

Bargaining negotiations get underway this summer on contracts that expire in September with each of the three automakers. Some experts said divisive issues including cost-sharing for healthcare benefits may lead to striking.

The UAW must balance its protection of benefits with the need to keep workers on the job at a time when GM is shuttering five North American factories and Ford is slashing shifts and cutting jobs as part of an US$11 billion restructuring. Although the three automakers remain profitable, they are bracing for a slowdown that could become a recession while spending billions to prepare for a future dominated by electric and self-driving cars.

Hard-Won Benefit

Nationwide, health expenditures are projected to grow by 5.5% annually from 2018 to 2027, more than twice the rate of inflation, according to a new study by the Centres for Medicare and Medicaid Services. But unionised auto workers enjoy some of the most generous medical coverage plans in the country and have been spared premium increases.

The UAW sees that as a hard-won benefit that helps make up for concessions to automakers in other areas. But automakers view these gold-plated worker plans as a growing burden that puts them at a disadvantage against rivals with non-unionised factories.

“We’re returning to major concession negotiations in the auto industry,” said Gary Chaison, professor emeritus of industrial relations at Clark University in Worcester, Massachusetts. “The major manufacturers are saying: Give us a reason for why we should expand in the US as opposed to China or India or somewhere else.”

Thin Contributions

With little or no co-pays or deductibles, UAW members contribute just 3% to their healthcare coverage, compared to 30% by Ford’s salaried workers, said the person familiar with the matter, who asked not to be identified revealing internal data. Without changes, the growth in healthcare costs over the life of the next contract would be the equivalent of a US$3 hourly wage increase, the person said.

In the US, workers with health insurance contribute an average of 18% of the premium for single coverage and 29% of the premium for family coverage, according to a study last year by the Kaiser Family Foundation.

Healthcare coverage has been sacrosanct at the UAW, which gave up wages and jobs in 2009 to help keep the automakers afloat but didn’t give back medical benefits. “The union has fought hard in the darkest of economic times to ensure its members remain protected,” said Harley Shaiken, labour relations professor at the University of California at Berkeley. “It’s not a rhetorical commitment. It is a substantive commitment at the bargaining, table.”

In 2015, when then-UAW president Dennis Williams proposed creating a healthcare co-op that leveraged the buying power of almost 140,000 UAW members working for Detroit automakers, workers soundly rejected it, fearing it would erode their benefits. That’s why labour analysts expect healthcare to be a flashpoint in negotiations for the contracts.

‘Cadillac’ Tax

As the union gathers in Detroit this week to map out its bargaining strategy for this summer’s contract talks, it has made retaining and expanding healthcare benefits a top priority.

The union said it will seek to eliminate disparities in coverage, which have left newer workers with less-generous coverage than veterans. It also is looking to reduce co-pays on prescription drugs and avoid any “cost shifting” from companies, according to the bargaining resolutions prepared for the convention.

Looming over the talks is a provision in the Affordable Care Act — also known as Obamacare — that will tax so-called “Cadillac” healthcare plans like the UAW’s at 40% starting in 2022. That cost would be crippling for the automakers and its workers, both sides said. But finding a way around that will be tricky.

Labour experts said neither side is eager to make concessions, which could bode ill for the negotiations.

“I don’t think any of the Big Three can absorb that cost, so they’re going to want more cost sharing,” Wheaton said. “But I can see the UAW saying, we’ve given up so much money on other things and we’ve tried to claw back some of that, and now you’re saying we need to make up for a 40% hit on healthcare. I think you’re talking strike.” — Bloomberg