Sunday, March 20, 2005

Chrysler hikes union health costs

UAW agrees to let company shift more of the tab to workers; rivals likely to follow.

By Brett Clanton / The Detroit News

Health plan changes Beginning April 1, Chrysler UAW workers and retirees will pay more for health care. PPO plan • Annual deductible: In network, $100 for an individual, $200 for a family; out of network, $500 individual, $1,000 family. • Deductible applies to office visits, physical exams and all eligible hospital, surgical and medical benefits. Co-pays remain unchanged at 50 percent of charges. • Deductible does not apply to prescriptions, foot care, mental health care, substance abuse care, durable medical equipment and some preventive services. Vision plan • Co-pay of $5 for vision exams and $7.50 for lenses, frames and contacts. Co-pay will not exceed $12.50 for each person covered. Source: DaimlerChrysler Health care powwow Is it a progressive or regressive move for the UAW and Chrysler to work out a health-care benefit adjustment without opening the contract? It's forward thinking It's a step backward Get results and comments Comment on this story Send this story to a friend Get Home Delivery

Chrysler struck a deal with the United Auto Workers to raise out-of-pocket medical expenses for 35,000 blue-collar workers and retirees, setting a precedent that its crosstown rivals may seek to follow.

Beginning April 1, Chrysler's hourly workers, retirees and their families will be required to pay annual deductibles of $100 to $1,000 for health care that had previously been free. The Auburn Hills-based unit of DaimlerChrysler AG also will begin charging workers co-payments up to $12.50 for vision care.

The changes were outlined in a March 10 letter to workers obtained by The Detroit News and confirmed by Chrysler officials. The move will save Chrysler tens of millions of dollars.

The automaker was able to negotiate the changes without breaking open its national contract with the United Auto Workers because of a little-known pact between Chrysler and the union.

The agreement -- negotiated in 1982 but never before invoked -- allows Chrysler to ask the union for relief if health costs spiral out of control.

John Bistok, an electrician at Chrysler's Twinsburg, Ohio, stamping plant, understands the need to reduce health care costs, but said rank-and-file workers were kept in the dark about the changes and the side agreement that allowed them.

"Walter Reuther and his brothers are rolling in their graves based on what (current president) Ron Gettelfinger and other leaders of the UAW are doing," Bistok said.

While deductibles and co-payments are commonplace for most Americans, they are new to many UAW workers. The union's labor contracts with automakers have long guaranteed close to fully paid health care coverage.

Detroit automakers are grappling with double-digit increases in health care costs and taking aggressive steps to rein in the expense.

The UAW has vigorously resisted efforts by automakers to shift more health care costs to hourly workers, but the union agreement with Chrysler signals it is willing to bend to provide relief.

"The automakers and, increasingly, the United Auto Workers are recognizing that the level of benefit commitments that the companies have are unachievable," said Stephen D'Arcy, partner in charge of automotive practice for PricewaterhouseCoopers in Detroit.

UAW International officials did not respond to phone calls seeking comment.

Chrysler will charge deductibles only for employees and retirees covered by its preferred provider organization, or PPO. Annual deductibles within the PPO network will be $100 for individuals and $200 for families. For workers using doctors and other health care providers outside of the PPO network, deductibles are higher -- $500 for individuals and $1,000 for families.

The deductibles apply to office visits, physical exams and all eligible hospital, surgical and medical benefits, but do not apply to prescription drugs or special services such as mental health coverage.

Co-pays for office visits and physical exams will remain unchanged at 50 percent of charges, and most immunizations and surgical procedures will continue to be covered in full by the PPO plan.

Chrysler this month also notified about 7,500 UAW workers in St. Louis that they will be moved in April from a Blue Cross and Blue Shield PPO plan to a new PPO administered by United HealthCare Corp. The same deductibles will apply.

Chrysler has about 35,000 current and former employees covered by its PPO plans. That number does not include family members. The rest of Chrysler's 70,000 UAW-represented workers are covered by separate plans and are not affected by the changes in deductibles.

All workers, however, will be charged co-pays for vision coverage -- $5 for vision exams and $7.50 for lenses and frames or contact lenses. Total out-of-pocket costs won't exceed $12.50 per person, according to the letter.

Under the current four-year contract with the UAW, Chrysler, General Motors Corp. and Ford Motor Co. are prohibited from changing terms of health care coverage. But Chrysler and the UAW ratified "side letters" to their national contract that allow the automaker to renegotiate health care coverage if costs from private providers climb too high.

A side letter known as "C14" in Chrysler's 1982 contract with the UAW established a threshold for comparing health care costs from a private provider with traditional plans. A 1996 letter called "C13" gave Chrysler power to act when "the parties agree to take appropriate action to obtain a reduction" in fees from privately managed programs when they become "obsessive" or "unreasonable."

After an internal review last year, Chrysler determined it was paying more, in every case, for private plans than those of company-backed or national plans.

The company began holding discussions with the UAW about six months ago to come up with a solution, said Tom Hadrych, Chrysler's vice president of benefits, compensation and corporate services.

"We framed what the issue was and how much the issue was costing the company. Then, we worked with the UAW to figure out the best way to provide quality care at a cost-effective rate," Hadrych said.

Chrysler could have begun charging union workers regular premiums for health care, Hadrych said, but decided that negotiating deductibles and co-pays was a more agreeable way to share costs.

Chrysler's annual health care costs have increased from $1.3 billion in 2000 to about $2 billion last year. That equates to about $1,400 for every vehicle Chrysler sells.

Chrysler's Detroit rivals -- GM and Ford -- spend considerably more on health care and are likely to seek similar relief. GM is expected to spend $5.6 billion on health care this year, up from $5.3 billion in 2004. Ford spent more than $3 billion in 2004.

"It was going to happen whether Chrysler implemented this or not. The floodgates are opening," said D'Arcy of PricewaterhouseCoopers.

Skyrocketing health care costs pose a serious threat to U.S. automakers and parts suppliers, said David Cole, chairman of the Center for Automotive Research in Ann Arbor. "It's just not sustainable."

While some auto workers may bristle at changes to health care coverage, the situation is likely to get worse before it gets better, D'Arcy said.

"There's going to be significant changes in the way health care is provided to auto workers, retirees and their families in the future. This is just the beginning."

Chrysler's Hadrych said there are no immediate plans to make other changes to health care coverage for workers under the PPO plan or workers under other plans. But he didn't rule out future changes.

"Never say never," he said, "especially in the health care business."

You can reach Brett Clanton at (313) 222-2612 or bclanton@detnews.com.