Healthcare Part II: Blue Collar Blues
The Big 3 and the United Auto Workers start talks this week, with the futures of the companies and the union at stake. No pressure there!
A massive issue is legacy costs, both retirements and healthcare, especially healthcare. The UAW played a huge role in securing healthcare benefits for American workers.
Both sides made massive promises when the Big 3 had 80%+ of the domestic market, those days are long gone. The Big 3 claim that these “legacy” costs amount to $25 per current labor hour, a huge add-on burden.
The UAW has three constituencies:
1) active workers
2) retirees who are not yet Medicare age (at greatest risk)
3) retirees who are Medicare age
Only the active workers can vote on a new contract, so the Big 3 will play the workers against the retirees. UAW officials are in a really tough spot.
(There was and is a presumption that many blue collar workers often cannot physically work their jobs until the age of 65, which I believe remains true.)
A recent proposal is for the UAW to take over the retiree benefits through a Voluntary Employee Benefit Association, known as a VEBA [IRS Code Section 501 c (9)].
This would do the following:
a) shift the risk and management to the UAW (major burden)
b) protect the retirees in case of a bankruptcy filing (huge benefit)
The UAW would inevitably have to cut retiree benefits, which will not play well with the retirees, although something is usually better than nothing.
This whole deal may be moot because the Big 3 may not have enough cash to fund the present value of the benefit stream, The numbers are HUGE.
(Ford is continuing to rack up losses, look for a sale or bankruptcy within two years.)
This is unlikely to set a precedent for the future, the number of companies making such promises has diminished (and many deals have been flushed through Chapter 11).
What will happen in the future to blue collar workers who cannot do their jobs until they qualify for Medicare coverage?
Will a creative solution be found? Will there be a strike on this or other issues? Can a union operate such a complex insurance entity? Will current UAW workers throw the retirees over board? Stay tuned.