Gm health care bill tops $60 billion

Дата канвертавання20.04.2016
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GM health care bill tops $60 billion

Cost adds $1,400 per vehicle, hurts competitiveness

By Ed Garsten / The Detroit News

DETROIT — General Motors Corp. is expected to report this week that its future obligation for employee and retiree health care topped $60 billion last year, and new Medicare legislation will do little to reduce the expenses.

The crushing health care burden will be detailed in GM’s year-end financial report with the U.S. Securities and Exchange Commission, the company said.

The $60 billion figure represents a sharp increase in the automaker’s projected obligations from 2002. In recent months, GM officials have said soaring health care spending has become the leading factor undermining the automaker’s competitiveness.

GM’s health care costs now account for $1,400 per vehicle, a severe handicap as the world’s biggest automaker battles to recover market share in an environment of falling vehicle prices.

The company is at a particular disadvantage against foreign competitors, especially those based in other nations where health care is federally funded, GM spokesman Jerry Dubrowski said.

Analyst David Healy of Burnham Securities said that if GM’s health care costs continue to escalate, they represent a serious threat to profits.

“They’re profitable in North America right now, despite the level of health care costs, but not impressively so,” he said.

If GM endures another significant cost increase this year, Healy added, “they’ve got a problem.”

The new Medicare prescription drug plan for the elderly provides financial incentives and subsidies for companies that continue drug benefits for retirees. Delphi Corp., the world’s largest auto parts maker and a former GM subsidiary, expects the government plan to save it $500 million.

But GM, the largest private provider of health care nationwide, says the savings from the new Medicare plan pale in comparison to its overall obligations.

“The Medicare bill does provide some limited relief for companies offering these benefits, but in GM’s case the sharply rising cost of health care is offsetting much of this relief,” said Dubrowski.

While annual U.S. health care inflation has averaged 12 percent to 15 percent, GM has managed to limit growth in its health care outlays to 8 percent a year.

In 2002, GM spent $4.5 billion — or $1,200 a vehicle — to cover the health care costs of 1.2 million employees, retirees and their dependents, compared with $3.0 billion in 1996. Those costs are expected to rise to about $5.1 billion this year, GM Chief Financial Officer John Devine said in January.

That compares with $2.5 billion for 2002 health care spending at Ford Motor Co. and $1.4 billion for DaimlerChrysler AG’s Chrysler Group.

Alarmed at the recent increases in health care costs nationwide, GM, Ford, DaimlerChrysler and other manufacturers are pressing Washington lawmakers for more relief. Analysts say soaring health care costs are also discouraging some manufacturers and companies from hiring.

The rising cost of drugs is “the single biggest issue,” Devine told analysts earlier this year.

Prescription drugs costs have increased, on average, 15 percent to 20 percent each year, the company said. In 2002, GM spent $1.4 billion, or 31 percent of its total health care expenditures, on prescription drugs.

To help curb health care costs, GM has undertaken a number of initiatives including mandating less expensive generic prescription drugs when possible. It also has raised co-payments and deductibles for some white collar workers and retirees.

Health care was a major issue in last fall’s national contract negotiations between Detroit automakers and the United Auto Workers union. But UAW President Ron Gettelfinger successfully resisted efforts by Detroit automakers to shift more health care costs onto hourly workers.

The four-year pact provides increased co-payments for some prescription drugs for active members and future retirees.

Drugs used over the long-term, called maintenance drugs, to control chronic conditions, must be bought through mail order and generic drugs must be used when possible or members face higher co-pays and a $10 penalty.

At GM, a new pilot program designed to lower health care expenses is being expanded from Flint and Anderson, Ind., to all locations. The program offers wellness classes and fitness education to help employees stay fit and healthy as a means of further reducing health care costs.

You can reach Ed Garsten at (313)223-3217 or

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