Today’s, Wall Street Journal explained very well the significance of the changes in health care responsibility that resulted from the General Motors-United Auto Worker’s new labor pact. Simply stated, employers led by the automobile industry shifted the responsibility from covering the health care of employees from the company to an independent trust.
In essence, employees can no longer expect their employer to provide their primary pension and health benefits. Instead, each individual must take on personal responsibility for their lifelong financial needs. Given the low saving rate in the United States, the prospect that individual Americans can responsibly manage their finances over a lifetime remains a dubious assumption. However, given globalized competition the era of major corporations providing a meaningful support mechanism for their employees has effectively ended.
Health care is the number one domestic issue in the upcoming presidential election. That is, middle class Americans now feel that their health care is no longer secure. Moreover, the portion of firms offering health benefits fell to 60% this year from 69% in 2000 because of small employers’ retreat from providing coverage. Moreover, benefit packages are shrinking.
General Motors felt that relinquishing their on-going health care liabilities was necessary for the firm’s survival. That is, Toyota with its hourly labor costs of some $35 per hour had replaced General Motors with hourly labor costs of some $70 per hour as the appropriate model. That is, while Toyota and General Motors had similar basic wage costs of $25 per hour, Toyota only provided about $10 benefits while General Motors provided $45 in health and pension benefits. Stated differently, General Motors felt that its long term survival was tied to eliminating its burdensome health care benefits package.
Over the next few years, employers of both unionized and non-unionized workers are expected to analyze closely this new relationship with employees in developing their on-going benefits package. To facilitate this change in responsibility, General Motors will commit some $50 billion dollars to a so-called voluntary employees’ benefit association (VEBA). From the perspective of General Motors, VEBA, not General Motors, will be responsible for establishing the health benefit parameters for the employees, and will take on the financial obligation of future payments.
Originally published in the Sarasota Herald-Tribune
