F Ford Motor Company

By Christina Rogers And Anna Wilde Mathews 

The United Auto Workers union is pushing Detroit car makers to put all their employees under one health-care umbrella, creating a powerful purchasing group that could upend traditional health care markets.

The union's idea would create a joint purchasing group for the three largest U.S. auto makers that would cover factory and white-collar workers and union-affiliated retirees. The group could total nearly 1 million members, a scale it believes would have unprecedented leverage in negotiating directly with hospitals, drug companies and others.

Assuming the idea even gets off the ground, it could take one to two years to set up and longer to generate significant savings, health-care experts said.

Ford Motor Co., Fiat Chrysler Automobiles NV and General Motors Co. largely rely now on health insurers to negotiate deals with hospitals, doctors and other medical providers for their workers' and white-collar retirees' plans. A separate UAW-affiliated trust fund manages health care expenses and benefits for about 750,000 hourly retirees and their dependents.

UAW President Dennis Williams previously has described the plan as a way for auto makers to gain more control over health-care expenses and win cost savings. He wants the purchasing group overseen by a board of union and auto industry executives. A prior effort to pull together employees of the three stalled in 2011 because auto makers weren't interested in pursuing it.

It is unclear how insurers like Blue Cross Blue Shield of Michigan--which handles much of the Detroit auto makers' health care business--would fit into this new model. Blue Cross Blue Shield of Michigan declined to comment.

A Ford spokesman said even if it were to negotiate directly with providers "we still need a benefits administrator" due to the complexity of claims, suggesting a role for Blue Cross Blue Shield would remain.

GM and Fiat Chrysler each said they would be open to discussing ways to reduce the rising costs of employee medical care, but declined to comment specifically on the idea.

The UAW declined to make Mr. Williams available for an interview.

The union official is leading contract negotiations with the auto makers on a new, four-year deal to replace a contract expiring this month.

Analysts say the health-care proposal would be a way to free up savings for a wage increase.

Detroit car companies spend more than $2 billion annually on medical care for factory workers and dependents. Mr. Williams has said the purchasing group could include the auto maker's 90,000 white collar workers and their dependents. The UAW-affiliated health care trusts have a combined $61 billion in assets.

UAW members at the U.S. car makers typically pay between 6% and 8% of their medical costs, compared with the 28% of costs paid by the average U.S. manufacturing worker, according to researcher Truven Health Analytics.

Auto makers have said their employee health-care costs are rising at an unsustainable rate and could creep higher with a federal tax on benefit-rich plans beginning in 2018.

Union officials are reluctant to agree to shift more of the cost burden to workers, according to people familiar with negotiations. The union has a record of suggesting ways to maintain generous medical benefits while offering cost-effective strategies to auto makers.

In 2005, as the domestic auto makers lost market share and faced rising costs for current and retired workers, then-UAW President Ron Gettelfinger proposed setting up trusts known as voluntary employee beneficiary associations, or VEBAs, to take billions of dollars of retiree health-care costs off the car companies' books.

That proposal was adopted in 2007 as financial losses mounted at the auto makers, and the shift led to a significant decline in the auto makers' annual labor costs.

Mr. Williams, a VEBA trusteesince 2012, has a keen view on how the retiree plans has operated. Since they were established in 2010, the trusts have managed to expand benefits and restore full vision and dental coverage for retirees while keeping annual cost-growth in the low single digits, said industry experts.

Health spending growth in the U.S. has generally been muted in recent years, running at around 4% annually, a slowdown that some economists have attributed to the recession and its after-effects.

Under his plan, Mr. Williams has said the car makers and the retiree trusts would continue to fund their health benefits separately. In addition to joint negotiating with health-care providers, the group would look for ways to manage costs and quality of care more efficiently.

One option for the purchasing pool, say people familiar with the matter, would be for it to establish "centers of excellence," a model in which employers contract with a few highly-rated medical centers for better rates on procedures such as knee surgery.

Companies including Boeing Co., Wal-Mart Stores, Inc. and Lowe's Cos. have such setups, which typically supplement traditional health plans

Lowe's has a deal with the Cleveland Clinic and flies employees to Ohio for heart surgeries at no cost to the worker.

The savings from direct deals between employers and health-care providers can be substantial, with some arrangements producing cost-reductions of between 10% and 20% compared with traditional coverage plans, said Erin Tatar, national leader at Towers Watson & Co.'s health management practice.

Employers often work with third parties to facilitate their deals with health-care providers--including insurers that administer traditional health benefits, as well as outside operators like the Pacific Business Group on Health, a nonprofit organization that represents employers.

Auto makers have considered other approaches to reducing medical expenses, and will be looking for quantifiable, near-term savings in ongoing contract talks. That could lead them to push for higher out-of-pocket costs for hourly workers regardless of those attempts.

The idea of employers striking deals directly with hospitals, doctors and other medical providers has gained attention lately as companies seek to trim costs and better control quality. More hospitals are also eager to open direct relationship, some with designs on launching their own health-insurance units.

Crafting direct contracts "is incredibly complex to execute," said Towers Watson's Ms. Tatar.

Write to Christina Rogers at christina.rogers@wsj.com and Anna Wilde Mathews at anna.mathews@wsj.com

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(END) Dow Jones Newswires

September 02, 2015 19:44 ET (23:44 GMT)

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