Last week's tentative contract agreement between General Motors and the United Auto Workers union to scale back union healthcare benefits is likely to be a drag on Michigan's healthcare providers in the long term, though the near-term effects are uncertain, experts said.
The move by GM and its workers was a logical progression in a 20-year-old trend, some said, while others said it could nail the coffin shut on a costly and dysfunctional healthcare financing model that has nonetheless covered millions of Americans for 50 years and provided middle-class security.
The immediate impact on hospitals in cities, both nationally and in cities where GM operates auto plants, is difficult to determine. Officials at Big Three auto rivals Ford and DaimlerChrysler have vowed to seek similar concessions, signaling a further step-down in insurance coverage from the union's Cadillac-like plan to coverage resembling something more like a Chevy Impala.
The proposed contract, which still requires ratification by union employees and court approval because it involves retirees no longer represented by the union, is expected to trim GM's retiree healthcare costs by $15 billion over seven years, or 25% of the company's hourly healthcare liability costs. The pact would also cut active employee health expenses by $3 billion annually, saving an estimated $1 billion in cash annually, according to GM.
Employees will pay much higher copays and deductibles, reflective of national trends in recent years both for salaried employees and increasingly for union-covered hourly workers.
GM health plans currently cover 750,000 hourly employees, retirees and family members, according to the company. Union employees pay about 7% of their healthcare costs, while salaried employees pay 27%. In a news release, UAW President Ron Gettelfinger said the tentative agreement results from "an in-depth analysis of GM's financial situation and many weeks of intense discussion between the UAW and GM."
Michigan Health & Hospital Association President Spencer Johnson sees an upside to the labor pact. "We've long believed that having employees involved in copayments and deductibles for healthcare is a reasonable step," Johnson said. "It helps create a consumer bond that leads to more informed decisionmaking and personnel accountability."
But he was more troubled by the recent bankruptcy announcement of former GM auto parts subsidiary Delphi, which he called a wake-up call to employers and unions. "These apparent threats to employer-sponsored healthcare come at a time when Michigan's healthcare safety net can ill afford to absorb additional financial strains," Johnson said in a statement in response to Modern Healthcare questions. "The challenge to maintain healthcare quality and access is made more difficult."
Others agree that providers will feel an effect. While Detroit Medical Center Chief Financial Officer Christopher Palazzolo cautioned that it's too early to understand the impact of the GM pact and said the immediate effects will be minimal, he predicted it will ultimately affect all providers in the region.
"There is no question that the resultant behavior modification caused by these changes will produce an overall negative impact," Palazzolo said. He foresees reductions of elective surgeries -- high-margin procedures for hospitals -- because of increases in patient out-of-pocket costs; increases in collection costs because of a slower nonelectronic process for billing and collecting much higher patient copays and deductibles; growth in hospital bad debt expenses because of uncollected copays and deductibles; and higher ER utilization because of patient-deferred care.
Chicago-based healthcare consultant and actuary Anna Rappaport concurred that the pact likely spells greater financial pressure on providers. "I think we'll see more uncollectible debt and greater pressure on negotiated payments," Rappaport said. "It's not just going to mean employees and retirees will have to pay more, but that the higher-cost providers will likely get less business and may have to drop their fees."
The GM-UAW deal illustrates the continuing decline in the generosity of retiree healthcare benefits, said Dallas Salisbury, chief executive officer of the Employee Benefit Research Institute, a Washington-based healthcare benefits think tank. Salisbury said that salaried employees at large manufacturers have seen their share of health insurance costs rise steadily in the past 20 years. He said those changes have spurred shifts in the design of insurance products, from traditional indemnity insurance coverage to HMO and PPO plans requiring much larger employee contributions.
"This is more of a lagging indicator than a leading indicator. The automakers are among the last to make these changes," Salisbury said. "We've seen the same trend lines in other industries for years. If you're a believer in consumer-based healthcare, this is good news. Employees may spend less, become more careful and selective buyers of healthcare services or delay healthcare purchases," he said.
"The next logical steps are multi-tiered hospital and prescription drug plans aimed at channeling behavior. The message here is that the whole economy has changed its approach to healthcare and suggests there is no protected realm going forward."