October 01, 2007

The new deal on healthcare

The new deal is about throwing off healthcare costs as an ever-expanding liability for large companies (small companies have been terminating their - already much less generous - plans for years). Details of the deals vary, but boil down to the companies offering a fixed amount of money that they employee can use to cover insurance premiums and offer healthcare costs, in stead of bargaining for health insurance (and paying its costs) themselves. Essentially it removes healthcare as a benefit, reducing it to a small salary raise (of up to 2K$).

Financially, this deal benefits companies such as GM, who can remove huge liabilities from their balance sheets. If you believe the financial calculations, the new deal means that GM replaced a 51 billion liability with a 35 billion pay-out, so GM should be worth 16 billion more now. Don't hold your breath, though, in reality it won't make that much of a difference. Of course, it does mean that companies such as GM no longer have to worry about further rises in healthcare, except to the extent that it will reduce the general health and well-being of their employees. While it may make working at these companies somewhat less attractive, their really aren't that many alternatives for working stiffs to find a better deal, as most of US companies are reducing or shedding healthcare benefits. So yes, it will help US companies by limiting their exposure to rising healthcare costs. If enough companies make the changeover, the only effect on them will be indirect (through poorer and unhealthier employees).

Does this help the union? One could imagine the unions stepping up to the plate and starting to offer healthcare insurance to all its members and becoming a huge player in the healthcare market. It could in principle be a catalyst for a re-unionisation of the workforce, and by pooling so many workers, the unions might be able to negotiate better deals from insurance companies and health organisations. The GM trust fund will be managed by the union, so it's a start for the union along this path.

If unions are re-energized this way, and especially if they pool their resources across several industries, they could create a much stabler basis to fund healthcare - able to survive the demise of big companies and downturns in entire industries. Their newfound riches could make them more powerful lobbying agents in Washington as well. So the deal offers a real opportunity to the unions to claw back from oblivion.

Unfortunately unions aren't the most transparent organizations, anti-union sentiment still runs very high in boardrooms and providing healthcare to all union workers falls far short of universal healthcare. So while this deal is certainly good for the union, and perhaps (if things work out) not bad for unionized workers, it is going to make things really difficult for non-union workers.

So does this at least help union workers? Perhaps. They gain mobility, if unions are able to construct a healthcare package that would be independent of the employer. But pending that, little changes until the money runs out. And run out it will, unless the workers start paying more for their healthcare. In the end, the workers' healthcare is now beholden to the union, which should be better than being beholden to the company. But they will likely have to foot more of the healthcare bill, unless the unions are able to change the healthcare equation completely.

Because in the end, healthcare costs are not going to go down because of deals like this. If anything, it will make them go up faster, as people will go from large corporate plans, administered professionally on both sides of the issue, to individual accounts. Not only is there likely to be more overhead, disputes are more likely to end up in court and care is probably going to get worse. Healthcare is one issue where people rarely are able to make the best decision. Not only because it affects individuals so deeply and so emotionally, but also because even professionals have a hard time figuring out which plan is most appropriate. The industry thrives on obfuscation and fear.

So while the UAW deal is only symptomatic of a larger move by companies towards fixed-value benefits, it is still a milestone. And a pretty grim one at that. Unless unions take the opportunity and step into the void left by dwindling company healthcare benefits, power will shift to the insurance providers, leading to higher healthcare costs. We'll have to hope that the unions take this chance and make the most of it. But even if they give it their best shot, their chances are thin.


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