Ford Motor Co. (F), the No. 2 U.S. automaker, and the United Auto Workers union are starting a pilot health care program for workers and retirees with chronic medical conditions, in a move they said could reduce costs.
The program will begin in Southeast Michigan with as many as 1,500 voluntary participants, representatives for Ford, the UAW and the union’s retiree health care trust told reporters today at the company’s headquarters in Dearborn, Michigan. The pilot, which will target chronic conditions such as diabetes and asthma, will be funded by Ford and the union trust.
The pilot put together by Ford and the Detroit-based UAW and union trust originates from the four-year contract struck between the automaker and union in 2011, and emulates a similar program used by Boeing Co. (BA) Workers and retirees will be invited to the program by their doctor and will be assigned a personal care nurse at no additional cost to the patient.
“The goal of this from day one was, ‘How do we keep our employees healthier?’” Marty Mulloy, Ford’s vice president of labor affairs, told reporters. “As an outcome of that, if you have less significant medical events occurring, you’re going to be using less services, and that results in less costs.”
Health care is the largest benefit cost paid by Ford, General Motors Co. (GM) and Chrysler Group LLC, according to the Center for Automotive Research. Ford estimates that the cost of providing health care to its U.S. hourly workers equates to about $7 an hour, Mulloy told reporters.
The research center, based in Ann Arbor, Michigan, estimates that the U.S. automakers will pay $5.20 an hour toward health care per entry level worker by 2015, from $3.82 an hour in 2011, according to a November 2011 presentation. That’s expected to drive up the cost of wages and benefits for entry level workers to $39.95 in 2015, from $33.70 in 2011, the center said.
Costs related to treating five of the most common chronic care conditions for its workers are responsible for 61 percent of Ford’s health care spending, according to the company. Those conditions, which are comprised of congestive heart failure, chronic obstructive pulmonary disease, coronary artery disease, diabetes and asthma, account for a similar share of costs for health care provided by the retiree trust.
Boeing’s program achieved a 20 percent annual savings per enrolled worker compared with a control group, mainly by reducing emergency room visits and hospital admissions, according to a 2011 company presentation. Ford Chief Executive Officer Alan Mulally joined the company from Boeing in 2006.
The UAW is open to starting a similar program with GM and Chrysler, said Susanne Mitchell, director of the union’s Social Security department.
“There is interest and support” from GM and Chrysler, she told reporters. “It has not moved as far along as the Ford plan, obviously, because this one’s kicking off, but the door is certainly not closed at either of the other automakers.”
If the pilot is successful, Ford, the UAW and the retiree trust could decide to introduce a similar program in other areas of the country where the automaker has many active employees and retirees, Mulloy said. Such areas would include Louisville, Kentucky, or Kansas City, Missouri, where Ford has vehicle-assembly plants that opened in the 1950s.
Ford and the UAW have about 18,000 active hourly employees in Michigan and the union trust has about 118,000 non-Medicare retired members, according to a company statement. The union trusts for Ford, GM and Chrysler are the largest non-government provider of retiree health care benefits in the U.S., with about $4.5 billion spent annually.
“We believe the added support in this voluntary program will be of great benefit to our highest-need members,” Jimmy Settles, vice president of the UAW’s Ford department, said in a statement.
The cost of the pilot program, which wasn’t specified, will include paying for 12 personal care nurses who will each be limited to as many as 125 cases. The care provided by those nurses will be covered as part of benefits already provided.
The Ford-UAW pilot precedes the start of major provisions of the Affordable Care Act taking effect next year. The 2010 law also includes a 40 percent tax on employee benefits exceeding $10,200 for individuals and $27,500 for families starting in 2018, on the theory that overly generous plans boost medical costs. Some companies have responded by adding wellness programs and raising deductibles on workers.
Ford said after its four-year deal with the UAW was ratified in 2011 that the agreement would increase its labor costs less than 1 percent annually while allowing the company to offset that rise with efficiency gains. That helped trigger upgrades to investment-grade credit ratings and for the carmaker to resume paying a dividend.
Ford has estimated that its labor costs will come down as the company hires thousands of new workers to boost production as the U.S. auto market rebounds. Under the contract, new workers started at an entry-level wage of $15.78 an hour, rather than the roughly $28 an hour senior employees make. The entry-level wage will rise to $19.28 by 2015.
Moody’s Investors Service raised Ford to investment grade in May 2012 after Fitch Ratings lifted the company to the status one month earlier. Standard & Poor Ratings Services ranks Ford’s debt BB+, the highest level of speculative grade, with a positive outlook. Ford began paying a quarterly dividend of 5 cents a share in March of last year and said in January that it would double the payout.
Ford fell 1.9 percent to $14.71 at 2:15 p.m. New York time. The shares climbed 16 percent this year through June 21, exceeding the 12 percent rise for the Standard & Poor’s 500 Index.
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