Thursday, September 3, 2015

Health Care Cost Comparison for Private and Public Sectors ... Unfunded Health Care Benefits for Current and Retired State and Local Employees Represent One Third of Spending ... A UAW Proposal to Rein in Auto Employees' Health Care Costs

Social Security, 401(k) plans, IRA's, private and public sector pension plans get lots of attention these days, and deservedly so.

There's an even bigger elephant in the room, however, and that's the growing, unaffordable and unsustainable burden of America's health care costs. The problem isn't getting any easier to solve with the introduction of ObamaCare, but that's another story for another day.

First, let's look briefly at a new proposal by the UAW to pool all the spending for workers and retirees at auto companies in an attempt to have more leverage on insurers and health care providers. The union is rightfully concerned about maintaining the nation's most generous, aka expensive, private sector health care plan for its membership.

UAW Pitches Health-Care Co-Op to Car Makers is subtitled 'Union says potential savings from shared purchasing could finance worker raises:'

"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. . . .


Detroit car companies spend more than $2 billion annually on medical care for factory workers and dependents. Mr. Williams (UAW President) 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."
At least the private sector unions and companies are making an effort to control and reduce health care costs. That same effort needs to happen in the public sector, but it's not. So let's turn our attention there.

Government spending is escalating rapidly, and not just at the federal level. States and local governments are doing their 'fair share' to break the taxpayer funded banks as well.

And it isn't restricted to spending on pensions and related matters. Health care for retirees is a huge and generally unmentioned problem. So let's talk about it here.

Don't Blame Medicaid for Rise in Health Care Spending has this news for the trusting but generally uninformed taxpayers among us:

"Health care spending growth has moderated in recent years, but it’s still putting tremendous strain on state and local governments. A recent analysis by The Pew Charitable Trusts revealed that it consumed 31 percent of state and local government revenue in 2013, nearly doubling from 1987. . . .

Health care benefits for public employees and retirees, not Medicaid, account for a majority of the growth in state and local health care spending. . . .

Growth in health spending is crowding out state and local spending for other services. . . . The main source of the problem is growing spending on health care for state employees. Health care spending for retired state employees and their beneficiaries grew 61 percent in the past six years. The Pew Charitable Trusts predicts that over the next 40 years spending on health care alone will surpass that for all other state and local government services. Coverage for public-sector retirees accounts for much of state and local health care spending . . . .

In a recent paper in The Journal of Health Economics, Byron Lutz and Louise Sheiner estimated that state and local governments’ current liability for retiree health benefits is $1.1 trillion, or about one-third of total annual revenue. A vast majority — 97 percent — of the liability is unfunded, meaning it lacks dedicated trust fund dollars with which to pay benefits.

Governments can either increase revenue or reduce benefits."

Summing Up

The private sector auto companies must focus on the competitiveness of their costs and the product values offered to 'free-to-choose' consumers.

Those auto companies who fail to do so successfully will cease to exist, and their jobs will disappear. No jobs will result in no union dues paid to union leaders. Private sector union leaders know that.

Accordingly, creative destruction and competition are productivity enhancing facts of life in the highly competitive and global auto market.

That's not the case, however, in the monopolistic public sector. There is no competition and therefore no perceived need to control costs or improve productivity. The jobs of union leaders aren't in jeopardy. Public sector union leaders know that.

That's because the public sector has no competition and won't cease to exist as long as taxpayers are willing to pay the bills.

And those same public sector unions, including teachers' unions, are the fundamental reason why state and local budgets are under extreme duress across America.

Spending on retiree health care and pensions is crowding out government spending for other necessary and traditional services.

These unaffordable costs either must be brought under control or taxes must be increased by a whole bunch. And the need for action is now.

Big changes are needed in both the U.S. private and public sectors --- and soon.

Competition and survival instincts will provide incentives for the necessary behavioral changes in the private sector union leadership.

With respect to the public sector, we'll be watching closely for hopeful signals that voters and taxpayers are finally awake and alert to the dangers of public sector unions.

That's my take.

Thanks. Bob.

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