One makes cars and the other flies planes. But Ford Motor Co. and Northwest Airlines are facing the same common and crippling dynamic: They're losing billions in industries dogged by overcapacity, as new competitors with lower costs flex their muscles and grab market share.
And the two companies, which both employ thousands in the Twin Cities, are looking to slash health care benefits for workers and retirees to reduce labor costs and stop the flow of red ink.
It's a cost-cutting effort that's sweeping through two industries once viewed as high ground in the event of a recessionary tsunami. Now the floodgates are open for employers to continue to pare benefits as health care costs escalate.
"Whenever that becomes front-page news, all corporate leaders ask themselves, 'Can't we do something similar?'" said Gary Chaison, a professor of industrial relations at Clark University in Worcester, Mass. The cuts in the auto industry — with General Motors last week announcing major health care concessions from its workers — will have a ripple effect throughout the economy, he predicts. Already companies had been scaling back on costly retiree medical plans as health care costs have increased at double-digit rates for the past four years.
Companies with sizable numbers of older workers and retirees — including major airlines and big car manufacturers — are seeing the worst of it. They are responding by raising premiums, requiring deductibles, trimming retiree benefits, and kicking spouses off plans if they have alternatives.
At the same time, more companies are joining the growing movement toward high deductibles that make individuals more aware and more accountable for their health care costs. Some are charging smokers more. Others are considering a special charge for the obese. In Minnesota, more small employers are dropping health care altogether.
"There are going to be dramatic changes for everyone as a result of rising costs of health care," said Michael Scandrett, a health-policy analyst with Halleland Health Consulting in Minneapolis. "It will get worse before it gets better."
At Northwest, salaried employees will start paying a higher share of their monthly premiums and face higher out-of-pocket expenses — such as deductibles — on their health plans.
All current and future retired salaried Northwest employees will be required to pay 50 percent of the cost of their health plans, according to a company summary of health plans. The airline is proposing the same for its union employees and retirees. Northwest won't provide details, but one retiree said her current tab is about 20 percent of total costs.
The company, which is in bankruptcy, says it has about 12,000 retirees currently receiving benefits. It intends to eliminate medical benefits for retirees after the age of 65, according to bankruptcy filings, but would need court approval to do so.
Northwest also said it plans to move from three medical plans to a single plan, which will require employees to pick up a greater percentage of the premium. The move will bring costs in line with the competition, provide benefits comparable to other large companies, and cut administrative costs.
Workers will be required to pay 25 percent of their monthly premiums, up from 20 percent. Some Northwest workers will pay deductibles for the first time. Out-of-pocket expense caps will nearly triple for some workers to at least $2,750 a year, according to a summary of changes posted on an employee Web site. Until 2003, Northwest workers paid nothing to participate in its most popular health care plans.
"My concern is that they are going to make retirees bear a greater burden of the health care costs than the employees," said Patricia Slice, 61, who retired from Northwest last year after 24 years as a flight dispatcher. By her calculations, monthly premium costs for her and her husband will grow from $176 to $326. Plus, she'll pay more for her blood pressure medicine and take on a deductible for the first time.
Even with the reduced benefits, Northwest's health plans will be in line with what other big companies are offering, according to experts. In some areas, they will remain generous: Most companies, for example, don't offer retiree health care.
For Ford workers, including about 1,800 union employees at the Ranger pickup plant in St. Paul, the cuts they can expect will be based on what General Motors wrestled out of the United Auto Workers last week. Both Ford and DaimlerChrysler are expected to seek similar deals with the union.
General Motors landed $3 billion in annual health care concessions from the UAW in a deal expected to cost its retirees some $750 a year. GM hourly workers would contribute a portion of future pay increases to help pay for retiree benefits.
Julie Forster can be reached at [email protected] or 651-228-5189.
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