More Labor Battles Likely Regarding Benefits

As federal lawmakers—even President Bush—tentatively wade into the health care reform waters, battles between employers and organized labor are expected to push the issue to new heights this year.

“Employers are becoming increasingly aggressive in trying to shift costs to employees,” says Richard Bank, director of the AFL-CIO’s collective bargaining department. And unions are expected to be equally aggressive in resisting that effort during big contract negotiations this year.

Grocery workers who struck grocery chains in Southern California for 4½ months in 2003-04 see their contracts expire next month, and their unions are expected to fight hard to win back some of the health care benefits they lost in 2004.

In addition, the United Auto Workers will renegotiate its contracts with the Big Three automakers, which have been vocal about the effect of employee health care costs on their competitive position. And General Electric will negotiate a new contract with 13 of its unions, some of which went on strike in 2003 over health benefits.

In the past few months, disputes about health coverage helped end contract negotiations at Harley-Davidson and Goodyear Tire & Rubber, leading to strikes.

“In every major strike in the last five years, health care benefits have been among the top two or three issues,” says Gary Chaison, a professor of industrial relations at Clark University in Worcester, Massachusetts.

“This is a benefit that workers rely on,” he adds. “They don’t want you to tamper with it.”

Companies’ efforts to shift costs reflect the rapid escalation in health care costs. The AFL-CIO’s Bank also notes the pressure companies are getting from Wall Street to cut labor costs, “especially health care costs.” And globalization pits U.S. companies against overseas competitors with much lower benefits costs, often because they operate in countries where the government provides health care, he added.

General Motors estimates its health care costs come to $1,500 per vehicle, putting it at a disadvantage against competitors that don’t pay such costs.

“American employers are strapped with a really expensive benefit,” Chaison says.

Bank also cites accounting rules that require employers to reveal their obligations for retiree health care costs on their balance sheets.

“Those are big numbers for a lot of companies,” he says.

At Harley-Davidson, one dispute was the company’s proposal that workers begin paying part of their health insurance premiums. The contract the union approved in mid-February left the company paying all the premiums but increased union members’ deductibles and co-pays. Negotiations in which a company that has been paying all health care costs asks union members to start paying part of the health insurance premium can be particularly contentious, Chaison says.

“Workers feel that if they pay any of the premiums,” he says, “it opens the door to further concessions down the line.”

And contract negotiations that deteriorate into a strike can be costly for both sides. Analysts estimated that the strike by 2,800 Harley employees this month may have cost the company as much as $11 million a day. Goodyear reported in mid-February that the 86-day strike by about 15,000 members of the United Steelworkers of America late last year subtracted $367 million from its 2006 net income. Goodyear also expects the strike to have another $200 million to $230 million impact on its North American tire business in the first half of 2007.

But Goodyear says the new contract was worth it.

“We fully realize there were negative short-term effects of the strike,” Goodyear CEO Robert Keegan said on a call with analysts after the strike. “However, on balance, the improvements in our competitive position far outweigh those negatives.”

Goodyear estimated it will save as much as $610 million during the three-year term of the contract and realize ongoing savings of $300 million a year after that.

The contract allowed Goodyear to shed its responsibility for retired union members’ health benefits by providing funding for a trust that will take on those obligations. The level of funding was one area of disagreement: The company offered $660 million, while the union asked for about $1.3 billion. They settled on $1 billion.

Richard Hurd, a labor professor at Cornell University, said unions often manage to maintain their health benefits by making trade-offs in other areas, like work rules or pay.

“For the most part, unions are holding on to the basic structure of their health benefits,” Bank says. “However, there is no question that more and more costs are being shifted to employees.”

He added that if employers, for decades the primary providers of health care in the United States, continue to shift the responsibility onto employees, “there has to be an alternative system put into place.”

“The problems that we have with our health care system cannot be fixed at the bargaining table,” Bank says. “They demand a legislative solution at the national level.”

Filed by Susan Kelly of Financial Week, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.