Assuming The Feds Are Going to Bail Out General Motors…or Even If They Aren’t
November 19th, 2008 by Al Lewis (alewis)
GM is not a car company. It is a retiree health and pension plan which makes cars. It is not our call whether bailing them out is a smart idea or a dumb idea. There are plenty of people opining on that.
It is, however, ThinkOOB’s mission to make whatever happens, happen as efficiently as possible. In this case, an enormous chunk of what is troubling GM is retiree health expense. The large majority of retirees are over 65 and eligible for Medicare. How is it, then, that retiree health expense is so high if Medicare “covers” retirees? Simple. Medicare has large gaps in care and GM pays for supplemental policies to cover those gaps.
However, most GM retirees have access to Medicare HMOs, which offer benefits equivalent to or greater than straight Medicare with much lower co-pays and deductibles. Plus, the HMOs have disease management and other ways to maintain health. That’s why the number of retirees joining them voluntarily has skyrocketed in recent years.
If GM gets taxpayer money, it should be with a provision that retirees’ medical expense is paid only in the amount which they would pay out-of-pocket if they belong to an HMO. If they don’t want to belong to an HMO, they should pay the difference. That is their choice, not a taxpayer responsibility.
GM should not need the Feds to tell them this, by the way. When they negotiate with the United Auto Workers, most financial issues on the table are “zero-sum.” This one isn’t. GM can save a lot of money while providing equal or better health care by encouraging people to join HMOs. If they offered to share the gains with their retirees – paying retirees who join a Medicare HMO, for example – it would be a win-win.
Tags: auto industry bailout, detroit bailout, general motors bailout, gm bailout, medicare HMOs, retiree medical expenses
November 19th, 2008 at 2:54 pm
I don’t get it. If GM can for the supplemental policies, why can’t they pay for the Medicare HMOs directly? Is there an easy way for people to figure out what the difference in cost would be?
November 19th, 2008 at 3:00 pm
glad you asked. Medicare pays for the Medicare HMOs. GM only pays for the small sliver which Medicare HMOs charge the member. With regular fee for service, that “sliver” is a huge chunk of money. hence the savings opportunity by moving to an HMO.
November 20th, 2008 at 6:06 am
I am in a Medicare HMO. No reason why they can’t be in one too. I can see all my doctors and go to either major hospital. I don’t understand what makes auto employees so special that they can’t do on my taxpayer nickel what I do on my own
November 20th, 2008 at 11:49 am
I do NOT want my moeny used to bail out people who make more money than most. This HMO thing is a perfect example of why not. I’m sure there are many others. I would like to hear a defense from a union person on why they shouldn’t have to have the same healthcare most of the rest of us have
November 21st, 2008 at 1:33 pm
this is EXACTLY what’s wrong with these people and why we shouldn’t bail them out. They fly to the hearings in private jets with some parthetic excuse about the safety of their employees (commercial jets are way safer) and they can’t make changes like this on their own. Do all that stuff and then come see me about giving you my tax dollars
December 2nd, 2008 at 2:59 pm
Hi,
few years ago Wall Street Journal published an article on the 20th anniversary of one of Toyota’s plant in USA. The article was about the history of how Toyota decided to open the first manufacturing site here and the effects of that move. The surprising point about that move was not the fact that Japanese had decided to use the most expensive workforce in the world to make their cars. It was something else. The parking lot of finished cars. All who were present on that inauguration day including people from American automakers were surprised for not seeing anywhere the parking lot for the “cars needing rework”. Apparently cars needing rework occupied quite a great space and it must have been something noticeable in the parking lots of all automakers, and apparently a constant fixture of such plants. Not for Toyota though. When asked the Toyota staff answered that they did not need such space because they did not have cars to be reworked. There is a lot of literature on the topic but one I read few years ago is Lean Manufacturing, an interesting book about the differences in the processes of car manufacturing between Japanese, American, European and other automakers.
Few years ago, Charlie Rose had invited Luca de Montezemolo, at the time the CEO for Ferrari. During the interview de Montezemolo spoke about the Ferrari cars. I remember two culminating points in that interview. One was when he said that Ferrari will continue to produce as many cars as the demand minus 1 is something I did not like very much (he can do whatever he wants, though, to keep the prices of cars high as long as they do not break any antimonopoly laws). The other interesting point was when he described how they improved the performance of the car. That was entirely a data driven process. He explained how for example various computers measured the traction force when the car was speeding and during curves and also the stability on the road and other things that were very technical. Based on the recorded data they made improvement in braking systems, types of tires, etc.
The point I want to make is that Ferrari, Japanese cars, and the demise of American automakers are not accidents. While Ferrari and Japanese apply modern methods in doing things American automakers are still centuries behind. The key is the application of quality improvement techniques that not everyone likes to hear about and some people seem such reluctant to accept.
My other point here is that it is not the health benefits causing the demise of American Automakers. It is the brains of top executives. Today (December 2, 2008) the three top executives of automakers are going to Washington to try to make their case for dollars they need from the Federal government. Guess what one of them is doing. DRIVING. In a hybrid model!!! Like hybrids (introduced by Toyota at least 5 years ago) are something that is going to be the solution. Go figure the creativity of such people.
December 2nd, 2008 at 4:45 pm
Your point is that the people who run these companiee are incompetent Luddites and you have a great vignette to prove it. No argument here. I am not taking sides on the bialout question, just saying that if they do it they ought to do it intelligently
April 5th, 2009 at 5:48 pm
Good post. It is clear that broad-based restructuring of industry economics is required to create a competitive U.S. auto industry. The Presidential Task Force made clear that “legacy costs,” which would include health care costs, were part of the problem. They also hinted that bankruptcy proceedings might need to be part of the program, for that would allow GM to get out of onerous contracts, including that with the UAW. Does the UAW administer the current health care funds as unions do in other industries? If so, they would be highly resistant to losing control of those health care funds, even for retirees. Bankruptcy could solve that problem, providing federally subsidized health care to Medicare-eligible retirees, evening the playing field with foreign automakers, who enjoy such public benefits. See http://jpfarrell.blogspot.com/2009/03/general-motors-surrenders.html