Sunday, October 15, 2006

Waves of retirees amass huge bills

Wednesday, September 27, 2006
Waves of retirees amass huge bills
GM chips away at benefits as scores of workers age, get ill
Ron French The Detroit News

PORT ST. LUCIE, Fla. -- The 11 senior citizens sitting in the back room of a Florida seafood restaurant don't look dangerous. One is almost deaf. Several support themselves with canes.

Then they pull out their medical records. Norm Allard has had six heart attacks and two open-heart surgeries. The 65-year-old takes nine prescription pills in the morning, one during the day and four more at bedtime.

Nancy Turek, 73, had breast cancer four years ago. She had surgery, radiation and chemotherapy. She recently underwent a round of tests to determine whether the cancer had returned. She got a clean bill of health, and GM got a bill for $18,000.

Everyone in the GM Retiree Club of the Gold Coast has a long list of illnesses, all of which make their former employer sick. Nancy Turek's husband, Norbert, a GM retiree, explains the problem bluntly: "GM has too many retirees living too long."

Costly medical tests, sloppy hospitals and big drug companies are easy targets. But it's not the price of drugs but the age of the people taking them that is driving the world's largest automaker into financial trouble. Retirees and their dependents account for 75 percent of GM's health care tab -- $4 billion of the $5.3 billion the automaker spent on medical bills last year. That bill will balloon in the next decade as a wave of workers and retirees now between ages 55 and 70 grow older and fall into ill health.

GM is getting there first, but the United States is headed in the same direction. The first baby boomers are turning 60 this year. Costs for medical care skyrocket after age 65. GM's medical bills today foretell an explosion in Medicare costs in the next two decades.

Fifty-five percent of people insured by GM are 60 or older; the company pays the medical bills for more people over 75 than under 25.

Most of the GM-insured are between 55 and 69, with the worst of their health problems ahead. They are the generation that won generous health care benefits, and they are the generation now costing GM billions.

Norbert Turek went to work at the Cadillac plant on Clark Street in Detroit in the early '60s, when GM paid only 50 percent of health care costs.

"We walked the streets to get these benefits," said Turek, 74. "We earned it."

Paying for bypass surgeries and knee replacements wasn't a problem when GM had 11 workers for every retiree, as it did in 1962; by 2005, there were 3.2 retirees for every worker.

After the last of the 35,000 U.S. employees who accepted early retirement buyouts leave in December, the ratio will be about 4.6 retirees for every worker.

If GM's health care retiree benefits remain unchanged, retirees are likely to drive company medical bills skyward for another 20 years, said Kurt Metzger, research director for United Way of Southeast Michigan.

"Within 20 years, and certainly within 25, GM should be in a much stronger position, as the vast majority of retirees will no longer be there to drive the costs," Metzger said.

GM can't wait that long to fix its health care crunch. The cash-strapped company has begun to chip away at retiree health care benefits and likely will use a jackhammer in the future. White-collar workers hired after 1993 do not have retiree health insurance, and white-collar retirees now will have to pick up any increases over current health care spending.

Last November, GM and the UAW agreed to require retired union workers to pay insurance premiums for the first time, with annual maximum out-of-pocket expenses on services of $370 for individuals and $752 for families. Retirees will also be responsible for higher co-payments on prescription drugs.

"You can't blame GM," said Allard, a former union employee who retired from the automaker in 1988 after 22 years and numerous strikes. "It's the hospitals and the insurance companies. And it's going to get a hell of a lot worse."

If GM CEO Rick Wagoner has his way, it may get worse fast.

He said this summer that companies shouldn't be responsible for retiree health care. "Companies are eliminating benefits, particularly to retirees," Wagoner said. "The fundamental issue is we need to get around the cost."

Retiree health care is expected to be a major issue in UAW contract negotiations in 2007. Further cutbacks are almost a certainty.

"We're golden now," said Allard, who took a medical retirement at age 47. "But down the line, the s--- is going to hit the fan and we're going to lose our benefits."

© Copyright 2006 The Detroit News. All rights reserved.


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