GM Cracks Down on High Cost of Health-Care Claims
On a typical day, General Motors workers produce 15,000 cars--and 50 babies.
The cost of producing babies, and caring for all of the other health needs of its employees, adds about $400 to the cost of every GM car. With nearly 1% of all Americans--2.2 million people--participating in its health plans, GM spent $2.3 billion last year and processed 100,000 claims a day.
Like countless smaller companies, GM has concluded that it’s paying too much. Unlike them, GM has the clout to send shudders through America’s health-care system.
Earlier this year, General Motors unleashed its computer subsidiary, Electronic Data Systems, to track down fraud by doctors and hospitals.
At the same time, it has hired consultants to review claims in several states, and it has enlisted the United Auto Workers to urge employees to switch from traditional health-care plans to alternatives designed to trim total costs.
The effects could be staggering, given GM’s size and its stature as a model for American businesses.
“Some of the most imaginative thinking about health care is now going on in Detroit,” said medical care expert Walter McClure, president of the Center for Policy Studies in Minneapolis. “There is a revolution going on.”
The company provides health-care benefits for 600,000 employees, 280,000 retirees and dependents of both groups, said Richard O’Brien, director of employee benefits and personnel administration at GM.
“Our biggest single supplier, unfortunately, is not U.S. Steel but the Blue Cross-Blue Shield-type provider,” GM Chairman Roger B. Smith said.
Under traditional health-care insurance plans, the employees pick their own doctors, who set the fees. Salaried and UAW employees at GM are now being urged to choose health maintenance organizations (HMOs) and preferred provider organizations (PPOs).
HMOs require members to use an approved group of doctors, labs and hospitals. All services are provided for a flat monthly fee. In a PPO, health-care providers who agree to certain standards of quality and cost are placed on an “approved” list from which patients choose.
GM, which has seen its health-care costs rising 14% per year, hopes to achieve a 10% reduction by using HMOs and PPOs. It is one-fourth of the way to its goal of signing up 40% of its employees. As an incentive, GM picks up a bigger piece of the cost for services rendered under HMOs and PPOs.
Pressure by Japanese and other foreign car makers on GM’s profits is causing a clampdown in areas not directly related to the car business, such as health care, taxes and utility costs.
Increased Pressure
O’Brien said the coming boom in U.S. manufacturing plants by the Japanese increases the pressure.
“When Nissan, Mitsubishi, Mazda and Toyota enter the country, their (health benefit) costs are low,” O’Brien said in an interview. “They have a young work force and no retirees. We have an older work force and a large retiree population, and we have to catch up.”
Catching up means mixing the conservative pragmatism of GM and the liberal idealism of the UAW.
The UAW has embraced HMOs and PPOs as a way of protecting cradle-to-grave health benefits for families of the Big Three’s workers. There are virtually no deductions from employee paychecks for health care, and co-payments for drugs and medical fees are much lower than elsewhere.
Smith and UAW President Owen Bieber recently appeared together at a health-care symposium, and their speeches were remarkably alike, blasting the traditional fee-for-service system of American medicine.
One goal is to funnel repeat business to organizations that save the company money.
“Together we have made it clear to the plans that we expect cost-effective delivery of quality care. We will get it,” Bieber declared.
Doctors and hospitals in the big GM states--Michigan, Ohio, Indiana, New York, New Jersey and Missouri--are feeling the effects first.
Hospitals Revolt
No longer free to charge what they want, many have railed against GM, and there have been revolts, such as a lawsuit filed by 80 hospitals earlier this year against Blue Cross and Blue Shield of Indiana in an attempt to stop implementation of GM’s PPOs.
In states with large numbers of GM employees, notably Michigan, the airwaves are filled with radio advertisements of competing health-care providers wooing GM employees.
GM executives talk of a “health-care abuse belt” running parallel to Interstate 75 from Saginaw, Mich., to Toledo, Ohio. The area, which includes Pontiac, Flint and Detroit, has the highest concentration of U.S. auto workers.
One GM study found that employees living in that area had six times as many foot surgeries as the national average. Toe operations are popular among abusing doctors, O’Brien said, because the same expensive operation can be done 10 times--at GM’s expense.
GM spokesman William Winters said a crash cost-cutting program instituted against “this out-and-out flagrant abuse” saved the auto maker $850,000 in its first two months. The number of foot operations plummeted by 70%. The program was called “On Your Toes.”
