(Bloomberg) -- Ford Motor Co., the second-largest U.S. automaker, and the United Auto Workers union says they’re starting a pilot health care program for workers and retirees with the most needs, in a move they say could reduce costs.
The program will begin in Southeast Michigan with as many as 1,500 participants initially, representatives for Ford, the UAW and the union’s retiree health care trust told reporters this week at the company’s headquarters in Dearborn, Mich.. The pilot, which will target chronic conditions such as diabetes and asthma, will be funded by Ford and the union trust.
The pilot put together by Ford, the Detroit-based UAW and union trust originates from the four-year contract struck between the automaker and union in 2011 and emulates a similar program used by Boeing Co. Workers and retirees will be invited to the program by their doctor and will be assigned a personal care nurse at no additional cost to the patient.
“We believe the added support in this voluntary program will be of great benefit to our highest-need members,” Jimmy Settles, vice president of the UAW’s Ford department, said in a statement.
Health care is the largest benefit cost paid by Ford, General Motors Co. and Chrysler Group LLC, according to the Center for Automotive Research. The researcher estimates that automakers could pay entry level workers $39.95 an hour by 2015 from $33.70 in 2011. Within that compensation, the cost of health care for active workers may rise to $5.20 from $3.82, Ann Arbor, Mich.-based CAR said in November 2011.
Ford estimates that the cost of providing health care to its U.S. hourly workers equates to about $7 an hour, Marty Mulloy, the company’s vice president of labor affairs, told reporters.
Costs related to treating five of the most common chronic care conditions for workers are responsible for 61% of Ford’s health care spending, according to the company. Those conditions, which are comprised of congestive heart failure, chronic obstructive pulmonary disease, coronary artery disease, diabetes and asthma, account for a similar share of costs for health care provided by the trust.
Boeing’s program achieved a 20% annual savings per enrolled worker compared with a control group, mainly by reducing emergency room visits and hospital admissions, according to a 2011 company presentation. Ford Chief Executive Officer Alan Mulally joined the company from Boeing in 2006.
Ford and the UAW have about 18,000 active hourly employees in Michigan and the union trust has about 118,000 non-Medicare retired members, according to a company statement. Union trusts for Ford, GM and Chrysler are the largest non-government provider of retiree health care benefits in the U.S., with $4.5 billion spent annually.
The cost of the program, which wasn’t specified, will include paying for 12 personal care nurses who will each be limited to 125 cases. The care provided by those nurses will be covered as part of benefits already provided.
Ford says after its four-year deal with the UAW was ratified in 2011 that the agreement would increase its labor costs less than 1% annually while allowing the company to offset that rise with efficiency gains. That helped trigger upgrades to investment-grade credit ratings and for the carmaker to resume paying a dividend.
The Ford-UAW pilot precedes the start of major provisions of the Affordable Care Act taking effect next year. The 2010 law also includes a 40% tax on employee benefits exceeding $10,200 for individuals and $27,500 for families starting in 2018, on the theory that overly generous plans boost medical costs. Some companies have responded by adding wellness programs and raising deductibles on workers.
Ford has estimated that its labor costs will come down as the company hires thousands of new workers to boost production as the U.S. auto market rebounds. Under the contract, new workers started at an entry-level wage of $15.78 an hour, rather than the roughly $28 an hour senior employees make. The entry- level wage will rise to $19.28 by 2015.
Moody’s Investors Service raised Ford to investment grade in May 2012 after Fitch Ratings lifted the company to the status one month earlier. Standard & Poor Ratings Services ranks Ford’s debt BB+, the highest level of speculative grade, with a positive outlook. Ford began paying a quarterly dividend of 5 cents a share in March of last year and said in January that it would double the payout.
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