GM Retirees Talk About Health-Coverage Cuts

As the auto sector struggles and companies cut back, its former workers feel the full force of the reductions.
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As part of the $15 billion liquidity improvement for General Motors (GM) - Get Report, starting Jan. 1 health care for the over-65 retiree will be cut and substituted by a monthly increase to the pension.

That's a lot of people who have just lost health-care coverage -- many elderly, some sick, and most of whom thought they wouldn't have to think about health insurance ever again in their lives.

Michelle Bunker, GM health-care communications manager, said it took the decision to increase the pensions of the eligible retirees because it gave them more flexibility.

GM, along with the rest of the U.S. auto industry, has been struggling mightily of late as demand for high-profit-margin SUVs flags amid high gas prices and auto makers such as


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produce more technologically advanced and appealing lineups. In fact, many people think the company is

bound for bankruptcy

in the near future.

But the company's woes are hurting real people, too.

Jack Dickinson, a retiree with 34 years of sales and marketing experience, presides over a GM retiree group,

Over The Hill Car People

, which has been overwhelmed with calls and emails from concerned retirees. He says that retirees were very angry about the announcement, and noted that "we have some really sick folks undergoing chemo at the moment," among others for whom this could be fairly traumatic.

Dickinson says, "They could have and should have included retirees in the discussion. Calls to GM are not being answered, just receiving a recorded message -- no further information."

Letters received by GM retirees last weekend from Kathy Barclay, vice president of global human resources, state that GM will be holding meetings all over the country with retirees from September to December to answer questions. She emphasizes that "General Motors is absolutely committed to assisting the impacted retirees, surviving spouses and dependents."

One reason retirees and their families are upset is the salaried employees accepted slightly lower than average salaries for the work that they did, on the basis that when they retired they would have pension and health benefits for life, thereby compensating for the lower salary.

This belief has now been shattered.

Oscar Stratton, a GM retiree, comments, "Who thought when they retired in 1984 about what would happen in 2008?" He added that "employees need to realize that retirement perks are perks. Pension, heath care and other retiree benefits could disappear at any time."

Dickinson echoes this, saying "This is overwhelming to retirees in their 70's and 80's."




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previously cancelled retiree health-care arrangements, making a contribution to a Health Reimbursement Account instead.

Chuck Austin President of the

National Chrysler Retirement Organization

, says, "we were angry because we were promised health care for life. In 1988 they put in a provision that it could be cancelled."

A Ford retiree with 40 years in industrial engineering recalls, "It was an absolute disaster for Ford salaried employees."

Some retirees questioned why they should even buy the cars from their former employer.

One opines, "We gave them courtesy, devotion and loyalty. This should be shown to them now as they have been given."

Chuck White, chair of a group of Ford retiree organizations, cautions that retirees should take a moment before reacting: "Step back and look at it, and consider all of the changes. The haircut is being applied to everything -- unions, employees and salaried retirees. If retirees started to protest that they would not purchase Ford or GM products and they were successful, they could put their entire package in jeopardy. Purchasing reduces their risk."

Echoing the concern over the future of retiree benefits, heightened by the announcement yesterday of a reduction of 1,000 salaried staff at Chrysler, Austin says, "We are definitely concerned about the spending account. It is optional, and we have not heard anything yet about the intentions towards the account for next year."

"We understand the challenges of foreign competition but tightening your belts should mean that when things get better they get loosened," Austin continues. "That won't happen."

White says of the Ford retiree package, "We believe that the retiree benefits are tied to the financial condition of the company -- and yes, we are concerned, but we do not believe that they would make further cuts unless necessary."

He adds, "Don't get into a fighting rage. Make the system work for you. Meet with GM, ensure that communications get out. Make it as smooth and as good as you can. My best advice is to ask myself, what is my situation and what do I have to do that is best for me?"

Gavin Magor joined Ratings in 2008, and is the senior analyst responsible for assigning financial strength ratings to health insurers and supporting other health care-related consumer products, including Medicare supplement insurance, long-term care insurance and elder care information. He conducts industry analysis in these areas. He has more than 20 years' international experience in credit risk management, commercial lending and analysis, working in the U.K., Sweden, Mexico, Brazil and the U.S. He holds a master's degree in business administration from The Open University in the U.K.