Professional Documents
Culture Documents
SAH Fashions Smitka March 2010
SAH Fashions Smitka March 2010
SAH Fashions Smitka March 2010
Michael Smitka2
Professor of Economics
Washington and Lee University
Lexington, VA 24450-2116 USA
msmitka@wlu
In the United States "legacy costs" – corporate obligations to retirees for healthcare and
pensions – have thrust into bankruptcy the airline and steel industries, and now General
Motors (GM). While trendsetters began experimenting with benefits policy in the era of
"welfare capitalism" of the 1920s, General Motors was not in that vanguard. Instead the core
decisions were made in the years 1947-1950. Even then, GM merely followed the fashion of
the times, that employers (and not government) should provide for the current and future
welfare of their workers. But once a generation of workers had been clothed for retirement in
increasingly rich layers of protective benefits, changing fashions became difficult. GM's
efforts to shed these garments began only in the 1980s, and fundamental realignment came
only in 2007, too little and then too late.
Introduction
Legacy costs, comprised of healthcare and pension benefits to retirees, consumed $103 billion of
General Motor's resources in the 15 years leading up to its final crisis. In 2008, GM was scheduled to
make US$13 billion in payments to retirees; the forecast that portfolio gains would cover this proved
wide of the mark. Instead, at the time of its bankruptcy filing in 2009, retirees were GM's largest
creditors; union members alone owed US$22 billion, white collar employees additional amounts. To
the rest of the world, this sounds bizarre, because within the OECD only the US does not have
universal healthcare.3 Instead, by 1960 the de facto policy in the US was that healthcare was to be
provided by employers – and GM was by that time the largest employer in the private sector.
1. Curious how GM got into its legacy cost trap, I began reading about the history benefits policies in May
2006 as background for teaching a seminar on the auto industry. All of my initial assumptions quickly
proved false, and I kept reading… I presented an earlier version at the Business History Conference in
Milan, Italy, June 2009. I benefited from comments there and from discussions with Beach Hall – Mayor
of Rogers City, Michigan, long-retired chief benefits negotiator for General Motors, and occasional bridge
partner, without whose stimulus I would never have sat down in front of my keyboard.
2. Home page http://home.wlu.edu/~smitkam, Blog http://autosandeconomics.blogspot.com
3. I have not yet attempted to digest the March 2010 Obama health care package, to see whether it in fact
will provide either universal coverage or cost control.
GM Healthcare, 1
The idea that firms had obligations to their workers was part of the ethos of the "welfare
capitalism" of the pre-1929 period. That fell foul to the economic pressures of the Great Depression,
when worker retention ceased to be a concern. In practice what firms offered was extremely limited;
the focus of both workers and employers was first and foremost on wages, and then on supplements
in the form of overtime premia and paid holidays. To the extent that workers were concerned with
health issues, their focus was sick leave, not medical service: doctors, medicines, even hospitals were
only modest expenses.4 One explanation of the rise of healthcare provision is that it was so
unimportant and low in cost that coverage became widespread with little resistance from
management. And of course firms such as General Motors had treated managers to such benefits
long before they were extended to employees; the principle had been established.
More generally, that firms should provide pensions and healthcare was the outcome of a complex
dance between labor and employees, employers, insurance firms, medical societies and federal
policy in the 1930s and 1940s. By the late 1940s it was apparent that the latest attempt at national
health care would not succeed (the Wagner-Murray-Dingell bill of 1949 went nowhere). At the same
time, employers feared union provision. On the one hand unions could use it as a recruiting tactic; on
the other such funds could be diverted to the support of strikes. Employer provision also allowed
firms such as GM to obfuscate the initially low costs (at one point, zero!) of such benefits, helped by
However, neither GM within the auto industry, nor the auto industry among major employers,
was in the vanguard in providing healthcare. Instead, coal and steel played a more prominent role,
setting precedents during 1946-48. Similarly, within the auto industry smaller firms – Kaiser-Frazer,
Ford – moved first. GM fell into step, providing for half of the cost of Blue Cross-Blue Shield (BC/
BS) coverage from its 1950 contract. By 1964 coverage was fully funded by GM and had been
4. This shows up in the cursory treatment in labor economics texts such as Reynolds (1949) and in the
subsidiary status of such issues in the coverage of the content of collective bargaining agreements in the
Monthly Labor Review as well as in Garrett (1956).
GM Healthcare, 2
extended to retirees and not merely active workers. By 1968 it was national in scope – until then
each union local had its own coverage, because until then BC/BS had developed on a state-by-state
basis and was unable to offer a single standard policy for each GM facility.
Fashions change slowly.5 Only from 1976 did GM management start to pay attention to the costs
of benefits; healthcare costs had been rising faster than inflation for years, but accounting changes
forced firms to start coming to grips with this (Hall 2009). Nevertheless, GM kept expanding
benefits through 1980 (Matthews 1981); the first "give back" was only in 1984, when the co-pay on
prescription medications was bumped $2 (Hall 2006). But by that time it was too late, as most
benefits had been in place for 30 years. Retirees were living longer while health care costs continued
to climb at double-digit rates. Furthermore, GM was losing market share and improving productivity.
With early retirement buyouts on top of the industry-standard 30-and-out retirement policies, the
Only in the October 2005 UAW Health Care Settlement Agreement were monthly payments, an
annual deductible and co-pay obligations imposed upon workers and retirees for the first time. The
October 2007 GM-UAW agreement went much further, setting up a Voluntary Employee Beneficiary
Association (VEBA) that provided for fixed contributions of approximately $47 billion to a union-
controlled fund as a mechanism to cap legacy expenditures, to take effect on January 1, 2010. In
addition, in 2011 a large block of retirees would reach age 65 and hence qualify for healthcare
coverage under Medicare, reducing the cost to GM and VEBA.6 Unfortunately the Greenspan-Bush
bubble broke first, with new car sales for the industry falling from a peak of 17 million unit SAAR
(seasonally adjusted annual rate) in early 2006 to 13 million in summer 2008 and 10 million by late
fall. Everyone in the industry was bleeding money. Legacy costs pushed GM over the edge; at the
GM Healthcare, 3
time of its Chapter 11 bankruptcy filing on June 1, 2009, retirees were the company's single largest
Organization
Below I provide background on retirement systems in the US, and then turn to the specific case
of General Motors. First, I show that benefits in the industry antedated unionization, in line with
"welfare capitalism." Second, who would provide benefits was a subject of contention, but in the
United States provision settled upon employers. Already by 1958 some 71% of Americans were
covered by hospitalization policies (Health Insurance Institute 1959). At peak in 1992 employers
provided medical coverage to nearly three-quarters of their full-time employees. This fell to under
one-half by 2009 (Wiatrowski 2004; recent media coverage). Third, healthcare was cheap, and was
subsidiary to other benefits. The historical record indicates that in the period immediately after
WWII, workers were much more interested in wages than benefits, while dividends from life
insurance allowed firms to provide the healthcare component at little or no cost to themselves.
Fourth, the failure of efforts to create a national healthcare system interacted with the provision of
benefits by employers. Unions were interested in benefits because of the lack of a national system,
and firms were interested in them both in their competition with unions, and because of their belief
that this would forestall the extension of "socialist" New Deal policies.
I then sketch the growth of benefits. This occurred in the context of pattern bargaining, where
GM as the strongest firm in the industry was generally not the "strike target" and so followed the
terms agreed upon by Ford or Chrysler.7 I have not attempted to compare benefits in the automotive
industry with those offered by other major employers (including state and local government); while
the coverage was certainly gold-plated, I do not believe it was unusually expensive. I thus do not
believe that would change the overall picture that the automotive industry was a follower of trends
set elsewhere, in the steel and coal industries, as labor relations and worker benefit fashions shifted
in the American economy as a whole. A major puzzle remains as to why the industry was not more
7. Which in the 1940s and 1950s included Kaiser-Frazer and American Motors, alongside Ford and Chrysler.
GM Healthcare, 4
proactive. My sense is that the multiplicity of players (including retirees) made change very difficult,
though both GM and the UAW were active participants (alongside insurers) in drafting a healthcare
reform proposal in the latter 1980s. But I also suspect that GM (and the UAW) viewed the world
through rose-colored glasses, repeatedly assuming that it had stabilized its business and hence could
survive its legacy cost burden, while fearing that a fight over benefits would incur a long and costly
In 1908 the Flint Vehicle Factories Mutual Benefit Association added to its membership of
carriage manufacturers the Buick Motor Company, which was later acquired by General Motors.
(Murray 2007, 3) This was one of a wide array of friendly and fraternal societies and other local
groups that offered death, burial and sickness benefits to members; some fraternal lodges even
maintained doctors on retainer. At peak about one-third of adult men had coverage through such
associations – it was a potent recruiting tool – including Southern blacks and Northern immigrants.
However, such group policies were poorly managed, charged fees (typically $2 per year) that were
actuarially unsound, suffered from adverse selection, and were opposed by doctors (Gordon 2003,
51). This however reflected an underlying demand for such insurance, as the population moved off
the farm and dependence on non-agricultural wage income rose. However, healthcare itself was
relatively inexpensive (and ineffective); the real demand was for insurance against the loss of wages
Without a strong labor movement, and in the context of a Federal system, there was no pressure
to provide workers with benefits as in Germany, or to extend the Poor Laws as in Great Britain.
Furthermore, where there was pressure to provide benefits, the locus of provision remained in
contention. Initial formal policy reflected this, in that Workman's Compensation (important because
it helped offset legal liabilities of employers) was set up on a state-by-state rather than a national
basis, starting with New York in 1910. Legislation extended to pensions for widows, with coverage
GM Healthcare, 5
in 20 states by 1913 (Tishler 1971, 141).8 Similarly, unemployment insurance developed on a state
rather than a Federal basis. This fragmentation showed up in later debates over healthcare, as at one
point roughly 20 states had legislation under consideration, but none passed, though at one point
Rhode Island, California and New Jersey offered limited coverage as an extension to unemployment
A third option was direct provision by firms. This was most apparent in remote company towns
in mining and forestry, and in railroads. It was at times necessary, because no care was otherwise
available, while firms hoped to lessen legal liabilities (workmen's compensation) and limit
malingering and claims for sick time. Direct provision was thus also a mechanism, with company
doctors and hospitals, of varying levels of quality; a 1939 survey of Appalachian medical care found
that "the mine doctor's ignorance is proverbial all over the field – even among the doctors
themselves." (Derickson 1994, 1345) Similarly, a number of unions provided benefits for members,
setting up clinics. While there were many interesting and successful experiments, as traced by Munts
(1967), overall workers disliked such systems and unions viewed corporate-run systems as either
inappropriate (since workers were docked for premia to cover costs) or a threat to their own efforts to
A fourth piece of the mixture, alongside voluntary associations, legislation and direct provision
was private insurance. Life insurance was widely available by the end of the 19th century, sold to
individuals through a network of agents. In contrast, accident and health insurance had been
8. Laham (1993) attributes the lack of a healthcare system to lobbying by the American Medical Association
(AMA); it was a powerful political force, and local boycotts and state-level lobbying constrained the
growth of Blue Cross in its early years. Hoffman (2001) focuses on the period through 1919, emphasizing
ideological components. WWI poisoned any attempt to model policy on the German experience, and the
Bolshevik revolution in Germany amplified the reactionary business component of American politics.
Both note the systematic misrepresentation of policies in the UK and Canada by the AMA. Berkowitz and
McQuaid (2006) emphasize the role of the federal-state split in the US.
I draw more heavily on Gordon (2003), Gottschalk (2000) and Klein (2003), who paint a more
complicated interaction of insurers, unions, politicians and doctors.
GM Healthcare, 6
considered impossible, due to the issues of adverse selection and moral hazard: policies would be
purchased overwhelmingly by those who had a legitimate expectation of being sick, and once
insured would make excessive demands (Faulkner 1940).9 The advent of group insurance changed
that. Most notable was the growth of Blue Cross hospitalization, beginning with a Baylor University
Hospital policy for teachers in 1929, extended to several hospitals in 1932. Such policies proved
actuarially feasible and offered hospitals a surer financial footing during the Great Depression; it was
available in cities in 16 states by 1937. (Anderson 1975; Cunningham and Cunningham 1997)
In the building trades and other AFL unions where multiple or small-sized employers were the
norm, unions availed themselves of this option. (Markowitz and Rosner 1991) More important,
however, was the comparable expansion of "welfare capitalism" in the interwar period and the Great
Depression. Firms offered life insurance, pensions and other policies in competition with labor
unions, and (as urged by Rockefeller) to stave off government policy. Ford Motor offered various
benefits, directly and indirectly. In the early 1930s Edsel Ford and Ransom Olds built Henry Ford
Hospital in Dearborn, a couple miles from the Rouge complex; in 1938 it offered pre-paid
hospitalization coverage. At General Motors, the company set up an employee savings plan in 1919,
and over time added company doctors, parking lots, and showers. (Sloan 1964) More notable, in
1926 GM signed what at the time was the largest life insurance contract ever with Metropolitan Life
Insurance, covering 100,000 workers; that option proved popular, and with expanding employment
expanded 200,000 workers were covered by the outbreak of the Great Depression. GM then worked
with MetLife to expand benefits, with sickness and accident insurance from 1928, and group
hospitalization and surgical coverage from 1939. In 1941 GM offered the option of direct payroll
deduction for Blue Cross (hospitalization) and Blue Shield (surgical coverage). However it (and
9. These twin dangers are present in all insurance. Hence to combat adverse selection we see the preference
for making insurance compulsory and of refusing coverage to those who statistically will make more
claims. Similarly, moral hazard is associated with the use of deductibles and co-pay provisions to
discourage frivolous and frequent claims, as well as fixed payment schedules and independent adjusters to
prevent malfeasance.
GM Healthcare, 7
General Electric) then extended these benefits unilaterally through MetLife because it could offer
uniform, nationwide coverage, unlike the Blue Cross programs. But making BC/BS available was a
widespread practice by that point in time. When it came to pensions, GM was a laggard. It first
provided retirement pensions in 1940, and then only for its most highly-paid salaried workers. As
Such "welfare capitalism" was not unique to GM, nor to the auto industry. Dobbin (1992)
documents this using National Industrial Conference Board surveys that began in 1928. At that time,
29% of firms already offered some form of pension, 30% had mutual benefit associations, and 15%
health or accident insurance (1424, Table 1). By 1946 these numbers rose to 50%, 13% and 38% (as
formal insurance replaced mutual benefit efforts). Dobbin notes that while both wage controls from
1942 and the deductibility of premia from 1943 would seem to offer a strong incentive for employer
provision of benefits. After all, with a wartime excess profits tax was 90% the net cost of provision
was low. However, he found that the actual timing of changes did not match those of wage controls
and tax changes. Rather, benefits were used at a tool by large employers to recruit and retain workers
during a period of extraordinarily tight labor markets. Again General Motors was merely in step with
the fashion of the times, setting up an internal "Employe [sic] Benefit Plans Committee" in
1946-1950
The end of the war saw the rapid evolution of benefits, from life insurance to healthcare to
pensions. At the forefront of this push, however, were the steel and coal industries; the automotive
industry in general merely followed their lead, and within the auto industry the outside firms –
Kaiser-Frazer, Ford, Chrysler, American Motors – were the first to strike bargains. General Motors
then followed, sometimes within months, and at most by a couple years, depending on which firm
GM Healthcare, 8
Benefits had been extended during World War II; the first battle for unions was bargaining to
maintain what was in place at the end of the war. To do that they needed to be able to formally
bargain for benefits. That benefits were indeed a legitimate object of collective bargaining made
sense; insurance premia and pension contributions were after all deducted from pay. However, that
unions could legally demand the inclusion of benefits in negotiations was not clarified until a 1948
finding of the National Labor Relations Board over negotiations between Inland Steel and the United
Steel Workers. (This was then appealed to the Supreme Court, which upheld the NLRB finding in
1949.) A whole range of settlements followed in the steel industry in 1948, in addition to the de facto
outcomes in coal following a strike in 1947. At GM the topic of benefits was tabled in 1948, pending
the the final resolution; it was not important enough to those involved to work out an interim
In the background was a second battle for the control of these benefits; prior to the late 1940s
they had been put in place not through a process of bargaining but on a unilateral basis at the
discretion of management. Unions wanted control of these funds and to use benefits to use as a
recruiting tool. In fact, union locals at GM facility began offering group insurance policies on their
own. By 1942, these covered 90,000 workers within Michigan alone (Klein 2003, 156). Management
wanted control, and in the end was successful in obtaining it. On the one hand, GM offered various
benefits from its own end, in implicit competition with the unions. Following a long strike in 1947,
the United Mine Workers negotiated a levy on each ton of coal produced that went into a union-
controlled benefits fund. However the legality of that remained unclear, and mine owners feared that
funds would be misappropriated, by which they meant borrowed from to fund strikes and organizing
efforts. In the case of General Motors, the United Auto Workers protested when GM announced a
GM Healthcare, 9
modified group insurance policy in 1947, which went into effect in 1948. GM rejected their claim
Unions had a reason to be concerned, as they were not privy to the details of the costs of
benefits, and were unable to directly monitor the manner in which they were provided. Large group
life insurance policies, such as those negotiated by Ford and GM, paid dividends on the basis of
performance, which proved good. Ford passed this on to their workers, giving them a one-month
credit towards their group hospitalization coverage in 1940 (Cunningham and Cunningham 1997,
98). In contrast, GM utilized its dividends on its group life insurance to pay for its group disability
policy. As a result, it had no need to contribute cash towards its hospitalization and surgical policies
until 1948. This was at best disingenuous if not unethical, since workers contributed half the
contracted cost of their life insurance but GM pocketed the dividends, which thus were akin to a
kickback (Klein 2003, 225). Unions knew companies were playing tricks, but because these policies
were controlled by the firms, they lacked detailed information and could do nothing.
Equally, this was a visible and popular benefit, especially when it took the form of direct
reimbursement – the Blue Cross model – rather than indemnification, as with regular insurance
policies. The coal industry, through its negotiations, was able to shift control away from firms and
into higher quality care that was more convenient than having to pay up front, without knowing
when and how much insurance would cover. This was a potential organizing tool. Companies were
also fearful that unions would abuse control over benefits, diverting funds for example to support
strikes.
In the auto industry, however, the emphasis of bargaining remained wages, and that also reflected
workers' priorities. In 1947 Ford offered the union two different compensation packages, one with a
7¢ pay boost plus a pension, the other with a higher 11.5¢ pay increase and additional holidays,
10. Rather, unions, because at the time UAW locals were not under a single structure, and other unions were
present across a range of firms. Except for the Electrical Workers and small numbers of skilled trades, that
changed with the ascendance of Walter Reuther after WWII.
GM Healthcare, 10
boosting the value of the package to 15¢ an hour, a total less than the package that included the
pension; workers voted for the cash (Rowe and Weiss 1948, 233). Not that health care was of no
concern. Some 52,000 workers signed up when Ford offered a program in February 1940 through the
Henry Ford Hospital at $2 a month for a family, a couple months after GM signed a group
hospitalization policy with Metropolitan Life. Within two years, 450,000 workers signed up for
hospitalization in Michigan (Cunningham and Cunningham 1997, 47-48). But again, wages were
central: the biggest development in that period was the cost of living clause introduced at GM in
1948, coupled with an "annual improvement factory" boost reflecting past and expected future
productivity improvements.11 Takehome pay was the top priority, while life insurance remained more
popular than health insurance, and health insurance (particularly sick time) was valued more than
Nevertheless, once the NLRB ruled on the Inland Steel Case, collective bargaining over
healthcare spread rapidly. Kaiser-Frazer, the smallest of the 5 assemblers then remaining in the US,
was the first to give in, negotiating a 5¢ per hour into a jointly managed benefits fund for pensions
and insurance, or about 3% of wages. Those terms remained unique to it. The other companies had
negotiations in 1948 and 1950. As noted above, GM's contract was signed in 1948 before legal issues
resolved; health care was not a big enough issue to work out provisional arrangements. Ford and
Chrysler, however, went ahead and negotiated over benefits. Ford in particular agreed to provide a
pension, and to contribute half the cost of a variety of other benefits including hospitalization. (Since
11. The other major issue was the union request for a "closed shop" that would mandate membership in
facilities with union representation. The initial "give" by the auto firms required that new hires join but
gave them an opt-out after a fixed period of employment. The UAW had negotiated highly visible pay and
benefits for members, and well under 1% of new hires dropped their "trial" membership. See that, GM
gave in to the closed shop. As a result, UAW membership at GM grew by 105,000 workers in 1940-1949
and by an additional 114,000 workers by 1955, to reach 400,000 in total, with virtually no expenditure on
recruiting by the UAW.
GM Healthcare, 11
some plan was in place, this was as much form as substance.) GM fell into line in the next round of
The end result was a shift from unilateral company benefit plans with varying coverage and no
bargaining with the UAW. By 1950, a survey of 63 plants of 60 companies with 683,000 workers
found that 100% had sickness and accident coverage, 97% had life insurance, and 90%
hospitalization (Rowe 1951, 278-80) Strikes at steel firms and at Chrylser meant that all wanted to be
in fashion. While healthcare was a comparatively unimportant part of the mix, it did signify that
employers in the auto industry, GM included, had accepted in principle their obligation to provide
healthcare and similar non-wage benefits, even while maintaining full control of the financing.
During the subsequent 25 years GM and the union expanded healthcare benefits. This generally
followed an agreement by either Ford or Chrysler, which except for 1970 were the "strike targets"
under pattern bargaining. At the same time wages steadily increased.13 Ford in addition agreed in
1955 to offer supplemental unemployment benefits (SUB pay), which likewise increased over the
years. The following table highlights key innovations and their dates. The sources for these data
focused on negotiations with the UAW. However, it appears that in most cases such benefits were
offered to executives, and then to white collar workers, before they were extended to (unionized)
hourly workers. The pattern is one of unilateral increases in benefits until 1984. However, few
changes were made until 2005, and major changes only in 2007. However, the phase-in was over a 4
12. Pattern bargaining, where the UAW negotiated contracts with all of the major auto companies in the same
year, was not yet in place.
13. UAW wages were how I paid college tuition one year at Harvard, not a subsidized state school.
GM Healthcare, 12
Table 1: Healthcare Benefits Chronology
1926
Metropolitan Life Insurance Group Policy: 100,000 workers
1928
Sickness Insurance (weekly cash benefits after a waiting period)
1939
Group health policies start
1942
UAW locals cover 90,000 workers with group policies
First post-Inland Steel contract.
hospitalization, surgical coverage on 50:50 basis. shift from MetLife to Blue Cross
1950
(hospitalization) / Blue Shield (surgical) coverage.
also pensions (defined benefit), COLA.
1952 Comprehensive Medical only for white collar with salaries over $5,000 / year
Kaiser Health Care Plan in California. 1st Health Maintenance Organization (sole provider)
1953 plan. such plans remained unusual at GM, and were ultimately banned as impossible to price
on a competitive basis.
"" Retirees could purchase BC/BS at own cost, deducted from pension
1959 Comprehensive Medical for unionized workers (all salaried covered from 1957)
1960 above paid in full for unionized workers
1961 Blue Cross / Blue Shield extended to retirees on 50% employee cost basis
1962 BC/BS for active workers fully funded by GM
1964 BC/BS for retirees fully funded by GM
1965 Elimination of various co-pays (e.g. lab work & x-rays)
1968 First uniform national plan with BC/BS (each local BC/BS had been autonomous)
1969 Prescription medication plan for active workers
1971 Prescription plan extended to retirees
1974 Dental and eyecare coverage for active workers
Dental, eyecare extended to retirees
1977
Hearing aid coverage to both active and retired
1980 Vision care to retirees
Modest increase in prescription drug co-pay; bargaining agreement barely approved by
1984
UAW membership (54%, vs previous 90+% in favor)
2005 Introduction of systematic co-pay and deductible requirements
VEBA (Voluntary Employee Benefit Association), de facto shift of healthcare from a defined
2007
benefit basis to a defined contribution basis. to be effective January 1, 2010
2009 June 1 Chapter 11 bankruptcy filing
Afterthoughts
if ever a leader, in an industry that in the early years likewise lagged behind coal and steel in major
innovations in collective bargaining. At the same time, the auto industry built upon a legacy of
"welfare capitalism" implemented in varying degrees in the late 1930s and early 1940s. General
GM Healthcare, 13
Motors however is understudied relative to Ford, perhaps because of the careful control that GM
exerted over its public image during the reign of Alfred Sloan (from 1920 to roughly 1950) as CEO.14
That extended beyond his era, and led to a lack of interest in maintaining archives. The internal labor
relations history by Garrett (1956, 1964), for example, is carefully sanitized; there is no hint of any
internal discussion on which direction the firm should take, only an endearing antipathy to the UAW.
There was reason for GM's attitude: in the early days not only was the union militant, with a bitter
strike immediately after the war as well as the long initial sit-down strike in 1936-7, but it was also
fragmented with in the initial years with both AFL and CIO shops and highly independent locals. It
was important to speak with one voice. However, in addition lingering antitrust concerns
Second, documenting benefits is challenging. The Bureau of Labor Statistics apparently did not
collect data on a systematic basis until 1972. Because it was a focus of negotiations, and required
have found there is little evidence that it tracked costs, much less did so looking forward to the
impact was longevity increased, as productivity improved, and with the possibility that market share
would decline. No one foresaw that there might be roughly 600,000 retirees and dependents [check]
against an "active" workforce of 90,000 – and that number continues to fall. At the same time, this is
an argument from silence; the more copious records at Ford likely provide the ability to document
such developments more carefully, and may suggest that benefits received a greater strategic
Third, while not the purpose of this paper, contemporary sources make it clear that all of the ills
of the American healthcare system were noted from the beginning by the parties involved. The
difficulties employment-based benefits entailed with a mobile workforce were well known. That it
favored urban male breadwinners was also understood; women and rural residents, and those
otherwise on the fringes of the system, were clearly left out. That fed into the development of
GM Healthcare, 14
Medicare and Medicaid in 1965, with the implicit stigmatization of those receiving public assistance,
themes of Gordon (1983). The growth of experience-rated policies was also viewed with trepidation.
Firms were unwilling to leave price-setting up to insurance companies, who in the past found
purchaser such as GM. But this opened the way to adverse selection in the overall health care
industry, and the gradual unwinding of the entire system. Finally, it was clear that the fee-for-service
system, while administratively convenient, offered little or no ability to control costs. Those were
driven by new technology and increasing longevity (Fonseca et al. 2009). Focusing on competition
and on co-pays that would discourage excessive utilization do little to address those issues.
Finally, by 1950 the parties were locked into place. Not only were workers covered through their
employers, but insurance companies had built a large business, while hospitals doctors benefited as
well from the status quo. Interest in national healthcare faced an institutional nexus where multiple
potential players had no interest (those with coverage through their employer) or (in the case of
insurance companies and especially physicians) actively opposed change. That, too, was well known
at the time.
Separately, the story is incomplete as it stands. GM was viewed as a leader in the provision of
pensions.15 While it (and the auto industry more generally) may have followed general fashions in
health care, this does not preclude it being a trend setter in other areas. Second, the company-specific
materials utilized for this paper reflect the perspective of GM management and not that of the unions.
The biography of Walter Reuther indicates that he was very concerned with pensions and health care,
and sat on the national board of Blue Cross. This draft does not incorporate that material, which
would add nuance. Nor does it extend the inter-industry analysis beyond the 1947-1950 time period.
Benefits were gradually extended until 1980; the implicit assumption of this paper is that this was in
step with what was done in other industries. However, the automotive industry may in fact have
become the driving force in offering a full pallet of employer-funded benefits, which eventually
GM Healthcare, 15
ranged from full hospitalization and medical care to dental coverage and eyecare.16 The labor
relations dynamics traced here do not explain why these benefits were extended to retirees,
particularly in an era when they were few in number. My understanding is that retirees, and not
merely current workers, were able to vote in elections for union leadership. But retirement benefits
were widely available to teachers and other state and local government employees. So this too may
The largest remaining puzzle however is why GM was so slow to attempt to control costs.17 This
may be part of the wider story of the dynamics of an oligopolistic industry, as GM as a dominant
firm gradually ceded market share to new entrants. While rational from an industrial organization
(game-theoretic) standpoint, this had disastrous implications for fixed costs. The loss in market share
systems (30-years-and-out) and buy-outs, the ratio of "active" workers to retirees exploded. At the
same time increasing longevity and the explosion of healthcare costs under the fee-for-service
system increased per retiree costs. The long-run denouement was bankruptcy. Yet even there GM
was a follower, as Big Steel had taken that route a full decade earlier.
16. This extended to generous pensions, early retirement options and the partial implementation of a
guaranteed annual salary via SUB pay that supplemented state-level unemployment benefits.
17. GM was an active participant in a Congressional working group, along with the UAW, insurance industry
representatives, and other interested parties, in an attempt to broker national health care reform in 1986-7.
A tentative package was worked out, only to be undermined when Sen. Ted Kennedy withdrew from the
negotiations and introduced his own legislation. GM apparently viewed the issue as systemic, beyond the
ability of solution through independent efforts. To date I have not fleshed out details of this, beyond a
general overview from ongoing conversations with the GM representative, Beach Hall.
GM Healthcare, 16
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