- Commentary -

January 5, 2010 (FinancialWire) (By Philip Holmes) — A recent move by Ford Motor Co. (NYSE: F) sheds light on the current challenge to reform the healthcare system in the US – and what a long, slow, slog in the mud it will be.

On Monday, the automaker said it had completed the transfer of billions in retiree healthcare liabilities to a trust run by the United Auto Workers, The company said the move will allow it to run at lower cost in future by offloading billions of healthcare liabilities from its books.

According to Reuters, Ford said it completed scheduled payments of over $2 billion, and had opted to make an early payment of $500 million on debt owed to the UAW’s VEBA trust, or Voluntary Employees Beneficiary Association.

The VEBA trust came as a result of a 2007 deal struck by Ford and other U.S. automakers to remove around $80 billion healthcare liability from their balance sheets.

General Motors, Ford and Chrysler together pledged about $48 billion to the union-aligned trust fund to settle the debt. The provision will cover up to 675,000 retirees and dependents.

It’s a desperate move made in dark times for the automakers. Each has struggled with declining sales in key markets, with GM and Chrysler facing bankruptcy and the need for government bailout.

Any recovery push for the domestic auto business faces one steep obstacle: out of control, and rapidly rising healthcare costs. The offloading of retiree obligations only partially addresses this problem.

Enter the Democrats, and their “historic,” “sweeping” healthcare reform bill, versions of which have passed both House and Senate. The Senate version contains what many argue is a potential cost-reducer: a tax on so-called “Cadillac” plans.

The Cadillac plans are super-pricey insurance policies that have the effect of shielding those covered by them from the true costs of healthcare. Levying a draconian, punitive tax on such plans, proponents argue, would bring some consumer-side discipline by leading to a scaling back on plans at the higher end (think higher co-pays and deductibles), and a growing grassroots of political demand for an overall reduction in health care delivery costs.

Or so the proponents hope. Wouldn’t you know that the one group screaming loudest against the tax is the UAW, many of whose members enjoy the benefits of these Cadillac health plans.

Therein lies the real problem in trying to reform the existing system: you can’t bring pressure on delivery costs without taking something from current recipients. You can shift the burden off your books, but the high costs remain. And the cost of the obligations still on your books continue to rise.

Ford may now have some breathing room. But with the Cadillac tax set to be defeated before President Obama finally signs a healthcare bill, there is really nothing in the bill to keep its current healthcare costs from rising in double digits.

This makes it difficult for Ford to add to its U.S. workforce even if a recovery in auto sales would seem to justify it. Canada, with its low-cost universal healthcare, lies just across one border. Mexico is another, even cheaper option. Then of course there’s China, a country where companies don’t seem to offer any health insurance for workers.

The current legislation falls woefully short in the area of lowering costs. American workers can’t afford to wait years for an answer.

[Go to http://www.financialwire.net/?s=philip+holmes to see more commentaries by Philip Holmes.]

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