South-Western - Management  
The Breaking Point
Topic Managing Human Resource Systems
Key Words labor unions, health care
InfoTrac Reference A97926868
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News Story 

GE’s health-care costs have jumped 45% since 1999, to $1.4 billion in 2002, while they reported only a 7% gain in net income in 2002. These fast-rising health costs have forced GE to raise their employees’ health-care co-payments. Union leaders feel these health-care benefits should be negotiated during contract talks, not decided unilaterally by management. This resulted in a 2-day nationwide strike against GE in January.

GE is not the only company having trouble paying for health-care benefits. The amount of money spent on health care in the U.S. jumped 8.7%, to $1.4 trillion, in 2001. Health-care has become the make-or-break issue between unions and employers. Experts are predicting strikes will become common over this issue. Companies negotiating new contracts this year include the Big Three automakers, telecom firms Verizon, Qwest, and Avaya, and tire makers Goodyear, Bridgestone/Firestone, and Uniroyal/Goodrich. All of them are expecting hard bargaining in the area of health-care.

To deal with the rising costs, employers are boosting worker payroll contributions, co-pays, and deductibles for doctor and hospital visits. The amount each employee paid in premiums and out-of-pocket costs last year grew 10.8%. This year it is expected to jump an additional 24.2%. Wages, meanwhile, are increasing at a 3-4% rate. As a result, labor leaders are predicting an increase in the number of strikes by as much as 20%, and this will hurt an already suffering economy.

Companies fear that if they don’t pass some of their costs on to employees, they will have to eliminate jobs. The amount companies paid for employees’ health-care premiums last year rose 14.8%. Rates are expected to climb in double digits again this year. The money spent on health-care, companies contend, hurts stock prices and takes away from investment in the company’s future.


Whether one sides with the company or the union, it is clear that rising health-care costs are a serious problem. As a manager, how would you ease tensions among your employees in this matter? What might a company do to lessen the burden, other than pass it along to employees?


The article ends with a statement by a union leader that says, “If the company has the ‘arrogance’ to wring more out of its members for their medical benefits, the union will strike again. ‘We’ll fight to the bitter end.’” Do you believe unions are acting in the best interests of their employees in advocating strikes over health-care costs? Explain.

Source David Stires, "The Breaking Point," Fortune, March 3, 2003, p. 104.
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