Chrysler Group to drive down health care costs

Chrysler Group today announced changes to the health care programs it offers to active and retired professional-administrative, management and executive employees, effective Jan. 1, 2007.

Most notably, the new plan will introduce a health care premium-sharing structure for non-bargaining salaried employees that is based on salary levels.

“We all have to do our part going forward,” said Chrysler Group President and Chief Executive Officer Tom LaSorda. “And we have to do it in a way that is innovative, competitive, equitable and provides a long-term solution. Our solution addresses the need to be competitive and recognizes that, while employees need to pay more for their health care, cost increases should be borne equitably, based on an employee’s ability to pay.”

Under the new health care program, each active salaried employee’s health care pre-tax premium increases will be based on their rank and base salary level. For 2007, that means professional-administrative employee premiums on average will not be affected, while the top of the executive ranks will be responsible for up to 100 percent of their health care premium. Mid-managers will see an average premium increase of about $450 in 2007, while the average executive will additionally contribute around $1,500.

Future incremental pre-tax premium increases will follow this pattern of “the more you make, the more you will be asked to contribute,” and any future percentage increases will be reviewed on an annual basis to reflect health care and wage economics.

Health care is one of the company’s largest fixed costs — expected to be $2.3 billion in 2006 — and continues to rise each year well beyond inflation. Since 2000, Chrysler Group’s health care costs have risen 100 percent.

“Chrysler Group must continue to drive down health care costs in order to sustain our profitable growth in a market that is intensely competitive,” added LaSorda. “The market will not allow car makers to raise vehicle prices to absorb these additional expenses. Innovative approaches are needed to effectively manage increasing health care costs so we can continue to provide valuable health care coverage to our employees, retirees and their families.”

Today, the average annual total health care cost for each salaried Chrysler Group employee, regardless of job or income level, is about $11,000. Of that total, the average salaried employee, again regardless of rank or income, pays about 27 percent of that cost, or roughly $3,000 per year in pre-tax premiums, co-pays and deductibles to their service provider. On average, that means Chrysler Group is spending about $8,000 per salaried employee for health care.

The net effect of the changes will increase on average by four percent the amount of health care costs borne by the salaried employees — rising from 27 percent to 31.

Chrysler Group today also announced changes to health care benefits for pre- and post-age 65 retirees.

Pre-65 Retirees

Currently, the company and the “early” retirees equally share annual health care premium increases.

In keeping with an approach that is equitable across groups, beginning Jan. 1, 2007, current and future pre-Medicare retirees (pre-65) will now share a percentage of health care premium increases based on the exit base salary of the retiree. Those retirees who exited at an income below $50,000 will share 50 percent of the inflationary premium in subsequent years, while employees who exited at an income of $171,000 or higher will pay 100 percent of the inflationary premium. For 2007, that means an incremental annual premium of $0 for the former and approximately $375 for the latter.

Those pre-65 retirees exiting between those salary amounts will pay more than 50 and less than 100 percent on an increasing scale based on exit salary.

Post-65 Retirees

For Medicare-eligible post-age 65 retirees, the Company is establishing a Health Care Retirement Account (HRA) of $1,750 annually for a retiree and an additional $1,750 for a spouse or domestic partner, assuming retirement with 100 percent of the necessary service-year credits. In 2008, the reimbursement will increase by 3 percent for the retiree or surviving spouse. Under the new plan, the retiree will be in the driver’s seat to choose what coverage they require and may use the HRA funds toward any or all of the following reimbursable health care expenses:

-Medicare Part B or primary medical insurance (currently $1,050 per person)
-Medicare Part D (cost depends on prescription plan based on individual need)
-Medigap Policy
-Out-of-pocket expenses
-Dental/vision coverage at competitive rates

Salaried employees hired after Jan. 1, 2004, will continue to receive an annual Retiree Health Care Account deposit. No changes are currently planned