SECTION: CAPITOL HILL HEARING TESTIMONY

LENGTH: 2319 words

COMMITTEE: SENATE HEALTH, EDUCATION, LABOR AND PENSIONS

HEADLINE: "THE FUTURE OF AMERICAN STEEL: ENSURING THE VIABILITY OF THE INDUSTRY AND THE HEALTH CARE AND RETIREMENT SECURITY FOR ITS WORKERS:

TESTIMONY-BY: LEO W. GERARD, INTERNATIONAL PRESIDENT

AFFILIATION: UNITED STEELWORKERS OF AMERICA

BODY:
Testimony of

Leo W. Gerard International President United Steelworkers of America

on Steelworker Health Care and Pension Benefits

before the Senate Committee on Health, Education, Labor & Pensions

March 14, 2002

Madam Chair and distinguished members of the Committee, thank you for your invitation to appear before you today to discuss the health care and pension crisis facing several hundred thousand steelworkers across the nation.

While the United Steelworkers of America was pleased that the President took a step toward reigning in steel imports by imposing variable tariffs on various steel products in the recent Section 201 case, the President pointedly chose not to address the matter of the retirement and health security of steelworkers and our retirees. He apparently intends to leave this unfinished business in Congress' hands.

By every measure, the American steel industry is in crisis. As of today, 32 U.S. steel companies representing nearly 30 percent of U.S. steelmaking capacity have filed for bankruptcy. Twenty-one steelmaking plants are idled or shutdown representing the loss of 25 million tons or 19 percent of this nation's steelmaking capacity. Some analysts mistakenly believe that minimills (which produce steel by melting scrap in electric arc furnaces) haven't been hurt by unfair trade and record low prices, it is noteworthy that fifteen of these 21 shutdowns are minimills. In fact, shut down steel capacity is almost evenly divided between integrated steelmakers and minimills.

Steel prices have fallen to the lowest levels in twenty years. The December, 2001 composite average of steel prices published by Purchasing Magazine had declined by $140 per ton or 33 percent from the average between 1994 and 1997. The industry posted a combined operating loss of $1.3 billion during the first nine months of 2001.

How did this happen?

The USWA warned our policymakers as early as 1997 that the Asian economic crisis and the collapse of the Russian economy would, if not dealt with correctly, lead to a flood of imported steel. The delay by our own government in responding to the crisis made matters considerably worse. The events of 1997 and 1998 were only the latest in what the U.S. Department of Commerce has identified as thirty years of predatory unfair trading practices and government subsidies by many of our trading partners.

Some today suggest that the American steel industry must be restructured, as if this had not already happened before. Between 1980 and 1987, the American steel industry underwent a painful restructuring, eliminating 42 million tons of steelmaking capacity. Over 270,000 jobs were eliminated. Many workers were forced to take early retirement based on the promise of a pension and continued health care benefits. The tax base in steel communities in Pennsylvania, Ohio, Indiana, West Virginia, Minnesota, and elsewhere shrank as workers went from earning paychecks to collecting unemployment benefits. Some local communities have never recovered from the last steel crisis.

Yet at the same time that our American steel industry has been contracting and downsizing, our foreign competitors have been adding additional steelmaking capacity. OECD data indicates that foreign steel producers had excess raw steel production

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capacity amounting to over 270 million metric tons. That is more than twice the total annual steel consumption in the United States. Recent multilateral talks in Paris on reducing global overcapacity have revealed that despite the reductions in U.S. capacity, our trading partners fully expect the U.S. steel industry to continue to downsize even further. The Paris talks are instructive for they illustrate yet again that multilateral negotiations are no substitute for strong enforcement of our own trade laws, including Section 201 and our anti-dumping laws.

The testimony which you have heard today from steelworkers and retirees from Maryland, Pennsylvania, and Minnesota illustrates the depth of concern across the nation by our active members and retirees. They have worked hard and given the best years of their lives to this industry. Now, they are simply asking that promises made become promises kept.

At the end of 1999, American steel's retiree health care benefit obligation totaled an estimated $13 billion. Health care benefits for 600,000 retired steelworkers, surviving spouses, and dependents annually cost domestic steel producers an estimated $965 million or $9 per ton of steel shipped.Another 700,000 active steelworkers and their dependents rely upon the domestic steel industry for health care benefits. The average steel company has approximately 3 retirees for every active employee - nearly triple the ratio for most other major basic manufacturing companies. Several steel companies have retiree health care costs that are substantially higher than the industry average. Our active members and retirees are concentrated most heavily in Pennsylvania, Ohio, Indiana, Maryland, Illinois, West Virginia, Minnesota, and Michigan, but they live all across the nation.

In the U.S. up to now, we have made a public policy choice in favor of employment-based health insurance coverage rather than guaranteed national health insurance. This means that when an employer goes bankrupt or liquidates its operations, absent a social safety net, workers are at risk of losing their health insurance and access to health care services. Regrettably, thousands of steelworkers from Acme, Laclede, Gulf States, CSC, Northwestern Steel and Wire, and various other steel companies are now facing this terrible prospect.

The USWA is very proud of its record in negotiating decent health care coverage for both its active workers and its retirees. In 1993, our union made history when we negotiated pre-funding of retiree health care in the iron ore industry. Benefits provided to steel industry retirees are equivalent and, in some cases, more modest, than benefits provided to retirees from other basic manufacturing companies, such as Alcoa, Boeing, and General Motors. These plans typically include cost containment provisions, such as deductibles, co-payments, pre-certification requirements, coordination with Medicare, and incentives to utilize managed care.Most of our retirees pay monthly premiums from 25 to 40 percent of their retiree health care benefits, plus several hundred dollars a year in deductibles and co-payments. Retiree premiums for major medical coverage vary by

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employer due to differences in demographics, regional health care costs, utilization, and design of the plan. The USWA estimates that the average major medical premium during 2001 was approximately $200 per month for a non-Medicare eligible couple and $150 a month for a Medicare-eligible couple.

American steel's international competitors do not bear a similar burden. In one form or another, foreign producers' retiree health care costs are offset by government subsidies.

In Japan, the government provides government-backed insurance programs. Government subsidies cover some administrative costs and contributions to Japan's health care programs for the elderly.

In the United Kingdom, the UK's National Health Service is 85 to 95 percent funded from general taxation with the remainder coming from employer and employee contributions.

In Germany, health care is financed through a combination of payroll taxes, local, state, and federal taxes, co-payments, and out-of-pocket expenses, along with private insurance. Insurance funds with heavy loads of retired members receive government subsidies.

In Russia, de facto government subsidies exist. While Russian steel companies theoretically pay for workers' health care, the national and local governments allow companies not to pay their bills - including taxes and even wages. At the end of 1998, Russian steel companies owed an estimated $836 million in taxes. According to the Commerce Department report, the Russian government's "systematic failure to force large enterprises to pay amounts to a massive subsidy."

The U.S. is the only country in the industrial world in which the health care benefits of retirees are not assumed by government to facilitate consolidation in one form or another. It is now very clear that American steelworker retirees stand to be hit twice by the collapse of the steel industry since a majority of them were forced into retirement (350,000) - many prematurely - during the massive restructuring of the steel industry during the late 1970s and the 1980s. First, they lost their jobs before they were ready to retire, and now they may lose they health care and a significant portion of their pension now that they are ready to retire. Our own government's inadequate enforcement of our trade laws is the principal reason that steelworkers and steelworker retirees' health care benefits are now at risk.

Because our government has allowed this unlevel and unfair trade environment to develop and consume our industry, government now has a responsibility to our steelworkers and retirees and to the steel industry to help craft a solution to this problem.

Why is action needed?

Retirees under age 65 and older active employees who have been displaced by plant shutdowns are not yet covered by Medicare.

They cannot purchase COBRA continuation coverage because companies are not obligated to provide COBRA coverage when they no longer maintain a health care plan for employees actively at work. Steel companies which have filed for Chapter 7

bankruptcy (i.e., liquidation) have already moved to terminate health care plans for their workers and retirees.

They cannot afford COBRA premiums even when such coverage is available.

They cannot afford commercially-available health insurance coverage.

Many cannot meet insurability requirements (and may not have continuous coverage under HIPAA).

Many have difficulty in finding new jobs that pay similar wages or benefits.

Why is action needed for retirees age 65 and over?

Because Medicare has significant gaps in its coverage. Medicare also has significant deductibles and co-payments. There is no coverage for expensive outpatient prescription drugs. Also, health care providers often do not accept Medicare reimbursement rates as full payment, at which point they go after the retiree for full payment.

Medicare Supplemental Insurance ("Medigap") is available, but it is costly and has limited prescription drug coverage. The most comprehensive of the Medigap supplements (Plan J) covers only 50 percent of prescription drug costs and limits drug benefits to $3,000 per year.

The average retiree receives a monthly pension benefit of less than $600 to $700 per month. Most surviving spouses receive monthly benefits under $200 per month.

Finally, Medicare HMOs (or as they are sometimes referred to "Medicare + Choice") are available only in limited areas of the nation.

Some who have looked at this problem, particularly with respect to access to prescription drugs, have said the Bush Administration's proposed "Medicare Prescription Drug Card" might be a possible solution. The proposed card would provide discounts of 10 to 25 percent from retail drug prices.

But low income drug assistance is limited to people below 150 percent of the Federal poverty level. That's an individual with an annual income of $12,000 or a couple with a combined annual income of $15,000.In fact, more than half of Medicare beneficiaries would not qualify for Low-Income Drug Assistance. The Low-Income

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Drug Assistance proposal does not describe how premiums would be set nor does it describe the level of out-of-pocket expenses (i.e., deductibles or co-payments) to be paid by Medicare recipients. Also, states would be required to assume 10 percent of the cost of the Low-Income Drug Assistance proposal at a time when nearly every state is facing budget deficits because of the recession and sharply-rising costs for their Medicaid programs.

The Bush Administration is also considering tax credits as a device for helping the uninsured. Under this proposal, a refundable tax credit of $1,000 to $3,000 (depending on family size) would be made available to individuals without employer provided health insurance. The problem here is that the tax credits are too small to make health insurance affordable. A "Family USA" study found that a healthy 25-year old woman pays an average of $4,734 per year for coverage under a standard health plan, compared to the $1,000 tax credit offered.

Until the steep increases in health care costs can be contained, the real value of any refundable tax credit will diminish year by year. A recent report from the Centers for Medicare and Medicaid Services, which is an arm of the Department of Health and Human Services, says that health care costs are expected to grow at a rate of 7.3 percent annually between now and 2011. That means that by 2011, Americans will be spending $9,216 per person on health care, or about double what they spent in 2000. The nation's health care bill could reach $2.8 trillion, or 17 percent of the nation's gross domestic product, by 2011.

Clearly, this problem is not going to go away.

Let me state this very clearly.It is the view of the United Steelworkers of America that the pension and health care commitments made to our active workers and retirees must be honored. These issues are every bit as important to us as the recent Section 201 determination on restraining foreign steel imports.

Our active members as well as our retirees look to you for action. We will work with you and your colleagues in both the House and Senate continuously until this problem is solved and we will not relent in our efforts.



LOAD-DATE: March 20, 2002