Blue Cross Blue Shield of Michigan and UAW agree to voluntary severance program for employees

March 16, 2009

DETROIT - Blue Cross Blue Shield of Michigan announced today it had reached an agreement with the United Auto Workers to offer a Voluntary Severance Agreement for bargaining-unit employees as part of its efforts to reduce costs in the face of mounting projected losses on insurance coverage sold to individual consumers in Michigan.

By the end of the year, BCBSM will reduce its number of employees by as many as 1,000, or about 12 percent of its workforce. The reduction in jobs is expected to be achieved largely through voluntary separations, combined with some layoffs.

This is the second voluntary severance program that the company has announced this year. In January, the company offered voluntary severances to non-bargaining unit employees. Approximately 475 non-bargaining unit employees have applied for the voluntary separation. The majority of these employees will leave the company between now and June 1.

BCBSM said that it is making every attempt to implement cuts in the most humane way and as least disruptive to employees as possible.

"Having employees take the voluntary separation offer makes us well positioned to achieve our targets and minimize involuntary layoffs," said Darrell Middleton, BCBSM senior vice president, business efficiency and human performance. "We thank salaried employees and the UAW for joining with management to make these unfortunate reductions as humane as possible by supporting a voluntary job reduction approach."

The Voluntary Severance Agreement for bargaining unit workers is based on years of service and provides for two weeks of base pay for every year of employment, capped at 52 weeks. Health care will be extended equal to the weeks of the severance agreement. The agreement includes a one-time grant for tuition assistance to allow employees to upgrade their skills and marketability for the job market. Bargaining-unit employees will be able to apply for voluntary severance beginning this week. The agreement includes bargaining-unit employees at Blue Care Network, BCBSM's affiliated HMO.

The Voluntary Severance Agreement is part of a series of actions being taken by the company to reduce costs. The actions include:

  • A 8.8 percent salary reduction in 2009 for senior executives (5 percent salary cut and 3.8 percent salary freeze eliminating annual increase)
  • A freeze on executive salary for the second time in the past three years
  • A reduction in the number of executives employed at the company
  • A freeze on salaries for non-unionized workers
    Future labor cost savings through a new two-tier wage and benefit structure for bargaining-unit new hires that includes health care premium sharing, increased copayments and deductibles, and savings in retirement benefits
  • A 25 percent reduction in discretionary spending, including advertising and lobbying spending
  • Cuts to programs funded by BCBSM in local communities across Michigan

The actions are being taken to partly offset projected losses on BCBSM's individual health plans. BCBSM actuarial models project cumulative losses on its individual products of hundreds of millions of dollars. The losses are driven by a broken and antiquated regulatory system that has not changed in 30 years — despite huge growth in the number of individuals purchasing their own coverage and large increases in the cost of health care services.

"The most significant challenge to our business continues to be a broken regulatory system that, combined with the economy, is driving more people to seek individual coverage," said Andrew Hetzel, BCBSM vice president of corporate communications. "Losses on individual health insurance policies dragged down our financial performance in 2007 and 2008 — and this will continue until a fair and balanced regulatory system is put in place. Without meaningful reform, the company must move forward with cutting its workforce and spending, which unfortunately hurts the Michigan economy where we do business."

Blue Cross Blue Shield of Michigan and Blue Care Network are nonprofit corporations and independent licensees of the Blue Cross and Blue Shield Association.