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2003-12-05 -- Recovery of steel industry costs retirees their pensions and healthcare

Bush has just announced a retraction of the US tariff on foreign steel
in response to European countries' threats to impose counter tariffs
on US products from states vital to Bush's re-election.  Bush had
imposed the tariffs early in response to the "Stand Up for Steel"
campaign, a phony patriotic alliance of steel manufacturers and steel
unions.

Part of Bush's justification for withdrawing the steel tariffs was
that the tariffs had accomplished the intended result, giving the
industry time to restructure itself and become competitive.

The following Wall Street Journal article from last May shows what
"restructuring the steel industry" means:  bankruptcies in which the
new owners of steel companies rip up earlier contract provisions
promising some 200,000 steel retirees their pension and health plans.
It's one of the more graphic illustrations of how this system throws
used-up workers on the scrapheap and sets children and parents against
one another.



A Retired Steelworker Struggles
With a Health-Insurance Crisis:
How the Ailing Industry Broke Promises
From the Past to Remain Afloat Today

 By Robert Buy Matthews
The Wall Street Journal, May 12, 2003


CLEVELAND - When Chuck Kurilko was 18 years old and living in a
Pennsylvania coal-mining town, he read a classified advertisement
seeking men to work in the steel mills of Cleveland. For Mr. Kurilko,
it meant he wouldn't have to work in the mines the way his father had.
A job in steel, he believed, would provide a path to financial
security, if not prosperity.

Mr. Kurilko labored at LTV Corp. for 37 years until he retired in
2001. But his dreams of a solid future haven't panned out. LTV, along
with much of the rest of the steel industry, has been restructured and
Mr. Kurilko's health benefits are a casualty.

Now 57 years old and in fragile health, Mr. Kurilko faces an
excruciating decision. Should he use up his savings to pay the monthly
$2,864 fee for health insurance himself? Should he buy a plan that is
cheaper but provides less coverage? Or should he go without coverage
and hope that his weakened heart doesn't give out?

"We have had the biggest arguments in our marriage over this issue,"
said Carolyn Kurilko, his wife of 36 years, sitting in the living room
of their modest white bungalow on a winter afternoon. Mr. Kurilko has
suffered four episodes of congestive heart failure. Sometimes he has
been so irate over the couple's insurance dilemma that his wife
worried that he was headed for another trip to the hospital. She badly
wanted him to pay the insurance premium, but he was against it. "I
don't know what the hell he is thinking," she said.

After she left the room, her husband, who looks healthier and more
robust than he is, broke down in tears. He realizes that his health
may soon fail. If it does and he dies, he doesn't want to leave his
wife without a nest egg -- the $35,000 they have saved. The latest
doubling of premiums would quickly wipe out that pot of money.

"If I pay, we are guaranteed to lose our savings within a year. Then
what?" he asked. "I want to leave her with something."

Mr. Kurilko is one of 40,000 LTV retirees and dependents without
health insurance. A far-larger population -- more than 200,000 retired
workers and dependents, at roughly a dozen steel companies -- likely
will be stripped of their health-care benefits as well, as their
former employers reorganize or liquidate in bankruptcy. If a company
goes out of business and sells its assets to another, neither is
obligated to pick up the tab for former workers. That leaves retirees
in a no-man's land.

What makes the predicament of retired LTV workers so striking is that
their old bankrupt company is now operating profitably under a new
name. International Steel Group paid $1.5 billion for LTV and assumed
nearly all of its liabilities, not including the costs of paying
health insurance for retirees. In the business equivalent of robbing
Peter to pay Paul, the jobs of younger workers were preserved by
taking away the benefits of retirees.

A similar situation awaits the retirees of Bethlehem Steel Corp.,
National Steel Corp. and others that are now becoming parts of leaner,
stronger competitors -- which buy their assets but abandon promises
made to former workers in better times.

Increasing Burden

The same fate might befall retirees in other struggling industries
such as airlines and autos, which have managed so far to pay retiree
benefits but are increasingly burdened by them and looking for ways,
including bankruptcy, to relieve themselves of such obligations. This
year US Airways expects to spend $12 million on health benefits for
current employees, but more than $55 million for retirees, their
dependents and surviving spouses. At Ford Motor Co., the figures are
$600 million for current employees and $1.9 billion for retirees and
their families. Thus, steel retirees are already living the worst-case
scenario that some others may eventually face.

The Kurilkos and thousands of others are caught in the middle of
political, economic, global and demographic forces.

Foreign competition, the rise of nonunionized minimills -- which
recycle steel into new products -- a world-wide steel glut and
skyrocketing health-care costs have forced steelmakers to make drastic
cost cuts. Retirees are a ripe target, in part because there are so
many of them. At the integrated companies that manufacture steel from
raw materials, the 600,000 retirees and dependents far outnumber the
80,000 to 90,000 current workers and their dependents. Just before
Bethlehem Steel's assets were sold to International Steel Group
earlier this year, it had 95,000 retirees, and one active employee for
every 13 retirees. At LTV, the ratio was one active employee for every
seven retirees, before its assets were sold to International Steel
Group.


Decades ago, steelmakers agreed to generous benefits for their
retirees, in large part because of pressure from the White House. In
the early 1960s, President Kennedy pushed steel companies to give
workers whatever they wanted when the economy was fragile and steel
was in demand. Steelmakers didn't want to spend their profits on
higher wages, so instead they promised generous retirement benefits,
essentially postponing the day of financial reckoning in hopes that
when it dawned they could afford the payouts.

But they can't. The estimated lifetime tab for American steel retirees
is $14 billion. Retiree costs added about $20 to $40 to each ton of
steel made last year. Steel generally costs a few hundred dollars per
ton, depending on the type of steel and market conditions. Since the
U.S. is already one of the world's highest-cost steel producers, the
benefits helped make it impossible for unionized steelmakers to
survive. More than 30 have filed for bankruptcy-court protection since
1998. Bethlehem, once the nation's third-largest steelmaker, filed in
October 2001. LTV, once the fourth-largest, filed in December 2000.

Retirees in the 55-to-65 age range, such as Mr. Kurilko, are
especially vulnerable because they may be too young or too well off to
be eligible for government-backed health-care plans and often too old
to find another job with benefits.

Since deciding they couldn't afford to pay the insurance premium in
January, the Kurilkos have been consumed with figuring out how to
manage. Mr. Kurilko is too disabled to work and has given up serving
as an auxiliary police officer, which he did for about 20 years.

"Every day, every minute, I worry about him. I go everywhere with
him," says Mrs. Kurilko, who has been a housewife throughout their
marriage. "Or if he goes to the store, I tell him, 'You call me when
you get there.' "

Mr. Kurilko is a beefy man with a full beard and a full head of hair.
He looks strong, as if he could arm-wrestle a man half his age. But he
has a bum heart, which pumps at only 35% of what should be his normal
rate, his doctor has told him. His lungs are infected and he has
diabetes and mild glaucoma. He often sleeps sitting up in a
living-room easy chair, with an oxygen mask on, and takes about a
dozen medications to treat high blood pressure, high cholesterol,
diabetes, lung discomfort and other ailments.

Since giving up their insurance, the Kurilkos have cut pills in half
and sometimes abandoned prescriptions, even though doing so is
dangerous. When Mrs. Kurilko gave up her sinus medication, she woke up
one morning with her face so swollen she could barely open her eyes.
Somewhat reluctantly, she resumed taking her medication.

The Kurilkos also decided that if Mr. Kurilko required hospitalization
they would forgo the nearby hospital and drive 20 to 25 minutes to a
Cleveland hospital that takes patients with limited or no health
insurance.

A traditional and proud breadwinner, Mr. Kurilko was ashamed that
people might think he didn't try hard enough to make a solid,
comfortable life for his family. "People could think that I didn't
work hard," he said. "But I worked for everything that I ever owned."
He doesn't want his wife to get a job, and she also prefers to remain
a housewife. The two also are determined not to sell their home to pay
bills.

The steel industry was bustling in the mid-1960s when Mr. Kurilko,
living in Bobtown, Pa., read the classified ad looking for men willing
to move to Cleveland and work in the steel mills. It was a chance to
escape his hometown and a life in the mines. "Not enough windows in a
coal mine," Mr. Kurilko says.

Others from his hometown headed to Detroit to build cars, but Mr.
Kurilko thought Detroit was too urbanized for a boy with deep rural
roots. Besides, steel had an allure, its history woven with titans
such as Andrew Carnegie and its product girding the country's
infrastructure and its proudest landmarks, such as the Empire State
Building. The jobs were solid and for several generations had provided
a path to security.

At the time, the U.S. steel industry was still one of the lowest-cost
producers and made about 35% of all the steel consumed in the world.
The burgeoning American middle class was gobbling up steel-intensive
products, such as automobiles and appliances. Bethlehem Steel and U.S.
Steel owned raw-material deposits and dependable distribution systems
such as railroads and ships that could transport steel cheaply and
quickly. They didn't have to worry about low-cost competition.
Imported steel had yet to take hold in the U.S.; it represented about
4.5% of the market in 1960. At the time, it seemed inconceivable that
the industry would wither and implode under the pressure of its own
debt and foreign competition.

When Mr. Kurilko moved to Cleveland, he started out tending the
open-hearth furnace, a sweltering, dangerous job that paid $6 an hour,
more than his father ever made working in the coal mines, and enough
to pay for an aquamarine Ford Mustang. At the time, the company was
called Republic Steel, but it eventually morphed into LTV Steel. He
lived with distant relatives in the working-class Cleveland
neighborhood of Garfield Heights.

He married his hometown sweetheart and eventually the couple bought a
modest three-bedroom house, where they raised their daughter and son
and continue to live. To escape the hot belching furnace and the
asbestos suit he wore each day, Mr. Kurilko in 1969 became an
apprentice in the machine shop, taking a huge pay cut to $2.18 an
hour. He settled into his new life, working the 11 p.m. to 7 a.m.
shift as a machinist.

Changing Fortunes

Steel's fortunes began turning in the late 1970s and early 1980s, when
low-cost imports began flooding in, exposing the inefficiencies and
outmoded technology of U.S. producers. By the early 1970s, imports had
won nearly 18% of the U.S. market. LTV went through two bankruptcies,
seven years apart. Thousands of steelworkers lost their jobs. In the
late 1960s, Mr. Kurilko was one of 240 machinists working for the
company. By the time he retired in 2001, only 40 were left and he was
second in seniority.

Mr. Kurilko never feared he would lose his health care or pension
benefits, in large part because he really didn't need them. He was
young and didn't feel vulnerable physically. He rarely used his
insurance and neither did his wife, except when she gave birth. Then,
in 1995, at 48, he tripped over a fire hose at work, fell backward and
severed his Achilles' tendon. He went to the doctor, who discovered
that he had a blood clot and other medical problems: high cholesterol,
diabetes, infected lungs and a weak heart. During the next six years,
his four flareups of congestive heart failure each required longer
stints in the hospital.

He retired in November 2001, in part because of his health but also
because he knew the situation at LTV was growing dire, and he was
hoping to hold onto his retirement benefits. At the time, Mr. Kurilko
was earning $65,000 a year. With their house paid for and their
children grown, the Kurilkos had more than enough to live on. Mr.
Kurilko had a full pension of $2,450 a month and paid $115 a month for
health-care coverage under LTV's retirement plan. The insurance
covered 100% of their medical costs and typically required them to pay
only $10 to $20 for prescriptions. Because of his congestive heart
failure, Mr. Kurilko qualified for disability pay, which kicked in
eight months after he retired.

All in all, the Kurilkos looked financially sound. But their security
started to unravel a month after Mr. Kurilko retired.

In December 2001 LTV liquidated. The company wanted to end health
coverage for retirees, but the union managed to negotiate some
coverage. The price, however, was higher. In January the Kurilkos'
health-insurance premium jumped 61% to $185.

In February 2002, LTV's assets were sold to International Steel Group,
which didn't assume health-care coverage for retirees. Under Chapter 7
of the bankruptcy code, employees are considered unsecured creditors
and thus are far down on the list of creditors to be paid out of a
company's remaining assets. To keep the insurance, the Kurilkos' only
option was to pay much of the premium under COBRA, a federal law that
enables former employees to temporarily extend their insurance at
their own expense. A portion was picked up by LTV under an arrangement
negotiated by the union, but the Kurilkos' monthly premium still
skyrocketed to $1,305.19.

That same month, Mr. Kurilko's pension was cut 38% to $1,529.41 a
month, after the Pension Benefit Guarantee Corp., a quasi-public
insurer that assumes pension plans of failing employers, took over
LTV's pension plan.

The couple began dipping into their $35,000 in savings and breathed
much easier when the $1,500 a month disability payments kicked in.
They thought they had their money problems beaten.

That changed in January, when LTV's contributions to their health
insurance ended and monthly payments jumped to more than $2,800.

Paying that increase would have left the couple with $300 a month to
live on, enough to cover only three bills: gas, heat and electricity.
It wouldn't have covered the $161 a month the couple spent for life
insurance, the $65 a month in phone bills, the $335 lease payment for
their Chevrolet Blazer or food.

When they decided to go without health insurance in January, Mr.
Kurilko began surfing the Internet nightly looking for cheap drugs. He
often found them in Canada. An online service let him reduce the cost
of three of his prescriptions: albuterol for clearing airways, Xalatan
for glaucoma and another that controls his cholesterol levels. He cut
his expenses for the three drugs by 35%, from $249 to $161.03 for a
three-month prescription period.

His doctor gave him 20 milligrams of Lipitor, for high cholesterol.
Instead of taking that recommended dosage every day, he took the 20
milligram tablet every other day. It was not a big saving but every
penny was worth it, he says. One of his doctors agreed to cut 25% off
his office-visit charges.

Mr. Kurilko earlier this year also began looking for inexpensive
insurance on the Internet. He applied for coverage with one company he
found on the Web, but after initially accepting his application, the
company said it wasn't willing to insure him because he suffered from
too many ailments.

In April, through a member of his daughter's church, Mr. Kurilko
finally found insurance that is cheaper than the COBRA plan. But it
won't provide nearly the same coverage, especially if Mr. Kurilko gets
very sick again.

The couple will pay United Health Insurance Plans $614 a month to
cover them both. Routine doctor visits will cost $15. But the Kurilkos
will get only a 10% discount on prescriptions. More significantly,
hospitalization and medical procedures will be only 70% covered,
leaving the Kurilkos to pick up the rest of the bills. That means that
if Mr. Kurilko has to go to the hospital for an extended period, he
could quickly burn through his savings and end up in debt.

The Kurilkos realize they still could face huge medical costs in the
future. When they discuss money, Mr. Kurilko's face turns beet-red.
His eyes water. Mrs. Kurilko looks downward as her big mountain of a
husband dissolves.

"This is always on my mind. I hope nothing happens to my health," he
says. "When I think of all the years of sacrificing. Betcha in my
whole life, I may have missed 10 days of work in 30 years. I sent my
kids to Catholic school, I paid my public taxes and still, at this
time of my life, I should be doing really good. I should be living the
way a retiree is supposed to be living. I'm sick of it all. I'm scared
to death."



THE RISE AND FALL OF AMERICAN STEEL

1892: A bloody strike in Homestead, Pa., ends with 10 dead as steel
magnate Andrew Carnegie successfully breaks the Amalgamated
Association of Iron and Steel Workers union.

1901: United States Steel Corp. is founded by Carnegie, Charles Schwab
and J.P. Morgan. It is the first corporation with more than $1 billion
in capitalization.

1937: Golden Gate Bridge is built with steel made by Bethlehem Steel
Corp.

1952: During the Korean War, President Truman seizes steel mills and
operates them as government facilities. Supreme Court returns the
mills to their owners.

1959: A 116-day strike opens door to foreign imports as 519,000
workers demand better benefits.

1962: President Kennedy launches price-fixing investigation after U.S.
Steel raises prices by $6 a ton and other steel-makers follow suit.
Inland Steel breaks ranks and rescinds price boost, ending decades of
across-the-board increases.

1965: Steelworkers negotiate right to retire on a full pension after
30 years of service, regardless of age.

1968: Imported steel rises to nearly 17% of all steel purchased in the
U.S.

1973-1974: U.S. steel industry ships 102 million tons of steel, the
highest annual total ever. Industry logs record profits of $2.5
billion and shareholders see a 17.1% return.

1982: Deep recession. In the first six months of the year, 111,500
steelworkers lose jobs - more than a third of the average work force
in 1981.

1986: LTV files for Chapter 11 bankruptcy protection.

2000: Bethlehem Steel is dropped from S&P 500.

2002: President Bush slaps tariffs of as much as 30% on foreign steel,
sparking massive restructuring of the industry.

2003: Bethlehem Steel liquidates. Its assets are purchased by
International Steel Group.