Bailout Agreement For Big Three Automakers Could Put VEBA Funding At Risk

Main Category: Health Insurance / Medical Insurance
Also Included In: Seniors / Aging;  Public Health
Article Date: 06 Jan 2009 - 2:00 PST

email to a friend   printer friendly   view / write opinions   rate article

The $17.4 billion automaker bailout agreement reached in December 2008, if upheld by the incoming Obama administration, could put health benefits for retired autoworkers at high risk, according to labor experts, the Detroit Free Press reports. Under the agreement, General Motors and Chrysler must use company stock, or the equivalent, to pay half -- or $10.5 billion -- of what they owe to a United Auto Workers-operated voluntary employees' beneficiary association. The VEBA will fund health coverage for retired union members starting in 2010. The bailout deal also states that the companies must demonstrate viability by March 31 or the loans will be revoked.

Harley Shaiken, a professor at the University of California-Berkeley who specializes in labor issues, said, "It's as if we, as a nation, learned nothing from Enron, essentially risking the health care of retired and active workers in such a cavalier fashion," adding, "The great Enron lesson was: Don't put all your eggs in one basket. ... Putting half your eggs in the trust-fund basket is still a high level of risk." Shaiken said he expects the Obama administration to make changes to terms of the deal affecting VEBA payments.

However, other experts say that even if President-elect Barack Obama changes the bailout deal, the companies will not be able to demonstrate viability without adhering to the cost-cutting measures included in the agreement, such as making the VEBA payments in stock. Citigroup analyst Itay Michaeli in a note to investors wrote that "absent a near-term economic recovery, ... we believe it would be difficult to deviate significantly from these targets and still demonstrate viability." Gary Chaison, professor of industrial relations at Clark University, said the VEBA changes are not ideal for the approximately 750,000 union members whose health coverage depends on the money, but that the bailout deal might ensure more benefits than they otherwise would have been able to receive. UAW declined to comment on the matter (Merx, Detroit Free Press, 12/25/08).

Reprinted with kind permission from http://www.kaisernetwork.org. You can view the entire Kaiser Daily Health Policy Report, search the archives, or sign up for email delivery at http://www.kaisernetwork.org/dailyreports/healthpolicy. The Kaiser Daily Health Policy Report is published for kaisernetwork.org, a free service of The Henry J. Kaiser Family Foundation.

© 2008 Advisory Board Company and Kaiser Family Foundation. All rights reserved.