Voluntary Employee Beneficiary Association Trust Unlikely To Cover All Future Health Care Obligations For Big Three Automakers, Analyst Says

Main Category: Health Insurance / Medical Insurance
Also Included In: Seniors / Aging
Article Date: 22 Jun 2007 - 11:00 PDT

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Morgan Stanley analyst Jonathan Steinmetz on Tuesday told investors that negotiations next month between the United Auto Workers and the Big Three automakers could result in a Voluntary Employee Beneficiary Association trust that covers some, rather than all, of their future retiree health care obligations, the Detroit Free Press reports (Higgins, Detroit Free Press, 6/20).

In recent months, General Motors, Ford Motor and Chrysler have considered an agreement late last year between Goodyear Tire & Rubber and the United Steelworkers of America. Under the agreement, Goodyear transferred retiree health care obligations to an independent trust fund. In exchange, Goodyear established a $1 billion fund to pay health care costs and agreed to invest at least $550 million in manufacturing facilities represented by the union (Kaiser Daily Health Policy Report, 1/19).

As part of an agreement with UAW, the companies might establish a VEBA, expand their contract with the union to 2010 or 2011 and cap the rate of growth in their expenditures for health care. Steinmetz said, "We don't think the status quo will prevail but we don't think the entire Goodyear-style solution will take place." Steinmetz said that the establishment of a VEBA would reduce the risk for loss of health benefits for UAW retirees in the event that one or more of the companies files for bankruptcy. However, UAW likely would have to make "significant health care concessions" that some members might oppose, and "benefits may not keep pace with inflation," the Free Press reports.

Comments
Harley Shaiken, a professor at the University of California-Berkeley who specializes in labor issues, said, "I think it is going to be a hard sell. It is not out of the question, but there will be a lot of resistance to it." He added, "The goal of the UAW leadership is clear. They want to provide as secure as possible a route for health care for the members. If they feel a VEBA will do that, they may be more open" (Detroit Free Press, 6/20).

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