Ford Interested In VEBA; Chrysler Seeks UAW Concessions Previously Granted To GM, Ford

Main Category: Health Insurance / Medical Insurance
Article Date: 05 Oct 2007 - 8:00 PDT

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Ford Motor Executive Chair Bill Ford on Wednesday said that company executives largely are satisfied with the model set by the tentative contract between United Auto Workers and General Motors, which includes the creation of a voluntary employees' beneficiary association, the Detroit Free Press reports (Webster, Detroit Free Press, 10/4). Under the VEBA, GM will transfer about $50 billion in retiree health care obligations to an independent trust fund to be managed by the union. Earlier this month, UAW selected GM, which has been the strongest proponent among the automakers of creating a VEBA, as its lead negotiation partner. The GM contract expired on Sept. 14 and was extended on an hourly basis during negotiations. Contracts with Ford and Chrysler Group were extended indefinitely while negotiations between UAW and GM were under way. Local UAW officials are presenting the contract to the union's 73,000 GM rank-and-file members, and they have until Oct. 10 to vote on ratification (Kaiser Daily Health Policy Report, 10/3).

People close to the negotiations have said that in negotiations to create a VEBA, Ford will push for a larger discount on its $21 billion retiree health care liability than the 70% of total retiree liabilities GM agreed to pay (Vlasic/Hoffman, Detroit News, 10/4). JPMorgan Chase estimates that Ford could save about $9 billion with a GM-style VEBA. Industry experts say Ford will need larger or significantly different concessions than what GM has worked out with UAW, a stance that is at odds with Ford's comments, according to the Free Press (Detroit Free Press, 10/4). "The deal that GM got was a good one for GM, but it doesn't appear applicable for the other two," Aaron Bragman, an analyst at Global Insight, said.

Meanwhile, people close to the Chrysler negotiations say its new owner, Cerberus Capital Management, is determined to win health care concessions given to GM and Ford in 2005 but denied to Chrysler because of its relative financial health. The failure to receive that deal was cited as one factor that led DaimlerChrysler to sell Chrysler. Winning those concessions now would save Chrysler an estimated $300 million annually. No significant negotiations have taken place at either Ford or Chrysler since their contracts were extended, but there has been some lower-level bargaining between Chrysler and UAW this week, according to the News. Negotiations likely will resume at Ford or Chrysler, or both simultaneously, after the GM contract ratification deadline (Detroit News, 10/4).

Keeping Retiree Benefits Intact
Industry observers are "watching closely" to see if UAW loosens its "opposition to increases in the rather low monthly premiums [its] retirees pay for medical care" when the union takes control of retiree health care through a VEBA, the Chicago Tribune reports. UAW retirees likely will see their costs rise if the union follows industry trends, according to the Tribune. Other retirees on average are paying 10 times to 20 times the $10 per month for individuals and the $21 per month for families that UAW retirees pay in premiums.

"If they are going to make it last, you are going to have to make some changes," Todd Swim, a worldwide partner at Mercer, said. However, other analysts say UAW will try to extract price concessions out of physicians and hospitals for retiree care. David Fortosis, senior vice president in the health benefit practice at Aon Consulting, said, "In this case, I think they are going to look at other areas. They are (going to) use their size to leverage better fees and better premiums and better deals with those who provide services to their members" (Japsen, Chicago Tribune, 10/4).

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© 2005 Advisory Board Company and Kaiser Family Foundation. All rights reserved.