UAW Looks To Influence Health Care Debate; VEBA Might Be Model For Other Companies

Main Category: Health Insurance / Medical Insurance
Also Included In: Medicare / Medicaid / SCHIP;  Seniors / Aging;  Public Health
Article Date: 03 Jan 2008 - 10:00 PDT

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United Auto Workers' "gamble that it can manage the health care costs of up to 700,000 people" through a voluntary employees' beneficiary association "comes with a side wager over how much the union can boost its influence in the health care debate in Washington," which "will be key to whether the union can contain health care costs enough to keep its $52 billion fund for retiree health care solvent," the Detroit Free Press reports. The VEBA agreement between UAW and the Big Three automakers -- Ford Motor, General Motors and Chrysler Group -- also includes a $30 million pledge to form a new think tank, the National Institute for Health Care Reform.

Although "the sheer scope of the UAW's health care plan will make it one of the largest buyers of health care" in the U.S., "experts say its sway over future health care reform may hinge more on which party wins the White House in 2008," according to the Free Press. While the union continues to support "some form of a national health care system" during the Bush administration -- which is "steadfastly opposed to any such move" -- UAW has focused its recent lobbying efforts on other health care issues such as cost control, expanding Medicare and obtaining government aid for automakers' retiree health care costs, the Free Press reports. Many of its positions have placed the union in opposition of insurers and drug companies.

UAW has been a presence on the political scene for nearly two decades, donating more than $2 million in every election cycle since 1990 to the Democratic Party. Karen Davenport, director of health policy at the Center for American Progress, said UAW might face challenges in attempting to influence the health care debate. "Even with the new roles, along with other stakeholders, [UAW is] at the mercy of health care costs trends -- and more so as a payer," she said (Hyde, Detroit Free Press, 12/24/07).

VEBAs Considered by Other Industries
"[L]ooming retiree health care costs have pushed" a number of unions and companies to turn to VEBAs before "things go from bad to worse," the Free Press reports. Companies see VEBAs as a way to unload "massive health care liabilities," while unions see them as "a chance to secure at least some health benefits in the face of uncertain futures," according to the Free Press, which notes that VEBAs also became "one option for dealing with health care expenses as companies and employee groups became involved in lawsuits or bankruptcy proceedings over who should pay for these benefits."

Chip Kerby, a partner who specializes on employee benefits at the Washington, D.C.-based law firm McDermott Will & Emery, said turning to VEBAs is not "a new thing." He added, "It's a thing that's being utilized now because the parties that are facing each other across the table in these situations of economic distress have decided that it is maybe the last, best shot for preserving some of the benefits that the union retirees have been expecting."

According to the most recent IRS statistics, there are 9,193 VEBAs in the U.S. While VEBAs have been in existence since 1928, their usage became more widespread in the 1980s when public companies under new accounting rules had to disclose estimated liabilities for future health care expenses. "Absent some major move on national health care, VEBAs likely will be a topic of discussion for years, especially with the new, massive VEBAs in the auto industry," according to experts, the Free Press reports (Collier, Detroit Free Press, 12/23/07).

VEBA Solvency
In related news, experts maintain that the VEBAs managed by UAW might become insolvent earlier than the 80 years promised by union President Ron Gettelfinger, the Detroit Free Press reports. According to experts, the VEBAs leave unfunded about $36 billion in retiree health care liabilities and assume that the health care inflation rate will decrease to 5% by 2013 and remain at the same level, although the rate has averaged almost 10% in recent decades.

UAW members and outside experts maintain that the VEBAs likely will not remain solvent for 80 years unless the federal government implements a national health care system within 5 to 15 years. Lance Wallach, a VEBA consultant, said that UAW has made "ridiculous assumptions on health care costs." He added, "Unless they make drastic changes to the way they treat health care, I'd be surprised if the money lasts 20 years" (Merx, Detroit Free Press, 12/23/07).

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.