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Without Aid, Union Health Plans Face Failure
Published on August 24,
WASHINGTON – The health care debate roiling the nation promises an even greater
impact in Michigan: It could determine whether the UAW’s gamble that it can insure
850,000 retirees from Detroit’s automakers pays off or goes bust.
Thanks to Detroit’s twin auto bankruptcies and other concessions, the UAW’s
voluntary employee benefit association, or VEBA, had to take stock of unknown value
for $24 billion in claims, while adding thousands of early retirees to its rolls.
Outside experts estimate the funds have about 30 cents in cash for every dollar of
future claims, with no guarantee of what its stock assets will be worth. Lance
Wallach, a New York-based VEBA expert, said if the funds “don’t get something,
they’re out of business in 12 years.”
That something may be national health care reform.
Key provisions in House and Senate proposals set aside $10 billion to pay some claims
for early retirees covered by employers and VEBAs, before other cost-saving
measures kick in. Critics call it a union giveaway, but the union says the money
would keep companies from further slashing coverage.
“We want to see the whole reform package succeed,” said Alan Reuther, the UAW’s
chief lobbyist. “There’s substantial overall benefits to the American people and our
members that includes benefits to retirees and VEBA.”
Bridging a care gap
The $10 billion is aimed at a growing gap between the skyrocketing cost of care for
early retirees – ages 55 to 64, too young for Medicare – and what President Barack
Obama and congressional Democrats promise will be less-expensive coverage once,
and if, the much-debated reform measures kick in several years from now.
Layoffs, buyouts and company cutbacks have contributed to force more people into
early retirement at a time when only about one-third of U.S. firms with 200 or more
workers even offer retiree benefits, compared with more than twice that percentage
two decades ago. Of those that remain, companies with union employees are far
more likely to offer benefits for early retirees.
That’s enough to get the blogosphere ramped up with references to a so-called payoff
for collective bargaining groups and whether, once turned on, the spigot of funding
for claims can be turned off by Congress.
Money’s running out
John Sheils, vice president of the Lewin Group, a health care research firm owned by
a United Healthcare subsidiary, said the money probably will run out in less than two
years. Then, like with the recent Cash for Clunkers clamor, Congress could feel
obligated to add money to the program.
“From a political perspective, I think it’s very, very difficult for the Congress to
actually close down programs,” Sheils said. “This is something people could get used
to very quickly.”
Labor unions, including the UAW – which has taken on about $90 billion in health
care liabilities for its retirees from the three Detroit-area automakers – have fought
hard for the so-called reinsurance provision that would cover 80 percent of early
retirement claims between $15,000 and $90,000.
According to outside experts, the UAW’s VEBAs have only about 30 percent of the
cash needed to cover retirement health benefits for about 850,000 people – making it
the second biggest retiree insurance pool in the nation, with only California’s pension
plan larger. Shares in Chrysler Group, Ford Motor Co. and General Motors Co. will
add to the bottom line – but it’s impossible to say how much.
Were VEBAs a gamble?
The VEBAs will have the power to cut coverage and raise costs to make their money
last, and have already warned retirees that cuts are likely next year. Wallach said the
UAW VEBAs resemble the plans the UAW set up for workers at Detroit Diesel and
Caterpillar in the 1990s – both of which later ran short of money.
“I really think” the UAW “were gambling there would be some health care
nationalization,” he said.
Although she doesn’t agree with Wallach that the UAW took such a risk, Kristin
Dziczek, head of the Ann Arbor, Mich.-based Center for Automotive Research’s
Labor and Industry Group, said getting help now with the expensive coverage
required for pre-Medicare claims could help greatly in the short term. In the long
term, any success in lowering health care costs could be a windfall for the VEBAs
and help ensure their survival.
Stephen Diamond, a professor at Santa Clara (Calif.) University and a VEBA expert,
said the UAW helped get Obama elected; now the union owes its membership to
make sure that whatever reform is crafted “protects the interests of their members
and their retirees.”
It’s not just the UAW fighting for the funding. The provision has the backing of the
United Steelworkers of America and the Communications Workers of America. The
AFL-CIO also pushed for the program in congressional hearings.
Pre-Medicare vulnerability
Reuther said retirees too young for Medicare often face problems in getting or
maintaining health insurance, since they’re typically far more expensive to insure than
younger workers. The reinsurance provision, he said, is needed to maintain coverage.
“We think it’s important so that we keep the employer- and VEBA-sponsored
coverage for these retirees,” he said.
That’s especially true of the number of retirees age 55 to 64 without employer- or
union-based insurance coverage. People in that group are among the most expensive
to cover with health insurance, face high premiums if forced to seek their own
policies and often have preexisting conditions that can make finding coverage difficult.
Whatever happens, GM retiree Phil Cimino of Clarkston, Mich., said he hopes health
care reform can help a system that he says costs too much. Cimino, 61, is diabetic,
and where he once paid nothing for health care, his premiums and prescriptions now
run about $4,000 a year.
He worries it could be more.
“The retirees are getting hit big-time,” he said. “I don’t think there’s enough money in
the kitty. I think there’s going to be a big problem down the road.”