President &
CEO, Lance
Wallach
CEO, Lance
Wallach
- Member of the
AICPA faculty of
teaching
professionals. - AICPA author,
instructor &
national speaker. - National Society of
Accountants
Speaker of the
Year. - Writes financial
articles for over 50
national
publications.
 |
 |
 |
UAW Retirees?
For its proposed health care trust to work, the union will have to change retiree
behavior or reduce what it pays medical providers.
Workforce Management Magazine
October 8, 2007
Can UAW Take the Wheel and Steer Its Health Care
Obligations to Workers and Retirees?
The deal between the United Auto Workers and General Motors means the union,
long a critic of the American system of employer-sponsored health care, will have to
put its newfound money where its mouth is.
The contract proposal, which was agreed upon September 26 and remains subject
to court approval, will transfer from GM around $35 billion in cash and stock to the
union to pay for retiree health care costs.
Should the United Auto Workers get a similar offer from Ford and Chrysler regarding
retiree health care benefits, the union could have upwards of $70 billion to spend on
more than 500,000 beneficiaries, making it among the largest health care
purchasers in the United States.
But in health care, where costs have risen more than 70 percent in the past five
years, even $70 billion can last only so long.
In the equation that produced health care costs that nearly sent GM into bankruptcy,
costs must drop for the union, or the health care trust-known as a voluntary
employees beneficiary association, or VEBA-will find itself bankrupt.
To avoid insolvency, the union will have to adjust the behavior of retirees. It would
most likely have to change the benefits incentives that drive over-utilization of health
care or reduce the amount the union pays health care providers.
UAW president Ron Gettelfinger promised workers the fund would remain solvent for
80 years without any reduction in benefits.
"The funding level we have negotiated is expected to allow the VEBA to continue to
provide benefits without change for the lifetime of current and future retirees," he
wrote in a letter to members.
Those familiar with the union's thinking say the UAW will address costs by utilizing
the full force of its purchasing power, which will grow if Ford and Chrysler offload
their liabilities into the VEBA.
The union could create networks of efficient lower-cost doctors, negotiate lower rates
with hospitals, abandon brand-name drugs in favor of generics and make changes
that General Motors never had the freedom to make.
"The trustees of this VEBA are going to aggressively manage this fund to protect and
maintain health care for retirees similar or equal to what they currently have for as
long as they possibly can," says Kristin Dziczek, senior project manager at the
Center for Automotive Research in Detroit.
Lance Wallach, a consultant on VEBAs, believes the union must change its benefit
structure to encourage more responsible spending and healthier living, including
among retirees responsible for the bulk of health care spending.
"The only way for this VEBA to work is for whoever is going to administer it to change
the behavior of the workers," Wallach says. "If they don't do that, this absolutely won't
work."
One escape valve for the union is to change the relationship between health
insurance and employment. Toward that end, the union, with $15 million from GM,
will establish the National Institute for Health Care Reform "to expand access to
high-quality, affordable and accountable health care coverage for all Americans," the
union wrote.
"I don't know where it ends up, but [the union-run VEBA] is certainly part of the
transition away from employer-based health in the United States," says Dave Andrea,
vice president of industry analysis and economics for the Original Equipment
Suppliers Association, the trade group for auto parts manufacturers.
Jeremy Smerd
Staff Writer
Workforce Management Magazine
A Crain Communications Publication
(212) 210-0404
711 Third Avenue
3rd Floor
New York, NY 10017
For its proposed health care trust to work, the union will have to change retiree
behavior or reduce what it pays medical providers.
Workforce Management Magazine
October 8, 2007
Can UAW Take the Wheel and Steer Its Health Care
Obligations to Workers and Retirees?
The deal between the United Auto Workers and General Motors means the union,
long a critic of the American system of employer-sponsored health care, will have to
put its newfound money where its mouth is.
The contract proposal, which was agreed upon September 26 and remains subject
to court approval, will transfer from GM around $35 billion in cash and stock to the
union to pay for retiree health care costs.
Should the United Auto Workers get a similar offer from Ford and Chrysler regarding
retiree health care benefits, the union could have upwards of $70 billion to spend on
more than 500,000 beneficiaries, making it among the largest health care
purchasers in the United States.
But in health care, where costs have risen more than 70 percent in the past five
years, even $70 billion can last only so long.
In the equation that produced health care costs that nearly sent GM into bankruptcy,
costs must drop for the union, or the health care trust-known as a voluntary
employees beneficiary association, or VEBA-will find itself bankrupt.
To avoid insolvency, the union will have to adjust the behavior of retirees. It would
most likely have to change the benefits incentives that drive over-utilization of health
care or reduce the amount the union pays health care providers.
UAW president Ron Gettelfinger promised workers the fund would remain solvent for
80 years without any reduction in benefits.
"The funding level we have negotiated is expected to allow the VEBA to continue to
provide benefits without change for the lifetime of current and future retirees," he
wrote in a letter to members.
Those familiar with the union's thinking say the UAW will address costs by utilizing
the full force of its purchasing power, which will grow if Ford and Chrysler offload
their liabilities into the VEBA.
The union could create networks of efficient lower-cost doctors, negotiate lower rates
with hospitals, abandon brand-name drugs in favor of generics and make changes
that General Motors never had the freedom to make.
"The trustees of this VEBA are going to aggressively manage this fund to protect and
maintain health care for retirees similar or equal to what they currently have for as
long as they possibly can," says Kristin Dziczek, senior project manager at the
Center for Automotive Research in Detroit.
Lance Wallach, a consultant on VEBAs, believes the union must change its benefit
structure to encourage more responsible spending and healthier living, including
among retirees responsible for the bulk of health care spending.
"The only way for this VEBA to work is for whoever is going to administer it to change
the behavior of the workers," Wallach says. "If they don't do that, this absolutely won't
work."
One escape valve for the union is to change the relationship between health
insurance and employment. Toward that end, the union, with $15 million from GM,
will establish the National Institute for Health Care Reform "to expand access to
high-quality, affordable and accountable health care coverage for all Americans," the
union wrote.
"I don't know where it ends up, but [the union-run VEBA] is certainly part of the
transition away from employer-based health in the United States," says Dave Andrea,
vice president of industry analysis and economics for the Original Equipment
Suppliers Association, the trade group for auto parts manufacturers.
Jeremy Smerd
Staff Writer
Workforce Management Magazine
A Crain Communications Publication
(212) 210-0404
711 Third Avenue
3rd Floor
New York, NY 10017
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