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.
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Plainview, NY 11803
ph: 516-938-5007
fax: 516-938-6330
Email:
LaWallach@aol.com
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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
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
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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