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Without Aid, Union Health Plans Face Failure
Published on August 24, 2009
TaxAudit419.com      Lawyer4audits.com      VebaPlan.org      Taxlibrary.us

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The Lance Wallach Network
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.”