General Motors Corp.s tentative deal last week with the United Auto Workers to create a healthcare trust is being praised by healthcare providers as an avenue to better involve individuals in their healthcare decisions, improve outcomes and lower costs.
Having labor fully engaged and assuming the risk for liability of retirement healthcare dollars is a great opportunity, said Peter Schonfeld, senior vice president of policy and data services at the Michigan Health & Hospital Association.
The move also prevented layoffs at GM, which would have hurt the bottom line of providers serving its employees.
The agreement between the UAW and GM, the second-largest private purchaser of healthcare after AT&T, is part of a wider trend in which responsibility for healthcare costs is shifting from employers to workers, experts said. And everyone will be watching to see how the UAW and its members fare in this new paradigm. I think it can be seen as part of that trend towards consumer-driven healthcare, said J.D. Piro, chairman of the health law and consumer group at Hewitt Associates, a consultancy.
The GM-UAW pact, subject to union member ratification as well as court and Securities and Exchange Commission approval, would set up a voluntary employee benefit association. A VEBA is a tax-exempt fund that employers use to pay benefits that cant be touched by investors or seized if the company were to go bankrupt. Since the 1990s, struggling companies have increasingly turned to VEBAs to help them cope with their healthcare obligations to employees and retirees, Piro said. This is especially true since the Government Accounting Standards Board began requiring companies to disclose their retiree and other post-employment benefit obligations.
In this case, the details havent been worked out yet, but in essence GM would pay upfront about 70% of its $55 billion in healthcare liability into the trust in cash, stocks and other assets. And that liability would move off GMs books.
The trust would be administered independently, but with UAW supervision. Once the trust is set up, healthcare costs would be paid through the trust, but probably not for another two years. GM today provides health benefits to more than 1 million union members, retirees and surviving spouses. GM spent $4.8 billion on healthcare in 2006, according to the company.
In announcing the VEBA, UAW President Ron Gettelfinger said it will secure the benefits of our retirees and every seniority employee who is on the rolls as of Sept. 14 and that stretches out, in our projections, for the next 80 years.
Theres still some risk with VEBAs, however, and some have become insolvent because of mismanagement, Piro said. If the assets stay with GM and GM goes bankrupt, retirees would have to line up with the rest of creditors, he said. But theres always a possibility that the UAW would make the wrong investment decisions with the VEBA. Caterpillars VEBA, created in 1998 in conjunction with the UAW to fund retiree healthcare spending, went bankrupt in 2006. Thats a big problem in the view of some labor experts: VEBAs do nothing to control costs and merely shift responsibility from the company to the employees. It gives the union and workers more control over their healthcare decisions, but not necessarily the resources, said Ken Jacobs, chairman of the Labor Center at the University of California at Berkeley. The details are important in terms of the shift of this risk, such as how much the employer continues to be on the hook for healthcare costs.
But with the union, workers and retirees more involved in managing healthcare dollars, savings could emerge, Schonfeld said. Michigan ranks poorly among states on obesity and some
chronic diseases, so having more residents engaged could lead to savings, he added. However, healthcare providers are breathing a sigh of relief that the deal didnt mean more layoffs at GM, which will retain its UAW-represented workforce of 74,000. I think the opportunity in Michigan is to stabilize a major employer, GM, and other automakers also. Schonfeld said. That makes for a much stronger employment base and helps hospitals fiscal health, too.