An improving investment picture and innovative benefit programs have brightened the financial picture for the $61 billion UAW Retiree Medical Benefits Trust.
A projected long-term funding shortfall has been cut by more than a third to about $20 billion for the trust, which spends about $4 billion a year to cover the healthcare needs of more than 700,000 retired autoworkers and their dependents for decades to come.
Better investment returns account for a huge part of that improvement. But the trust, the nation's largest nongovernmental private payer of retiree health benefits, is also getting better at managing medical costs, using data to steer its beneficiaries into coverage that can save money, and even adding benefits that can keep people healthier and costs under control.
"After five years (our programs) are starting to come into their own," said Executive Director Fran Parker, who has headed up the UAW trust since it launched in 2010 as part of a 2007 collective bargaining agreement between the UAW and the Big Three automakers — General Motors Co., Ford Motor Co. and Chrysler.
"From 2011 to 2015, we started to perform. Now we are starting to transform," Parker said. "We are at a good place in having the tools we need to help reach out to retirees to help manage their health, close gaps in care and improve their quality of life."
That requires juggling many variables. Since 2010, federal documents show that net assets and medical obligations for the UAW trust have risen and fallen based on the performance of the stock market, rising medical costs, new benefits and other factors.
For example, the trust's shortfall in 2010 was $26.9 billion. But the shortfall ballooned in 2011 to $33 billion partly because the stock market fell substantially and the trust lost money on investments.
By the end of 2014, however, the long-term shortfall improved to $20 billion — 26% lower than five years earlier, according to financial forms filed with the U.S. Department of Labor. Data for 2015 is not yet available.
Marick Masters, professor of business at Wayne State University, said the UAW trust's 74% funded ratio is good compared with retiree health plans operated by many municipalities, states and private companies. The trust's funded ratio range over the past several years has been 70% percent to 81%, he said.
Between 2011 and 2014, the trust's liability dropped by $5 billion and its assets increased by $8 billion, said UAW trust CFO Mary Beth Kuderik in a statement to Crain's. She said this was accomplished by careful medical management and investment decisions.
However, liabilities increased in 2014 to $81 billion from $66 billion in 2013, Kuderik said.
This $15 billion increase was due to increased costs for office visits and new dental and vision benefits, which accounted for $2.2 billion. An additional $3.5 billion was due to actuarial adjustments from new projections that indicate longer life spans and therefore increased future medical liabilities. But the largest change was due to the federally required discount rate — a percentage used to estimate future cash demands at present value — that added $9.3 billion in liabilities, Kuderik said. The rate, which goes up or down each year, changed in 2014 to 3.8% from 4.7% in 2013.
"The variability (of medical liabilities) over the years depends on actuarial assumptions (of mortality rates and added benefits) and the discount rate," which is fairly conservative, Masters said.
Still, over the trust's five-year reporting period, total net assets available for benefits have increased 21% to $61 billion in 2014 while benefit obligations to cover the retirees increased by only 4.5% to $81 billion in the same period, federal reports show.
"The trust has worked hard to maintain a balance between benefit levels and available assets," Kuderik said. Each year the trust has met its benefit obligations "by being proactive, managing the plan well, and being a prudent purchaser," she said.
For example, from 2010 to 2014, the trust has paid out $21 billion in benefits while earning $28 billion in investment returns, she said.
"Over the years, with our history, experience, and analysis, we have adapted to changes in healthcare and the market," Kuderik said. "We are confident that we will be able to meet our long-term obligations."
But those investment returns have varied over the years. In 2014, investment income dropped to $2.5 billion from $8.1 billion recorded in both 2013 and 2012. In 2011, when the stock market tanked, the trust lost $2.6 billion, but earned $12 billion in 2010.
"(The trust) has performed very well over the years," said Masters, noting it earned a 14% return on investment in 2014. "I would anticipate they would meet their obligations well into the future."
Medical benefit payments have also varied over the years. They were $4.15 billion in 2010, increasing to $4.4 billion in 2013, and then dropping back to $4.16 billion in 2014. The trust declined to provide financial data for 2015.
During the five-year reporting period, the trust has increased benefits and services to retirees, Parker said, adding dental coverage, vision care, urgent care, expanded office visits and such preventive care as colorectal cancer screening and diabetic eye exams and education.
"We offer many services outside of (HMO) plans as not every state has strong HMOs. We have learned this approach is more efficient over time," said Parker, adding that members appreciate the additional contacts vendors make to encourage good health.
Masters said the trust has been proactive to use its investment income to expand benefits for prevention that seeks to reduce long-term healthcare costs, driven by high hospital and emergency utilization.
Because the UAW's retirees worked in auto plants their whole lives, insurance contracts need to be structured to take care of specific health problems many retirees face.
Retired autoworkers have a high prevalence of diabetes, smoking-related ailments like asthma, congestive heart failure and cardiac diseases.
As a result, the trust recently collaborated with the Greater Detroit Area Health Council to add the Choosing Wisely program, which encourages members to talk with their doctors about various preventive and health screening tests based on their age and condition.
In addition, the trust has been encouraging its members to switch from traditional Medicare to Medicare Advantage, which offers enhanced preventive care and other benefits. The trust now has more than 100,000 members enrolled in a Medicare Advantage plan.
"Health of UAW Retiree Medical Benefits Trust improving" originally appeared in Crain's Detroit Business.