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Without Aid, Union Health Plans Face Failure
Published on August 24, 2009
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
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.”
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