UAW Looks To Influence Health Care Debate

Armen Hareyan's picture

United Auto Workers'"gamble that it can manage the health care costs of up to700,000 people" through a voluntary employees' beneficiaryassociation "comes with a side wager over how much the union canboost its influence in the health care debate in Washington,"which "will be key to whether the union can contain health carecosts enough to keep its $52 billion fund for retiree health caresolvent," the DetroitFree Press reports. The VEBA agreement between UAW and theBig Three automakers -- Ford Motor,General Motors andChrysler Group -- alsoincludes a $30 million pledge to form a new think tank, the NationalInstitute for Health Care Reform.

Although "the sheerscope of the UAW's health care plan will make it one of the largestbuyers of health care" in the U.S., "experts say its swayover future health care reform may hinge more on which party wins theWhite House in 2008," according to the Free Press.While the union continues to support "some form of a nationalhealth care system" during the Bush administration -- which is"steadfastly opposed to any such move" -- UAW has focusedits recent lobbying efforts on other health care issues such as costcontrol, expanding Medicare and obtaining government aid forautomakers' retiree health care costs, the Free Pressreports. Many of its positions have placed the union in opposition ofinsurers and drug companies.

UAW has been a presence on thepolitical scene for nearly two decades, donating more than $2 millionin every election cycle since 1990 to the Democratic Party. KarenDavenport, director of health policy at the Centerfor American Progress, said UAW might face challenges inattempting to influence the health care debate. "Even with thenew roles, along with other stakeholders, [UAW is] at the mercy ofhealth care costs trends -- and more so as a payer," she said(Hyde, Detroit Free Press, 12/24/07).

VEBAs Considered by Other Industries


"[L]ooming retiree health care costs have pushed" anumber of unions and companies to turn to VEBAs before "thingsgo from bad to worse," the FreePress reports. Companies see VEBAs as a way to unload"massive health care liabilities," while unions see them as"a chance to secure at least some health benefits in the face ofuncertain futures," according to the Free Press,which notes that VEBAs also became "one option for dealing withhealth care expenses as companies and employee groups became involvedin lawsuits or bankruptcy proceedings over who should pay for thesebenefits."

Chip Kerby, a partner who specializes onemployee benefits at the Washington, D.C.-based law firm McDermottWill & Emery, said turning to VEBAs is not "a newthing." He added, "It's a thing that's being utilized nowbecause the parties that are facing each other across the table inthese situations of economic distress have decided that it is maybethe last, best shot for preserving some of the benefits that theunion retirees have been expecting."

According to themost recent IRS statistics, there are 9,193 VEBAs in the U.S. WhileVEBAs have been in existence since 1928, their usage became morewidespread in the 1980s when public companies under new accountingrules had to disclose estimated liabilities for future health careexpenses. "Absent some major move on national health care, VEBAslikely will be a topic of discussion for years, especially with thenew, massive VEBAs in the auto industry," according to experts,the Free Press reports (Collier, Detroit FreePress, 12/23/07).

VEBA Solvency

In related news, experts maintain that the VEBAs managed by UAWmight become insolvent earlier than the 80 years promised by unionPresident Ron Gettelfinger, the DetroitFree Press reports. According to experts, the VEBAs leaveunfunded about $36 billion in retiree health care liabilities andassume that the health care inflation rate will decrease to 5% by2013 and remain at the same level, although the rate has averagedalmost 10% in recent decades.

UAW members and outside expertsmaintain that the VEBAs likely will not remain solvent for 80 yearsunless the federal government implements a national health caresystem within 5 to 15 years. Lance Wallach, a VEBA consultant, saidthat UAW has made "ridiculous assumptions on health care costs."He added, "Unless they make drastic changes to the way theytreat health care, I'd be surprised if the money lasts 20 years"(Merx, Detroit Free Press, 12/23/07).

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