Why UAW VEBA could be model for contract talks between union, Detroit 3

Williams: "We've got to do what we did with the VEBA for our (active) members."

Maybe it is wishful thinking on their part, but I have been told by several top health care leaders that they believe the long-term vision for the UAW contract talks with the Detroit 3 would be to shift health care services from their current plans into the Detroit-based UAW Retiree Medical Benefits Trust.

UAW President Dennis Williams said something similar recently in the Detroit Free Press. Williams has said that an independent health care cooperative might be formed to negotiate health care services contracts jointly with the UAW trust.

The resulting clout of up to 1 million former and current autoworkers, and hundreds of thousands of other dependents, could reduce or slow health care costs for all, Williams said.

The health plan groups -- which would include the 800,000-member UAW trust and the new co-op of 800,000 to 900,000 autoworkers -- would be managed separately and with different boards. But the two partners could pool their purchasing power to lower health care prices.

“We’ve got to do what we did with the VEBA for our (active) members,” said Williams in the Free Press article, referring to the Voluntary Employee Beneficiary Association created in 2007 as part of a collective bargaining agreement between the UAW and the Detroit 3 automakers.

The UAW labor contract expires Sept. 14. Talks, as usual, seem to hinge on rising health care costs along with addressing an unpopular two-tier payment system for current workers.

But if a deal can be reached to form the health care co-op, and rising health care costs slapped back, the UAW is hopeful that workers could also receive their first raise in 10 years.

Experts contend, however, that creating an independently governed health care co-op would be difficult to pull off because of the pre-funding requirements.

The UAW trust, when it was first formed, benefited from the Detroit 3 contributing about $57 billion to fund retiree health care costs.

Health care executives have told me that the easiest method would be for the UAW trust to simply manage current autoworkers employee health care costs.

UAW trust chugging along

Over the past five years, the UAW trust under CEO Fran Parker has been fairly successful in managing the health care needs of more than 800,000 retired autoworkers and their dependents. More than 600,000 of those live in Michigan, with about 75 percent covered through Blue Cross Blue Shield of Michigan on a self-funded basis.

The UAW trust has not only managed about $61 billion in fund assets (as of January 2014) to hold down health care costs to a 5 percent inflation level, it has been able to expand health care services, according to IRS financial documents and past interviews with experts.

Some new coverage has detailed expanded services, including broader dental care, standard immunizations, shingles vaccines, diabetes education and cardiac rehabilitation programs.

No interview

Unfortunately, the last two years Parker has declined interview requests from me and other reporters in Detroit. Another interview request was made and declined by the UAW trust for this blog post.

The UAW trust, as a VEBA, is an independent tax-exempt trust fund covered under the Employee Retirement Income Security Act of 1974, or ERISA.

The trust manages health care costs as a single fund that combines all the automaker contributions, although it has separate accounts for GM, Ford and Chrysler to pay the medical benefits for each company’s retirees.

To deliver benefits, the trust contracts in Michigan with Blue Cross and Health Alliance Plan of Michigan, HealthPlus of Michigan, Blue Care Network and Priority Health. Annual health care costs totaled about $4.2 billion in 2013 with about $970 million paid to hospitals, doctors and for pharmaceuticals.

In 2012, the last year Crain’s Detroit Business, an affiliate of Automotive News, was able to obtain audit information by the U.S. Department of Labor on the UAW trust, the fund had net assets of $58.8 billion and total benefit obligations of $79 billion, resulting in a $20.2 billion projected shortfall.

Previous interviews with UAW trust executives, however, indicated projected shortfalls go up and down depending on the strength of the stock market. They insist cost management is tight.

Preparing for direct contracts

Over the past several years, most of the major health care systems in Michigan have been forming a variety of provider-based entities to ultimately position themselves to enter into direct contracts with Medicare, Medicaid, employers, business associations or other entities, including the UAW trust.

These provider-based entities have a variety of names -- physician-hospital organizations, accountable-care organizations and clinically integrated networks -- but the main idea is to group hospitals, physicians and other post-acute care entities together to manage populations of health.

One of the biggest such provider organizations formed last year when Ascension Health Michigan and Trinity Health Michigan, subsidiaries of the nation’s two largest Catholic health care systems, formed Together Health Network LLC.

The clinically integrated network includes 27 hospitals and more than 5,000 physicians. Some 75 percent of the population in Michigan will be 20 minutes from a network hospital or physician office, officials said.

Joint managed care

System spokesmen said at the time that the purpose of Together Health Network will be to conduct joint managed care contracting by managing the health of distinct groups of patients in a narrow network of hospitals, physicians and other medical providers.

Health care executives have told me that one of the biggest direct contracts in Michigan would be with the UAW trust with its more than 600,000 retirees and dependents. Adding another 800,000 current autoworkers would make that potential future contract even more appealing.

We will see where the UAW goes with its contract talks with the Detroit 3, and if the health care co-op is formed to model after the so-far successful UAW trust.

Maybe the UAW trust will direct contract with one or more of these provider organizations, as executives hope is the case. Contracting health plans might not like it as they most likely would lose business, but Blue Cross and third-party administrators would benefit by picking up the slack to manage the autoworkers benefit plans.

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