Think co-op, not VEBA, for health care pool

Concept could help rein in labor costs

UAW President Dennis Williams broached the health care pool idea.

DETROIT -- UAW President Dennis Williams floated the idea this summer that the union wanted to work with Detroit 3 negotiators to create a health care pool for workers. But what does that mean?

Williams hasn't said. But the best guess is a purchasing consortium to drive down the fees that hospitals, doctors and insurers charge, rather than something akin to the 2007 retiree trusts that shifted the risk of rising costs from the carmakers to union-designed independent plans.

"Don't confuse this with a VEBA," said Art Schwartz, a former top labor negotiator at General Motors who now heads Labor and Economics Associates in Ann Arbor, Mich.

In a pool, the Detroit 3 might get better rates from providers and insurers for their hourly employees and dependents -- about 300,000 individuals in all -- than if each negotiates separately, said Kristin Dziczek, director of the Industry & Labor Group at the Center for Automotive Research in Ann Arbor.

Labor and health care experts say that radical changes to health care are a very long shot in this year's Detroit 3-UAW contract talks. The current four-year labor contracts expire Sept. 14, but can be extended by mutual agreement.

The 138,000 hourly employees at the Detroit 3 have among the richest health care benefits in America and aren't interested in risking higher personal cost sharing by moving to a new plan, Dziczek said.

Given the solid profitability of the Detroit 3 and labor concessions made in prior contracts, workers expect the current talks to bring wage increases and other compensation improvements, not to go backward on health care, Dziczek said. "There's a feeling that 'this is our time,'" she said. "Ratification would be difficult if cost sharing were to increase significantly."

Today, active UAW employees pay about 6 percent of their annual health care costs. In contrast, UAW retirees in the Voluntary Employees' Beneficiary Associations pay about 11 percent of their costs, while salaried employees at Ford Motor Co. and Fiat Chrysler Automobiles pay between 30 and 35 percent.

The union, worried that the distressed carmakers might not be financially strong enough in the future to continue to pay retiree health care, created the VEBAs in 2005 and 2007. The union used the VEBAs to get the automakers to contribute tens of millions of dollars in cash and stock upfront so that the independent trusts could manage care and invest the principal to generate additional income.

Today, the solvency of the carmakers isn't a concern. Even so, pooling active workers in some form to improve their purchasing power for health care makes sense, Dziczek said.

Ford: Company is exploring

Ford Chairman Bill Ford confirmed last week that Ford and the UAW are exploring a health care pool, but said it was too early to predict "where it goes." GM and FCA spokeswomen confirmed that a pool has been discussed in negotiations. 

In an email, FCA spokeswoman Jodi Tinson wrote, "As the cost of healthcare continues to increase at an unsustainable rate, FCA US is open to discussing with the UAW options that will reduce cost while both improving the quality of care and the health of our employees." 

The carmakers are wrestling with health care costs. In May, Automotive News reported that health care cost inflation combined with additional employees had pushed Ford's projected health care costs in 2015 for bargaining unit employees to $800 million, from $550 million in 2011. FCA US said its cost is on pace to jump to $615 million this year, vs. $347 million in 2011.

The three VEBAs for UAW retirees have closely managed their costs and added investment income so as to be able to add benefits in recent years, such as some dental and vision coverage. The funds now have combined assets of about $61 billion to take care of health care for about 750,000 UAW retirees and their spouses. The VEBAs also have lowered costs for some chronic illnesses by helping patients better manage their conditions daily, Dziczek said. 

She said those actions, plus work Ford has done with the UAW in managing chronic care, hold promise for at least slowing the rate of health care cost inflation.

You can reach David Barkholz at dbarkholz@crain.com -- Follow David on Twitter: @barkholzatan

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