DETROIT (Bloomberg) -- The experiment looked doomed at the start.
Five years ago, General Motors, Ford Motor Co., and Chrysler Group -- with the blessing of the UAW -- created an independent entity to provide health insurance for more than 700,000 retirees and to manage the investments that would finance the benefits.
The move was good for the automakers, allowing them to shed crushing liabilities that threatened to impede their recovery amid the Great Recession. The conventional wisdom was that the trust fund would quickly run low on money and ask union retirees to cough up large annual premiums or settle for more limited coverage.
“People didn’t believe the math worked,” recalls Art Schwartz, GM’s labor negotiator at the time.
Contrary to expectations, the $61 billion UAW Retiree Medical Benefits Trust is thriving.
Retirees’ drug costs are falling; dental, vision, and other benefits have even been added. What’s more, the investment fund that pays for all of it has booked double-digit annual returns in recent years.
“A lot of people thought this wouldn’t hunt,” says Fran Parker, who came out of retirement in 2010 to run the trust. Parker, who previously headed a large health plan in Michigan, said in a July 10 interview that she relished the challenge. “I thought, Oh dear, I’m going to take care of the same people that I took care of when they were active. What a fitting bookend.”
Under Parker, the UAW trust, which is the largest private purchaser of medical care in the U.S., is forging paths in benefits management and emerging as a corporate-governance advocate.
“The fund has accomplished some really impressive things,” says Harley Shaiken, a labor professor at the University of California at Berkeley, adding that there are lessons for other plans in how the trust’s managers have reduced costs by remixing coverage and pushing preventive services.
Skeptics had predicted health-care inflation would continue to run at 3 percent to 5 percent a year, outpacing returns on investments. Fortunately for the trust’s managers, that inflation rate has been relatively low, a little less than 3 percent last year.