Why the UAW-GM Deal Matters to You

What's the Problem?

General Motors, like other U.S. automakers and many other corporations, agreed decades ago to guarantee health care coverage for employees and retirees.
THE REALITY:They did not anticipate today's longer life spans, costly high-tech treatments and the rapid rise in health care costs.

Like Social Security, most employer-sponsored health plans are set up so a larger number of employees can support a smaller number of retirees.
THE REALITY: GM currently has 73,000 unionized workers and 340,000 retired union workers or surviving spouses.

As the American workforce ages and the cost of funding employee health care climbs, companies are looking for alternatives.
THE REALITY: Sixty percent of American businesses offered health benefits to at least some of their workers in 2007, down from 69 percent in 2000. Within the last five years, several large employers substantially reduced retiree health care benefits in the process of Chapter 11 reorganization.

What’s the Deal?

• As part of the four-year contract, GM will pay the United Auto Workers about $35 billion to fund health care for retired unionized employees. That will take $50 billion in retiree health care liability off of GM's books.
• The union will invest the money in a voluntary employee beneficiary association, or VEBA. The VEBA will provide benefits starting in 2010.
• UAW President Ron Gettelfinger estimates that the VEBA will fund retiree health care for at least 80 years.

What’s a VEBA?

• A VEBA is a specialized health care trust fund. Dollars grow tax-free and are untaxed when used to pay benefits.
• The program will be monitored by the Securities and Exchange Commission.
• Among companies that have set up VEBAs: Goodyear and Navistar. Telecommunications giants AT&T and Verizon reportedly could be next.
• The UAW will hire a private asset management firm to administer the program.
• The good news about a VEBA—assuming it’s adequately funded and well-managed—is that retirees' health care coverage is protected even if a company goes bankrupt.

Four Big Concerns

Underfunding: Some UAW members worry that $35 billion is insufficient to sustain the VEBA and does not anticipate a continued upward spiral in health care costs.

Caterpillar Debacle: A 1998 contract between the UAW and Caterpillar Inc. included a VEBA trust established with $32.3 million the union set aside in special training and overtime accounts. Six years later, the VEBA was bankrupt, leaving 20,000 retirees to pay much of their medical costs.

Premium Surge: UAW retirees pay premiums of $10 a month for individuals and $21 a month for families, very low compared with national averages. Some benefits analysts say those numbers will have to increase.

Transparency: Anti-union activists question whether anyone, including the Securities and Exchange Commission, will be able to adequately monitor the billions of dollars at stake.

The Impact on Medicaid

"It could cripple the program" in Michigan, state Medicaid Director Paul Reinhart told the Detroit News.

States Alarmed: Michigan could lose $360 million a year in federal Medicaid funds over three years if the UAW reaches agreements with Ford and Chrysler similar to the one with GM. Other states would face Medicaid funding cuts as well if employers set up VEBAs for their own retirees.

Hospital's Pain:  Cutbacks in Medicaid would have obvious implications for hospitals with significant percentages of low-income patients. People who can't afford primary care go to emergency departments for nonemergent health issues or they forgo care altogether until they are sicker and need more intensive treatment. Hospitals can expect their proportion of charity care to climb.

New Health Care Muscle

• The agreement will make the UAW one of the largest private insurers in the United States.
• Some experts say it puts the UAW "at the epicenter" of the nation's health care debate just as the 2008 presidential campaign intensifies. The UAW is an outspoken advocate for nationalized health care.
• As part of the agreement, GM and the UAW will establish the National Institute of Health Care Reform to research and lobby for "high quality, affordable and accountable health care coverage for all Americans." GM will pay $3 million a year over the next five years to fund the institute. Details, including who will run it, have not been announced.

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