Employer-based Health Coverage “tipped” with New UAW Contracts

I took a couple of days off this week to travel to attend a memorial service for a family member who had passed away and I made no attempt to keep up with the steady pulse of the news that typically surges though my computer. When I returned my Google Reader was packed with health care related news items from the previous week. Where to start? Which of these stories are important? Which Democratic plan will really cover more people?

Actually, two stories jumped out at me as being related, and as being the most important trends to surface in the news this past week. One was a story had appeared in my local newspaper, The Kansas City Star, and carried the headline “Employer-based health coverage could be near tipping point, report suggests.” This story had shown up in many of the news feeds that I track, telling me that it was widely circulated. The second piece is one I had tagged earlier in the week: “UAW’s retiree health benefits takeover could change the way care is delivered.” This article had not shown up in many of my feeds, but ties quite closely with the “tipping point’ piece.

The “tipping point” article was based on a report issued on Thursday by the Employee Benefit Research Institute which said: “If one larger employer actually did drop its health benefits, others might follow for competitive reasons.”

The article predicted that what would reverberate through national health-care discussions was this finding:

“(Employers) all agree that if one major employer were to drop health benefits, others would immediately begin to assess whether or not they should follow, on the one hand, or take advantage of others dropping the benefits to enhance talent acquisition.”

One employer interviewed said it would be “insane” to be the first large employer to drop health-care benefits.

I would argue that some large employers have already dropped their health care benefits, and that brings me to the second article. On Sept. 26, the United Auto Workers and General Motors Corp. settled on a revolutionary new contract that shifts $46.7 billion worth of retiree health care costs from the company to the union. The UAW worked similar deals this year with Ford Motor Co. and Chrysler LLC, turning the labor union into one of the largest health care consumers in the nation.

In the contracts, GM, Ford and Chrysler agreed to put billions into union-run trusts that will pay bills for all retirees and spouses and for active workers and spouses after they retire. The companies are paying 56 percent to 62 percent of the obligations into the trusts, called voluntary employee beneficiary associations or VEBAs. For the VEBAs to work, experts say the union must invest wisely and make more money than the rate of health care inflation. But they also must control costs.

What the companies have done is institute a defined contribution approach to retiree health care. Their obligation is essentially fixed and it will now be up to unions and their retired members to come up with benefit plans and programs that will make the money last.

Yes, I would argue that the “tipping point” occurred with these paradigm changing union contracts. The shift from defined benefit to defined contribution health care has already happened in the retiree segment. Can it be long before a major employer implements a similar model for active employees?