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Health of UAWs New Voluntary Employee Beneficiary Association Is in Question

February 22, 2010
Related Topics: Finance/Taxes, Benefit Design and Communication, Change Management, Latest News

With little fanfare January 1, the United Auto Workers’ health plan for retirees—called the UAW Retiree Medical Benefits Trust—opened its doors.

How long it remains in operation is a question, however.

Federal filings indicate that the UAW may not have enough assets in the plan to cover the last living retiree at Ford Motor Co., General Motors Co. and Chrysler Group.

And because of uncertainty over the plan’s assets, the UAW is expected to make benefit plan changes and negotiate lower rates with contracted health plans and insurers this year.

The changes would be for contracts starting in 2011 and 2012, according to interviews with several contracted health insurers and industry sources.

If the UAW’s retiree benefits plan becomes insolvent, retirees could be left without paid health care services, and hospitals and physicians could be left with unpaid bills.

When the UAW’s plan, also known as a voluntary employee beneficiary association, received federal court approval in 2008, Detroit 3 automakers were supposed to contribute about $57 billion.

That contribution would have given the VEBA a life expectancy of 80 years, according to UAW’s original February 2008 VEBA funding schedule.

However, the auto companies and the UAW have since agreed to replace some cash contributions with common stock, lowering the current assets and expected cash contributions to an estimated $37 billion, according to U.S. Department of Labor filings in the Federal Register of September 18, October 5 and December 8, 2009.

The automakers’ stock, hoped to be worth at least $20 billion, could increase the VEBA’s assets over time, several experts said.

Crain’s Detroit Business, a sister publication of Workforce Management, requested an interview with Francine Parker, executive director of the UAW’s VEBA. She declined via e-mail.

Parker is the former CEO of Health Alliance Plan of Michigan. She resigned from HAP in March 2008 and took over at the UAW’s VEBA in September 2008.

“The ability to modify benefits is especially important to ensure the solvency of the VEBA, given the reduction in cash contributions,” according to a report prepared for the Michigan Health and Hospitals Association by attorney Joe Aoun of the firm Nuyen, Tomtishen and Aoun.

If auto company stocks do not appreciate, the solvency of the VEBA could be at risk and changes in benefit design and increased cost sharing would be likely, Aoun said.

“Hospital [and physician] bad debt could increase significantly,” according to the MHA report.

Peter Schonfeld, MHA’s senior vice president of policy and data services, said there is concern among providers about whether the UAW’s VEBA has adequate funding to sustain its current benefit packages.

“I expect the UAW shares that concern because they have the fiscal responsibility and the risks associated with that,” Schonfeld said. “The worst case is [the VEBA] would become insolvent and not be able to pay any benefits.”

If the VEBA becomes insolvent and unable to pay bills, Blue Cross and other contracted insurers must notify hospitals and physicians that the contract has ended, Schonfeld said.

“There is some protection with contracts with Blue Cross,” he said. “[Blue Cross] is not obligated [to pay providers] after that if they don’t get paid [by the VEBA].”

In 2010, the UAW’s VEBA is contracting with the same network of health plans and insurers in Michigan as Ford, GM and Chrysler did previously, said several experts.

Besides Blue Cross, health plans in the UAW contracts include Blue Care Network, HAP, Priority Health, HealthPlus and Delta Dental of Michigan.

Jeff Hoerle, Priority Health’s director of sales and client services, said the plan negotiated slightly higher rates this year for its 5,500 Ford and Chrysler retirees and dependents covered under the VEBA.

During 2010, said Hoerle, the UAW’s VEBA and its contracted insurers and other vendors will discuss the best way to deliver health care to retirees. Changes could include new plan designs, higher co-pays and deductibles.

“The VEBA has a set amount of money to pay for the retirees year after year. They have to look at their population and see who they can partner with to make sure the strategies are there to get the best value,” Hoerle said.

The VEBA plans to meet quarterly this year with each health plan and insurer to discuss best plan designs, Hoerle said.

“We have five different pharmacy and five different medical initiatives we will discuss with them,” he said. “We have disease management plans in play today that will help us manage [the UAW’s] populations.”

Stuart MacDonald, Aetna’s vice president of sales in Southfield, Michigan, said Aetna has been invited for informational meetings with the UAW’s VEBA.

Aetna had contracted with GM for a retiree dental plan until July 2009, when GM eliminated it during bankruptcy restructuring.

Aoun said the UAW’s VEBA also will be collecting information to develop new criteria to select HMOs and insurers for its vendor network.

“The selection criteria will be used to determine which health plans will be offered contracts [in the future],” Aoun said. “It will be driven by costs and quality.”

Aoun also said the total amount of health care costs that the UAW’s VEBA is expected to pay annually is not completely known.

However, MHA’s report indicated that Blue Cross incurred claims of $3.7 billion for UAW retirees in 2008.

“When one considers the claims paid by Blue Care, plus the other health plans, the annual medical claims could be more than $10 billion a year,” said the MHA report.

“The actuaries are telling the Big Three that booked liabilities are at $50 billion, but the VEBA was given half of that in stocks,” Aoun said.

“They have to do something with the benefits because the design is still rich and the out-of-pocket costs are low.”


Filed by Jay Greene of Crain’s Detroit Business, a sister publication of Workforce Management. To comment, e-mail

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