VEBAs will make health care impact

Funds run by UAW will be formidable investors

Christina Rogers / The Detroit News

NOVI — A union-run trust fund being set up to cover retiree health benefits for Detroit’s Big Three could reshuffle tens of billions of dollars in health care spending, as it puts the United Auto Workers in charge of buying medical coverage for more than 720,000 current and future retirees, according to experts who spoke Thursday to a medical society conference.

The fund, known as a Voluntary Employees’ Beneficiary Association, or VEBA, will make the UAW one of the nation’s largest non-insurer purchasers of health care and a formidable investment operation, ranking among the country’s top 20, said Mark Gaffney, president of the Michigan State AFL-CIO.

Organizers billed the conference, hosted by the Michigan State Medical Society, as one of the first forums to discuss the implications of the trust fund on the health care industry.

"This topic has the potential to alter the way health care is financed and potentially how it’s delivered for a huge segment of the patient population," said Dr. John Billi, an associate vice president of medical affairs for the University of Michigan.

Last year, the UAW agreed to take on the responsibility for hourly retiree health care beginning in 2010 for all of the Big Three, allowing the automakers to wipe the financial liabilities from their books. General Motors, Ford Motor Co. and Chrysler LLC will contribute a total of $56.5 billion to the fund, which will be managed by the UAW.

The money will pay the health care bills of UAW retirees. What doesn’t go to pay benefits will be invested, to create a source of income for the fund.

Darcy Hitesman, a speaker and attorney with expertise in special employee benefits, noted that the trust fund itself is not a health benefits plan but rather a "funding vehicle" to pay for coverage. The fund can be arranged to serve a variety of purposes, among them paying for medical benefits.

In the next two years, the UAW will work to set up the administrative framework for the VEBA and then hand it off to an independent 11-member board of trustees who will undertake all coverage and investment decisions, such as picking a benefits carrier and selecting co-pays and deductibles for its members, Gaffney said.

The union projects that by 2013, health care costs will rise 5 percent a year, Gaffney said. The fund is designed to be active for 80 years, he added.

The union also plans to establish an institute for health care reform to continue pressing for universal coverage, Gaffney told attendees. The three automakers will contribute about $30 million combined to help launch the institute, he said.

For health care providers, Gaffney explained the VEBAs will work similar to other employer-funded benefits plan.

"It’s only a health care plan. It’s not too much different from what you’ve worked with before," he said. "It’s just a heck of a lot bigger.

A closer look at VEBAs

Detroit’s Big Three automakers make a tax-free contribution to a trust fund, which then becomes the responsibility of the United Auto Workers. The union will set up a board to oversee the trust, set policies and select managers to invest and oversee the money. Dollars contributed to a VEBA grow tax-free.
The VEBA allows them to get out from under billions of dollars worth of future health care costs for its union retirees — at a discount. Part of the health care issue for automakers is that deals signed decades ago didn’t anticipate today’s longer life spans, expensive high-tech treatments and cures and the rapid rise in health care costs. In 2006, for example, those costs rose by 6.9 percent .
The VEBA takes away uncertainty for union workers; their retirees’ health care won’t depend on the financial health of the automakers. It also means the union won’t have to fight the automakers over continued retiree health benefit cuts.
 

A Voluntary Employees Benefit Association is a specialized tax-free health care trust fund that will pay for the future benefit costs of a company’s current or retired workers. According to the Internal Revenue Service, there were about 12,500 VEBA trusts in 2005.