8:00 pm, February 14, 2010
Health of VEBA in question
Filings:UAW health plan's assets may fall short
Without much fanfare on Jan. 1, the United Auto Worker's
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
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 L.L.C.
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 sometime in the
future, retirees could be left without paid health care services,
and hospitals and physicians in Michigan 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 Sept. 18, Oct. 5 and Dec. 8, 2008.
The
automakers' stock, hoped to be worth at least $20 billion, could
increase the VEBA's assets over time, several experts said.
Crain's 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 UAW's VEBA in September 2008.
gThe ability to modify
benefits is especially important to ensure the solvency of the VEBA,
given the reduction in cash contributions,h according to a report
prepared for the Michigan Health and Hospitals Association by
Ann Arbor attorney Joe Aoun with Nuyen, Tomtishen and Aoun
P.C.
But if the auto company stock does 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.
gHospital (and physician) bad debt could increase
significantly,h according to the MHA report.
Peter
Schonfeld, MHA's senior vice president of policy and data services,
said there is concern among providers over whether the UAW's VEBA
has adequate funding to sustain its current benefit packages.
gI expect the UAW shares that concern because they have the
fiscal responsibility and the risks associated with that,h Schonfeld
said. gThe worst case is (the VEBA) would become insolvent and not
be able to pay any benefits.h
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.
gThere is some protection with contracts
with Blue Cross,h he said. g(Blue Cross) is not obligated (to pay
providers) after that if they don't get paid (by the VEBA).h
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 Grand Rapids- and Farmington
Hills-based health 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.
gThe 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,h Hoerle
said.
The VEBA plans to meet quarterly this year with each
health plan and insurer to discuss best plan designs, Hoerle said.
gWe have five different pharmacy and five different medical
initiatives we will discuss with them,h he said. gWe have
disease-management plans in play today that will help us manage
(UAW's) populations.h
Stuart MacDonald, Aetna's vice
president of sales in Southfield, 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.
gThe selection criteria will be used to determine which
health plans will be offered contracts (in the future),h Aoun said.
gIt will be driven by costs and quality.h
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.
gWhen 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,h said the MHA report.
gThe actuaries are telling the Big Three that booked
liabilities are at $50 billion, but the VEBA was given half of that
in stocks,h Aoun said.
gThey have to do something with the
benefits because the design is still rich and the out-of-pocket
costs are low.h
Jay Greene: (313) 446-0325,
jgreene@crain.com