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GM, UAW set to spark health care revolution

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Tom Krisher/Associated Press
December 5, 2007
— On Sept. 26, something happened that is likely to wreck Ben Carter’s time-honored health care business model.

That’s the day 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.


As chief operating officer of the Detroit Medical Center, Carter sees the deal as a major change in the way health care is priced and delivered. He and others see it as a catalyst for change in a business that costs employers millions and rises in price by double the rate of inflation almost every year.


“We’re viewing it as an opportunity to work with the union leadership and their retired members to design a better mousetrap that keeps them healthier, have a better standard of living and reduces the cost of providing that,” Carter said.


The UAW worked similar deals this year with Ford Motor Co. and Chrysler, turning the labor union into one of the largest health care consumers in the United States.


In early 2010, the union will become responsible for the health care bills of 540,000 retirees and their spouses, a population equal to that of Portland, Ore.


The numbers give the UAW bulk buying power and enough clout to bring costs down, according to some experts. Retirees, now on the same team as the entity paying their bills, will have incentives to live healthier and limit their health-care use. Some observers also say the move will lead the union to step up its lobbying efforts for a national health-care system.


If the union is successful in its cost-cutting efforts, those reforms likely would spread to companies and other health-care consumers similar to the way health maintenance organizations led to cost cuts decades ago, said J.B. Silvers, professor of health systems management at Case Western Reserve University in Cleveland.


“If they come up with better models for how to provide health care, that will diffuse across the system probably pretty fast,” he said. “In that sense, everybody’s going to benefit.”


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. Formulas for the companies’ contributions are complex, with varying levels of cash and notes that are convertible into stock, and further payments if the funding level drops.


GM will put about $26.5 billion toward its obligation, while Ford will pay around $13.2 billion on a $23.7 billion liability and Chrysler about $9.9 billion on a $16 billion liability.


The companies are paying 56 percent to 62 percent of the obligations into the trusts, called voluntary employee beneficiary associations or VEBAs.


The VEBAs have other funding sources, including wage contributions from active workers and increased payments from GM and Chrysler retirees who will get corresponding pension increases from the companies.


Union president Ron Gettelfinger has said the VEBAs will be solvent for 80 years, and union summaries of the contracts say that due to a court decision on 2005 health concessions, benefits cannot change at least until the end of 2011.



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