September 27, 2007

WHO ASKED YOU?:

Is GM's Health Plan Contagious?: The UAW's deal to assume retiree benefits may become a model for others. But it's not an easy path (David Welch and Nanette Byrnes , 9/27/07, Business Week)

Soaring health-care costs have prompted companies and unions in a slew of troubled industries to set up the trusts. The latest, and by far the largest, is the tentative deal between General Motors and the UAW that would create a roughly $35 billion trust—$16 billion less than current liabilities—to fund and administer benefits for the company's retirees and dependents. But others, including Ford (F) and Chrysler, are expected to follow. "This [will] set a precedent," says Sean McAlinden, chief economist at the Center for Automotive Research in Ann Arbor, Mich. "There will be other funds like this created."

For employers with aging workers and lots of retirees, a VEBA may be the only way, short of an elusive national health-care plan, to strip crushing liabilities from their books. While GM will take a big one-time hit, the ongoing drain of retiree health care, which now costs $1,400 per car, will finally end. For unions, a trust can provide an opportunity to safeguard members from losing benefits in the event of a corporate bankruptcy. [...]

Government employers are also interested in VEBAs—about 80% have retiree health plans. Paying those benefits out of ever-tighter budgets looks perilous (especially in the wake of a new accounting rule requiring health liabilities to be valued accurately). So many are now using VEBAs to help employees save for medical costs tax-free. "Public employers are saying 'Uh-oh, we need to do something about this,' " says Mark Wilkerson, senior consultant with VEBA Service Group, a Spokane (Wash.)-based benefit consultancy that has worked on such trusts with governments in Washington and Montana.

Still, few expect public employees to let their employers off the hook by accepting a proposal like GM's, which funds only 70% of the long-term promise.


Their employers are us and there's no reason we should ask them to accept when we can just dictate terms.

Posted by Orrin Judd at September 27, 2007 12:00 AM
Comments

Given the union exists, having it rather than the employer provide your healthcare is a no-brainer that ought to be copied. Private accounts are arguably better, but this is still a clear improvement all around.

Posted by: Mike Earl at September 27, 2007 1:34 PM
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