Editorial: UAW contract must contain health costs

The Detroit News

The UAW and the three Detroit automakers must figure out a way to contain health care costs as they continue contract negotiations. Health costs have grown in past decades at a rate neither party can afford, and it needs to be a priority for both the union and automakers.

With the onset of Obamacare’s Cadillac tax — a fee employers have to pay on premium health care plans beginning in 2018 — creative solutions should be found to reduce costs.

Health care costs for all three companies have increased exponentially since the 2011 talks and combined reach several billions of dollars.

UAW president Dennis Williams has presented the idea to create a co-op pool for all active employees, which would reduce rising costs overall by allowing the union to negotiate with insurers and providers and maintain quality benefits for the future.

While it presents significant challenges, the two parties should work toward the co-op, or any other solution that will mitigate future costs.

“Companies are willing to talk about anything that slows the rate of growth of the health care burden,” said labor expert Kristin Dziczek at the Center for Automotive Research in Ann Arbor.

Seeking a carve-out from Obamacare’s onerous tax, however, is one option that should be off the table. The UAW was a vocal supporter of the president as a candidate, as well as of his signature health care law. It should not be spared the consequences of a law it helped enact.

Williams’ proposal is similar to the Voluntary Employee Beneficiary Association (VEBA) established after the 2007 contract talks to manage health care for about 750,000 UAW retirees and their spouses.

The VEBA — the biggest private pool of insurance in the U.S. — has since been a somewhat surprising success, thanks in part to a strong stock market in recent years, but also because of the union’s effective management of the funds.

The union quickly learned how to contain costs by helping retirees manage chronic conditions. Encouraging them to keep up with prescriptions, schedule regular doctor appointments and avoid catastrophic situations drove down insurance costs for the whole pool.

The VEBA’s benefits fund went to 97 percent funded in 2013, from 60 or 70 percent in its early years.

If the UAW could apply the same principles to a co-op for active employees, it might work.

“I don’t think there’s any other way,” Williams told The Detroit News.

There are several differences, however, in managing active employees versus retirees.

Many in the VEBA are eligible for Medicare, which helps lower costs. VEBA participants also pay high deductibles in retirement they didn’t pay while active. Active workers hired before 2007 don’t pay deductibles now, sure to be a sticking point in the negotiations.

Additionally, the VEBA received tax-deductible contributions of about $55 billion combined from the Big Three at its inception. Legally, contributions can be made for active employees into a co-op, but they wouldn’t be tax-deductible.

UAW members don’t want to pay any more for health care than they currently do, but they also must realize they enjoy some of the best health care plans in the country at some of the lowest costs.

Keeping that benefit is going to be a challenge. Negotiating costs with insurers and managing employees’ chronic conditions are a good start.