General Motors Corp.'s historic labor agreement with the United Auto Workers could have a major impact on how health-care costs are funded and managed in the United States, experts said Thursday.
At the very least -- particularly with a presidential election right around the corner -- the deal could shine a spotlight on the problem of ever-increasing health-care costs, according to industry watchers.
"I think this could be a turning point. This puts health care and its numerous problems in the national spotlight, in the public eye," Duquesne University economics professor Matthew Marlin said.
GM and the United Auto Workers announced their deal Wednesday -- ending a 41-hour strike and pending worker ratification -- which included the establishment of a voluntary employee beneficiary association, or VEBA, that would take over responsibility for health care for workers and retirees and be administered by the union. It promises to move $51 billion in unfunded retiree health-care liabilities off GM's books, potentially raising its stock price and credit ratings.
GM is expected to place as much as $35 billion into the VEBA, but the union will manage how the funds are invested and disbursed.
"I see firms with large numbers of retirees like General Motors forming a VEBA, as it transfers the uncertainty of paying for health care to the workers away from the company," said Mark V. Pauly, professor of health-care systems and economics at the University of Pennsylvania's Wharton School.
Within the last year, Dana Corp. and Goodyear Tire & Rubber Co. have instituted voluntary employee beneficiary associations, but the GM-UAW deal could break the ice in terms of more such groups being formed, Pauly said.
"What's happening is that the structure of health-care coverage provided to retirees is changing as it changes for existing employees," Pauly said. "The gold-plated promises made to retirees years ago aren't lasting."
Large companies are using a number of different tactics to reduce or eliminate responsibility for health care, experts said. In addition to VEBAs, health reimbursement accounts allow employers to put a fixed amount of tax-deferred money into an employee's account -- with the employee managing the benefits. Thus, the company has a definite handle on its health-care-related expenses.
"Using a VEBA gets an open-ended liability off General Motors' books," said Beaufort B. Longest Jr., director of the Health Policy Institute at the University of Pittsburgh.
Longest said "some very smart people on both sides" looked at using a VEBA and determined it would handle the needs of the GM retirees. "This is a negotiated approach, unlike a lot of situations where companies have just dropped all retiree coverage," Longest said.
VEBAs aren't new, they were established by Congress in 1928 to fund life, health, accident and other benefits to their members. Funds held and interest earned by a VEBA generally aren't taxable, although benefits sometimes are. Employer contributions can be tax-deductible.
There are at least 2,700 VEBAs already in existence for union and nonunion employees in industries ranging from steel to utilities to telecommunications, according to Labor Notes, a Detroit-based publication.
Because of ever-increasing costs, health care already is a big issue in the presidential campaign. Top Democratic contenders have placed employer-based insurance in the center of their proposals, but with more government assistance to help the uninsured and underinsured.
"Hillary Clinton has made health care almost her single issue in the campaign," Duquesne University's Marlin said.
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