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The New Models Are In

Brad Cain, for HealthLeaders News, October 10, 2007

Harkening back to the days when Detroit's annual introduction of the new models would set the nation abuzz, the latest model to come out the Motor City is creating a stir of a different sort. Instead of all the talk being about a redesigned luxury sedan or a new super-sized SUV, the focus is on a new streamlined model for healthcare benefits.

Leaders from the United Auto Workers and management at General Motors agreed on a new system that will unburden the company from the weight of a $55 billion obligation for future retiree healthcare benefits.

In exchange for a promise to keep medical benefits stable for the next two years for active workers and retirees, the union agreed to the creation of a new healthcare trust fund--a voluntary employee benefit association or VEBA--that will take responsibility for providing retiree healthcare benefits in the future. Under the plan, GM will invest $35 billion to establish the trust fund, which will be managed by the union and will use gains from investments to cover the additional cost of care. The agreement was reached following a two-day strike that was called in large part because of proposed changes to workers' medical benefits.

The deal is seen as a win-win for the company and the union. GM will save an estimated $20 billion by paying the tab early, while the union gained commitments from the company to make more investments in its domestic manufacturing operations. Combined, the changes could go a long way towards making GM competitive again in the global marketplace, which in turn should pay dividends to unionized workers in the form of increased job security.

So what about the impact on the healthcare industry? In the near term, at least, any direct impact is likely be minimal as the trust fund will not become operational until 2010 at the earliest. Longer-term, however, the shift in financial responsibility could make the union more receptive to cost-sharing initiatives and other incentives designed to encourage consumerism. The move by GM could also trigger similar shifts by other large employers, such as Ford and Chrysler, which are in negotiations with the union.

Another impact of the deal could come from the pressure it puts on legislators to enact healthcare reforms. Under the GM/UAW pact, the automaker will spend up to $15 million to fund a new institute focused on studying potential changes to the nation's healthcare industry. The union is seeking a similar commitment from Ford and Chrysler.

Still, the real question for GM, the union and the healthcare system at large is whether this announcement equates to the release of the next Corvette or the next Corvair. One went on to become an American icon, while the other helped launch the career of Ralph Nader. Which will it be this time?


Brad Cain is editor of California Healthfax and executive editor for managed care with HealthLeaders Media. He may be reached at bcain@healthleadersmedia.com .

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