Trust funds could pay health costs

Published 9:45 pm Friday, July 20, 2007

DETROIT – No matter how much of the $96,000 hospital tab Don Hartman has to pay for quintuple bypass surgery, he’s still grateful for his health insurance from General Motors Corp.

Hartman, 79, a retired auto worker from Salem, Ohio, still hasn’t received all the bills from his February operation and he doesn’t know exactly what his portion will be.

But just who pays the health care tab for Hartman and thousands of others like him is likely to be the major issue as contract talks open between Detroit’s three automakers and the United Auto Workers union.

GM, Ford Motor Co. and Chrysler Group would like to get rid of what amounts to an estimated $90.5 billion unfunded liability for retiree health care, a problem that is just now coming to the forefront in the auto industry and one that has yet to be handled by many companies and even governments nationwide.

“It’s a national, perhaps international crisis,” said Tom Clay, director emeritus of state affairs for the Citizens Research Council of Michigan. “It’s just not getting the attention it should be getting quite yet.”

Most government agencies just this year are being required to report the liability on their books. Credit Suisse has estimated the total cost to state and local governments at a whopping $1.5 trillion.

In Michigan, which has struggled to balance its budget for years due mainly to troubles in its auto industry, the obligation is roughly $21 billion with no cash set aside.

Short of a national health care plan, a possible solution has emerged in some public and private sectors, most notably in the upcoming auto talks. It’s a company-funded trust fund run by unions that pays retiree health care expenses.

The idea surfaced last year in contract talks between the Akron, Ohio-based Goodyear Tire &Rubber Co. and the United Steelworkers.

After a three-month strike, Goodyear agreed to put $1 billion into a union-run fund called a Voluntary Employees Beneficiary Association. In exchange, the steelworkers then assumed liability for the company’s estimated $1.2 billion in retiree health care costs for 30,000 hourly retirees and 12,000 active workers.

The auto companies, all of which are restructuring due to billions in losses, want the UAW to do the same thing. They’ve discussed the idea with the union in advance of the talks, which formally opened Friday with Chrysler and Monday with Ford and GM.

Similar trusts already have been set up in the public sector. In New York state, teachers unions in the Poughkeepsie and Kingston school districts run trusts that pay health care costs for active and retired employees.

The districts pay the unions less than they would have paid an insurer. The unions then hire a company that negotiates lower rates with doctors and hospitals in exchange for quick bill payments, said Debra Kardas, president of Poughkeepsie’s teachers union.

The trusts, which are self insured with a policy to cover catastrophes, also save money because they don’t have to make a profit like insurance companies, Kardas said.

But some warn that the trusts may not work for a majority of state and local governments, even if they’re unionized – and some are not.

“There’s no state that has one union. They all have many unions, and more than people would think,” said Dick Cauchi, health program director with the National Conference of State Legislatures. “I have not seen anything that suggests states themselves can go that direction” of handing off health costs to trusts run by unions.

Heading into the contract talks, auto workers fear their union could get hoodwinked.

Hartman, who retired in 1990 from GM’s assembly plant in Lordstown, Ohio, doesn’t trust either the union or the company to control the trust.

“I would want someone watching over each others’ shoulders,” he said.