Aug. 21 (Bloomberg) -- Legislation overhauling U.S. health care includes $10 billion to pay some of the most expensive medical costs for millions of autoworkers, steelworkers, schoolteachers and other early retirees with coverage.
The provision, embedded in legislation passed in July by House and Senate committees, may help offset health-care concessions made earlier this year by the United Auto Workers as part of a government rescue of General Motors Co. and Chrysler Group LLC and related cost-cutting at Ford Motor Co.
The UAW cited the provision in an e-mail this week urging its members to support a health-care overhaul, President Barack Obamas top domestic priority.
Company, municipal and union-sponsored plans that meet eligibility would be reimbursed for 80 percent of the health costs from $15,000 to $90,000 for early retirees ages 55 to 64, according to the legislative proposal.
Its probably going to cut a big chunk of costs, said Jon Glaudemans, a senior vice president at Avalere Health LLC, a health-policy consulting firm in Washington, D.C. At that age, youre either using a very little or a lot of your coverage. I would expect a substantial amount of an employers costs comes between $15,000 and $90,000 in claims.
Health-care measures, designed to extend medical insurance to tens of millions of Americans, still must clear the full House and Senate, and differences in the two chambers versions be reconciled before the proposal becomes final.
Retiree Coverage
At least 1.7 million of about 4.8 million U.S. retirees ages 55 to 64 have employee-based health benefits, the Employee Benefit Research Institute said in a report this month. A further 500,000 disabled retirees in that age group are covered under employment-based insurance plans, according to data from the institute, a Washington-based study group that receives corporate funding.
Most of those covered retired employees ages 55 to 64 are in unions or government jobs because private employers are dropping their nonunion retiree coverage at an accelerated rate, said Paul Fronstin, director of health research programs at the Employee Benefits Research Institute.
This is a Band-Aid on a gushing wound, Fronstin said. Its not a permanent solution.
The UAW had about 530,344 retirees and surviving spouses in 2007, the last year for which figures were compiled, according to the unions Web site. The union doesnt break the retirees down by age group.
The UAW probably has about 675,000 retirees and surviving spouses now, according to an estimate from the Center for Automotive Research, a nonprofit research organization in Ann Arbor, Michigan.
Forestalling Contributions
The UAW agreed during the first half of this year to let GM, Ford and Chrysler forestall about $21 billion in cash contributions to union-run retiree health-care funds in exchange for equity and future payments. Thousands of UAW members also agreed to retire early in the restructuring.
In the e-mail Aug. 17 urging support of a health-care revamp, the UAW said the plan would provide assistance to employers and Voluntary Employee Beneficiary Associations, to help them continue coverage for early retirees.
The so-called VEBAs pool money into company or union-run funds that are used exclusively for future health-care coverage.
The Obama administration earlier this year praised the union for its sacrifices in support of the GM and Chrysler bankruptcies. Unions spent $52 million to help elect Obama, including $5 million from the UAW, according to OpenSecrets.org, a Washington-based organization that tracks campaign spending.
Wide Benefit
The Detroit-based union said in a statement in response to questions about the proposal that the provision would benefit a wide range of retiree health care plans, including those sponsored by large private-sector employers, by state and local governments, and by VEBAs.
The Congressional Budget Office estimated the cost of the so-called reinsurance for retirees that includes VEBA reimbursement to be $10 billion, with payouts of $3 billion annually from 2010 to 2012 and $1 billion in 2013, according to a July 2 analysis of the proposal from the Senate Health, Education, Labor and Pensions Committee. The language is almost identical to the House version, last voted on by the Energy and Commerce Committee.
The three automakers originally agreed in 2007 to contribute about $54 billion to fund the UAWs VEBAs to gain the right to trim as much as $7 billion in retiree health-care costs annually and about $87 billion in future obligations.
Equity Stakes
The UAW members agreed to let GM, Chrysler and Ford all cut those contributions, including swapping about $21 billion that was supposed to be paid in cash for equity or later payments, as financial conditions worsened. In exchange, UAW VEBAs also got 17.5 percent ownership of GM and 55 percent of Chrysler.
The proposed program would require reimbursements from the so-called Retiree Reserve Trust Fund in the U.S. Treasury to be used to lower insurance premiums costs for enrollees and would be prohibited from covering administrative costs or used for profits.
The temporary reinsurance program will cover medical costs such as a hip replacement or other major operations, said Richard L. Kaplan, a professor at the University of Illinois College of Law in Champaign who specializes in legal issues for the elderly.
It wont cover the more expensive cost of someone dying of cancer or the less expensive, but predictable, cost of procedures such as a colonoscopy, he said.
You can assume a lot of the people aged 55-64 wont have as many of the really expensive costs until they are eligible for Medicare, Kaplan said. This could relieve a lot of the costs.
Once they reach 65, workers qualify for Medicare, which covers 45 million people, and is expected to spend $503.1 billion this year, accounting for one of every five dollars spent on health care in the U.S., the Centers for Medicare and Medicaid Services estimated in February.
Facebook
Twitter