August 31, 2009

Media Virtually Silent About $10 Billion Union Health Care Subsidy Built Into House Version of Health Care Bill

GMandChryslerAndCapitolSome of us have been wondering how viable the Voluntary Employee Benefit Arrangements (VEBAs) set up by the United Auto Workers for its auto industry employees really are. This is of particular concern at the VEBAs tied in to General Motors and Chrysler. What happens to the employer stock these VEBAs own will heavily influence whether they have the money to pay promised benefits.

The answer to the viability question must be “not very,” because the House version of health care that has made it out of committee has a $10 billion provision tucked into it that would largely work to back the VEBAs up in case GM and Chrysler are never able to stand on their own — or in case other high-wage, high-benefit companies, many of which are unionized, follow them into serious financial difficulty.

Maybe it’s because $10 billion doesn’t mean much any more in an era of trillion-dollar deficits, but media coverage of this “little” provision has been very, very light. A Google News search on “retiree health care UAW” (not typed in quotes) came back with only about 25 relevant items of roughly 100 total results earlier this afternoon. Many of those results are outraged editorials and op-eds. There is precious little original news coverage of the topic.

One of the few examples of original coverage is an August 24 report by Justin Hyde and Todd Spangler of the Detroit Free Press that explains the provision and provides background:

$10B aimed at union retirees
Provision called welfare by some, not enough by others

….. a $10-billion provision tucked deep inside thousands of pages of health care overhaul bills that could help the UAW’s retiree health-care plan and other union-backed plans.

It would see the government — at least temporarily — pay 80 cents on the dollar to corporate and union insurance plans for claims between $15,000 and $90,000 for retirees age 55 to 64.

Big businesses with union workers are twice as likely to offer retiree benefits as nonunion ones.

Greg Mourad of the National Right to Work Committee called it “a shameless case of political payback,” saying Democrats and President Barack Obama are trying “to force the rest of us to pay billions to cover those unions’ health care.”

Labor advocates say even more funding may be needed.

“It is not enough money,” said former U.S. Rep. David Bonior, a Mt. Clemens Democrat who chairs the board at Washington, D.C.-based American Rights at Work, a labor advocacy group. “That will have to be supplemented to fill the gap.”

…. The health care debate roiling the nation promises an even greater impact in Michigan: It could determine whether the UAW’s gamble that it can insure 850,000 retirees from Detroit’s automakers pays off or goes bust.

Thanks to Detroit’s twin auto bankruptcies and other concessions, the UAW’s voluntary employee benefit association, or VEBA, had to take stock of unknown value for $24 billion in claims, while adding thousands of early retirees to its rolls.

Outside experts estimate the funds have about 30 cents in cash for every dollar of future claims, with no guarantee of what its stock assets will be worth. Lance Wallach, a New York-based VEBA expert, says if the funds “don’t get something, they’re out of business in 12 years.”

…. The $10 billion is aimed at a growing gap between the skyrocketing cost of care for early retirees — ages 55 to 64, too young for Medicare — and what President Barack Obama and congressional Democrats promise will be less-expensive coverage once, and if, the much-debated reform measures kick in several years from now.

It doesn’t seem unreasonable to suggest that the UAW might be incentivized to drive a tougher and perhaps unfair bargain in negotiations with Detroit’s automakers if this $10 billion backstop becomes law.

In an August 25 editorial, Investors Business Daily saw a link between this provision and the thuggish union behavior seen at recent health care town hall meetings:

Payday For Unions

Labor: If there’s any question as to why union toughs turned up at recent health care town halls and got violent, consider what they were gooning for: a $10 billion bailout for their mismanaged pensions — at our expense.

It’s nothing but another bailout for union-bankrupted industries that can’t sustain their contracts. In most of the private sector, companies cut back. They pay for what they buy. They scrimp.

Unions are different. When things get bad, they want taxpayers to pay. And they demonize corporate profits. When profits are a dirty word, one man’s wealth is another man’s loss, and creating value is no longer recognized as a means of earning money.

It’s no surprise that bailouts are the result.

But there’s a problem with all this largesse — the poor and middle class who don’t get these fat pensions end up paying for them anyway.

What IBD noted, more than the relatively “small” size of the legislated subsidy (which, as noted in the Free Press excerpt, might end being a mere down payment into a money pit many times the size), may well be the reason why the VEBA bailout in the health care bill has gotten scant media attention. It would be pretty hard for reporters to spin it to readers as a good or even neutral thing — because it isn’t.

Cross-posted at


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