Statement of Common Purpose
Health Care for America Now!
“A choice of a private insurance plan, including keeping the insurance you have if you like it…”
Proposed GM/UAW VEBA: A House of Cards?
By Stephen Diamond
School of Law, Santa Clara University
October 2, 2007
This MOU (Memorandum of Understanding) makes clear that the entire VEBA (voluntary employees’ beneficiary association) structure fails to secure future health care obligations from the potential risk of GM (General Motors) bankruptcy. To put it succinctly, the VEBA structure can be said to balance like a house of cards completely subject to the ups and downs of GM’s financial future. If GM collapses into bankruptcy it is very likely that the VEBA will also collapse.
The basis of this conclusion is simple: according to the MOU GM retains unilateral power to make up to $7 billion of its potential contributions to the VEBA in cash over a twelve to twenty year period through annual payments. Since these payments are to be made in cash they depend entirely on the availability of that cash from GM. But if GM declares bankruptcy there is no means to guarantee now that the cash will be available or that GM will not use the bankruptcy process to shield itself from these future payment obligations. This compounds the problems associated with the Convertible Note whose value rises and falls with GM stock and whose annual interest payment and return of principal could be blocked in bankruptcy.
Stephen F. Diamond, J.D., Ph.D., Associate Professor of Law:
Pause for a minute. Think back to the insurance you had twenty years ago. Remember? Now… do you still have precisely that same coverage? Unless you are over 85 and have been in the traditional Medicare program for the past twenty years, it is highly likely that you do not.
Why not? After all, wasn’t the coverage then better and much less expensive than what you now have? Likely it provided you with a free choice of physicians and hospitals. It covered all reasonable health care services, maybe with small co-payments for routine services, and complete coverage for catastrophic expenses after a modest hospital deductible. Perhaps it was a non-profit Blue Cross or Blue Shield plan administered in the public interest, rather than today’s for-profit plans with a mission to maximize shareholder return by spending as little as possible on actual patient care. The fine print of the older insurance products designed to serve the patient was quite different from the fine print of today’s insurance products designed to compete in a profit-driven insurance market.
It is probable that your current coverage restricts you to a list of contracted physicians and hospitals, and assesses severe financial penalties if you obtain care outside of the plan. More plans today exclude from coverage some essential services such as obstetrical care and mental health services, and some even go so far as to exclude hospital coverage and specialist services. More of you are finding that the deductible and coinsurance in your plans are now large enough to cause financial hardship if you should develop significant health problems. Medical debt has become a major contributor to personal bankruptcy, and three-fourths of those with medical debt had health insurance when their problems started. All too commonly, health insurance now fails to perform its primary function: protecting us from financial hardship in the face of medical need.
So why do you no longer have the better coverage that you had twenty years ago? You may have changed jobs, likely more than once, and lost the coverage that your prior employer provided. Your employer may have changed plans because of ever-increasing insurance premiums. Frequently your insurer introduces plan innovations such as larger deductibles, a change from fixed-dollar copayments to higher coinsurance percentages, tiering of your cost sharing for services and products, reduction in the benefits covered, dollar caps on payouts, and other innovations all designed to keep premiums competitive in a market of rapidly rising health care costs. You may have lost coverage when your age disqualified you from participating in your parents’ plan. You may have found that health benefit programs have been declining as an incentive offered by new employers. Your children may have lost coverage under the Children’s Health Insurance Program when your income, though modest, disqualified your family from the program. Your union may not have been able to negotiate the continuation of the high-quality coverage that you previously held. Your employer may have reduced or eliminated the retirement coverage that you were promised but not guaranteed. Your employer may have filed for bankruptcy without setting aside the legacy costs of their pensions and retiree health benefit programs. You may have decided to start your own small business and found that you could not qualify for coverage because of your medical history, even if relatively benign, or maybe your small business margins are so narrow that you can’t afford the premiums. You may have been covered previously by a small business owner whose entire group plan was cancelled at renewal because one employee developed diabetes, or another became HIV infected. Your COBRA coverage may have lapsed and you found that the individual insurance market offered you no realistic options. You may have retired before Medicare eligibility, only to find that premiums were truly unaffordable or coverage was not even available because of preexisting medical problems.
Okay, so you say that your plan is an exception, and you want to keep it. You have or did have an employer that is so large and has such great resources that your plan will always be there, including throughout retirement. Well, let’s look at the largest and most successful private health program ever – that of General Motors. Twenty years ago, every General Motors employee knew that he or she had the best health plan available, and for life. Whoa. What was that about General Motors being saddled with legacy costs? This highly successful health program threatened to sink General Motors because of projected future commitments. They ducked that one by establishing a VEBA (voluntary employees’ beneficiary association) and dumped it on UAW (the auto workers union). UAW is now in a position of holding its breath, hoping that the VEBA does not collapse before we have adopted a national health program. Are you really sure that your secure lifetime coverage is stronger than that of General Motors? Don’t count on it.
The point is that hardly anyone under 85 has the same coverage that they had twenty years ago, and that has not been by choice. Factors over which you had very little or no control dictated that you could no longer keep the insurance you had. Today, the politicians promise you that you can keep the insurance you have, if that’s your choice, even though that has hardly ever been true in the past. Is there any reason to expect it to be true in the future?
The politicians propose token programs to control future health care cost increases, but none of these programs will have a significant impact. As long as we rely on a dysfunctional, fragmented system of public programs and private plans to finance health care, we will never control the true cost drivers that are making health care unaffordable for most of us. To keep insurance premiums affordable, the insurers will have no choice but to continue to introduce innovations in their products that will further diminish the capability of the plans to prevent financial hardship for those who need care. That means that you do not have the option of keeping the plan you have today, simply because the insurers will not be able to offer the same plan twenty years from now.
That applies to Medicare as well. It will not be the same in twenty years. But here there is hope. Medicare can be changed so that it works even better to allow us to have access to health care without the potential for financial ruin. If all of us were enrolled in a new and improved Medicare program, we would have the ability to address the true causes of escalating health care costs. We would dramatically reduce the profound administrative waste that is a direct result of trying to finance health care through a disconnected system of a multitude of private plans and public programs wherein none of the players has significant control over our global health care expenditures. A single Medicare-like program would be capable of realigning incentives to encourage the reinforcement of our primary care infrastructure in order to ensure that everyone has access to a system that provides higher quality care at a more reasonable cost. Incentives could also be altered to reduce ineffective and even detrimental high-tech excesses that drive up costs, while ensuring that beneficial high-tech services will always be there when we need them.
If we had a comprehensive, high quality, value-based Medicare system for everyone, then all of us would want to keep the system that we would have, not only for the next twenty years, but for the rest of our lives. In the meantime, don’t let the politicians tell you that you can keep the coverage you have. It likely won’t be there when you need it twenty years from now.