Thursday, September 27, 2007

VEBA in Spotlight of Health Care Reform

The fallout from the UAW-GM agreement shifting retiree health care benefits into a VEBA (Voluntary Employee Beneficiary Association) keeps coming.

In a quick, penetrating article, BusinessWeek reporters David Welch and Nanette Byrnes enlighten readers about how many VEBAs are already around (about 12,000 nationwide), who's using them (employers with large, unionized workforces), and how well they are holding up:

In 1998, the equipment giant [Caterpillar ] set up a similar type of health-care trust to defray increases in retiree medical costs. By October, 2004, it ran dry, and retirees saw as much as $281 extra taken from their monthly pension checks. Now the retirees, union, and company are in litigation.

The article quickly explains the benefits of VEBAs to both business and labor:

For employers with aging workers and lots of retirees, a VEBA may be the only way, short of an elusive national health-care plan, to strip crushing liabilities from their books... For unions, a trust can provide an opportunity to safeguard members from losing benefits in the event of a corporate bankruptcy.

Meanwhile, New York Post reporter Paul Tharp is taking a more jaundiced, historical look at VEBAs:

General Motors is saving its financial neck and ending a surprise strike by using a century-old shelter device originally invented to quell the labor riots of the 1920s... VEBAs were created as tax shelters for giant coal and steel companies at the turn of the century to help pay for worker injuries and widows' benefits.

One thing is certain, you'll be hearing a lot more about VEBAs on this blog and in the U.S. Presidential Election campaign in the months ahead.

SOURCE: "Is GM's Health Plan Contagious?" by David Welch and Nanette Byrnes, BusinessWeek, September 27, 2007.
SOURCE: "GM's $nazzy New Model: VEBA," by Paul Tharp, New York Post, September 27, 2007.
photo courtesy of Abandoned In Place at Flickr


  1. Thank you for blogging about Health Care! The growing number of uninsured, now at over 47 million, the high cost of insurance and the release of the 2008 presidential candidates health care plans have brought the topic of health care reform to national headlines and prime time news.

    But what about the individual stories of American citizens facing a health care crises today? How do they navigate the broken health care system? At Outrageous we talk about the issues concerning individuals and small businesses. In addition to reporting on pending legislation and the record profits of pharmaceutical and insurance companies, we address the real life stories -- emergency room care, mental health issues, drug abuse, obesity, preexisting conditions and children's health. By letting our voices be heard-together we can find common sense solutions to reduce health care costs and increase access to quality health care for all.

    Outrageous Times is our monthly grass roots newspaper, dedicated to health care reform now and is distributed to over 20,000 readers in Mercer County, WV and Tazewell County, VA. The web site is a both a local and national health care resource. We would like to invite you and your readers to submit your stories, experiences, observations and opinions to Comments posted on are often reprinted in the Outrageous Times.

    Thanks in advance for your contributing your knowledge to


    Brenda Turner


    Outrageous Times

  2. The whole point of the VEBA approach is to fix the contribution of the employer to retiree health costs, as I pointed out in my San Francisco Chronicle Op-Ed, "For Employers, There's No Exit From Health Care" ( So it's not surprising that the Caterpillar retirees ended up having to pay extra as health costs soared beyond projections. The same thing will happen to auto company retirees.
    This is not the only way that employers are trying to limit their obligations. The Erisa Industry Committee has proposed a system of competing "benefit administrators" that would allow companies to give their employees vouchers for a fixed contribution to their health insurance costs. Welcome to the future.

  3. Ken,

    Thanks for commenting. The URL for your article in the SF Chronicle didn't survive our blog interface. I'm going to try to hotlink in this comment.

    George Halvorson has been working with the State of California on proposed health care reform legislation. Would appreciate hearing any predictions you have about the prospects for passage of health care reform in California.


  4. Steve, thanks for the invite and for fixing the link to my op-ed.

    I think that chances for passage of a California health care reform bill are good. Since the legislature knows that Schwarzenegger will veto the bill it passed on Monday, it's more likely to compromise now with the Governor. And I have high regard for the amount of determination and political capital that Arnold is pouring into this cause.

    The Governor is correct in his assumption that everyone has to pay for health care, including individuals, employers, and the government. The Democrats erred in leaving individuals out of their plan. But the devil's in the details. The Massachusetts plan hasn't been notably successful so far in getting individuals to buy in, and it's unclear whether the state government can find the money to subsidize individuals' coverage sufficiently. That's in a state where there's a much smaller percentage of uninsured than in California. Also, both states are depending heavily on waivers to use federal money to carry out their programs, and it's unclear whether California will get a waiver for billions of federal dollars to cover the uninsured. There's also the little matter of a sales tax increase that will be needed. And although the state hospital association is reportedly willing to pay Arnold's provider tax, the state's physicians remain opposed.

    Finally, I'd point out that, like the Presidential candidates who are proposing Massachusetts-like reforms, Schwarzenegger is focusing mainly on moving money around to cover the uninsured, rather than figuring out how to control costs. Of course, a single state can't do this alone. But there's actually plenty of money in the system to provide good coverage for everyone if we're willing to change how providers are organized and paid. For more details, see my new book Rx For Health Care Reform (

  5. Brenda,

    Thanks for the comment and for the coverage for George Halvorson's book on


  6. Ken,

    Nice analysis of California vs. Massachusetts on the health care reform programs.

    Your closing line is spot on about how there is enough money already being spent (wasted?) in the health care system to reconfigure it to cover everyone without adding to the overall cost or reducing benefits.

    The link to your book site didn't turn hot, so I'll link it here again and see if I have better luck:

    Rx For Health Care Reform


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