Now That The UAW Is On The Hot Seat to Manage Its Retiree Health Costs Will Their View of Health Care Management Change?

Brian Klepper joins us again today this time with an astute analysis of the UAW/GM deal. Now that the UAW owns their GM retiree plan will they look at health care management differently?

The Hot Seat
by Brian Klepper

I agree with Bob that the GM-UAW deal is a turning point for American health care. In a stroke – OK, it was a 456 page stroke – GM agreed to turn over as much as $35 billion, about 70 cents on the dollar, for a trust that will fund the union’s retiree health care benefits in the future. With the exception of modest additional requirements, the agreement effectively absolves GM of future financial liability for their retiree’s health benefits.

This deal is reverberating throughout a US business community that seeks to avoid continuing unpredictable and open-ended health costs, particularly for large numbers of retirees, which demand an ever-increasing percentage of total resources. Many of the articles covering the agreement have focused on the Voluntary Employees Beneficiary’s Associations (VEBAs), almost as a how-to for unionized employers who want to follow suit and stabilize their liabilities.

Some of my colleagues seem convinced that this agreement is another nail in the coffin of employer-sponsored coverage. I’m not so sure. While employers continue to be very concerned over health care costs, no mass exodus is occurring yet, nor is it likely to. Yes, smaller employers are being priced out of the coverage marketplace, but mid-sized and larger employers are between a rock and hard place when it comes to health benefits. They can pay the exorbitant increases, or they can reduce or drop coverage, watch their workers’ and families’ health decline, and suffer skyrocketing lost productivity costs. Until the nation has a workable universal coverage program capable of supplanting employer benefits, no business that sees the big picture wants to drop coverage and risk having an unhealthy, unproductive workforce.

Nor are employers confident that a government-driven cure won’t be worse than the illness. After all, Medicare’s inflation rate has matched the private sector’s for years (CBO: "Health Care Issues and Challenges for Reform, July 2007," chart 4) and there’s little reason to believe that cost growth will slow just because the government is involved. I’ve heard a good deal of concern that the tax burden for any new system could be greater than the current voluntary expenditures for health benefits.

Of course, for decades unionized employers have experienced a very different, and untenable, situation than non-unionized companies. Unionized firms trying to manage care and cost have faced the resistance of unions who, despite a wealth of evidence to the contrary, staunchly embraced the ideology that better quality care equates to unlimited access: first dollar coverage of any service by any provider. So when GM successfully transferred its retirees’ health risk to the UAW, it was a watershed moment.

There is a law of the universe that says that whoever owns the risk will come to have a different perspective about how it can most appropriately be managed. Now that UAW has responsibility for the solvency of the VEBA, the question is whether their view of health care management will change.

That’s certainly what happened when the Culinary Fund Health Plan in Las Vegas hired Jerry Reeves, MD to manage their health plan. The Plan collaborated with local hotels to provide coverage to about 320,000 lives. When Dr. Reeves, a former Humana national Chief Medical Officer (CMO) and former CEO for Worlddoc, an innovative patient decision support toolsuite, took on the assignment, their costs were through the roof.

Dr. Reeves profiled the doctors and hospitals, rewarded the high performers and discarded a few of the poor performers from the network. He instituted a range of management techniques that drove excess cost out of the system, ultimately saving so much money while improving quality that the union gave all its enrollees a 60 cent/hour raise. Dr. Reeves became a minor celebrity, taking on that union’s national Chief Medical officer position and working with groups around the country on cost and quality. Its one of the best health care stories I know.

In the Culinary Fund case, the union owned the risk and managed the health plan, and they had the good sense to ditch the conventional wisdom in favor of serious management approaches. And they’ve become a model for how unions can successfully address the problem.

The UAW may or may not be a different story. They have been entrenched in an entitlement mentality for a long time. The question now is whether they can bring themselves to manage the care process in a way that drives out unnecessary cost, and that averts financial insolvency for their own members down the very short road that lies ahead.

That, of course, will end up being the question for unions everywhere, as the GM-UAW agreement encourages employers around the country to offload their health risks to their union partners. And in this sense, the agreement is a watershed because it will force one of the last, most powerful holdouts for unmanaged, free-for-all health care (as long as somebody else is paying) to confront the realities of cost and quality.

The ONLY way to do this was to force unions to be in the same hot seat their employers have been in for years. Now that the moment has arrived, it can only be good for the whole of health care, because meaningful reform first requires everyone in power to agree that every patient can’t have everything, just because they decide they want it. Instead, we have to agree to pursue value and performance, a proposition that requires the implementation of an entirely new infrastructure: standards, evidence-base guidelines, transparency and performance-based reimbursement.

Not everyone believes the UAW can pull this off. One colleague said “I suspect the union really does not understand the tiger whose tail they just grabbed. Imagine the combination of entitlement mentality + older retirees + longstanding poor health choices + fixed budget + long life expectancy + the “bully pulpit” in the media. I think GM made out like a bandit.”

If I were in the union’s hot seat now, I might be inclined to give Dr. Reeves a call.