With word that Ford workers have followed those at GM and Chrysler in ratifying their new labor contracts we may be at the cusp of the next big growth opportunity in the health plan business.
GM alone will transfer as much as $50 billion in long-term retiree health care liabilities to the Voluntary Employees Beneficiary's Association (VEBA) and Chrysler and Ford will also set up the structure over the next two years.
So, there is a new business opportunity for as much as $100 billion in long-term retiree liabilities that the UAW is going to have to figure out a way to manage. With the auto companies laying off their retiree health care risk for estimates as low as 70 cents on the dollar, the UAW needs to make their limited funds work for their members.
The business opportunity is for the big health plans to go to the union and do what they do best--carve out risk and limit the plan sponsor's liabilities.
With commercial market growth now coming only when you steal business from the other guy and the private Medicare market beginning to slow--and in danger of having its generous Medicare Advantage payments cut back to a par with the traditional Medicare plan--finding new areas of growth is critical to the health plan industry.
But the VEBA business will not be an easy risk to manage. The auto companies were no amateurs when it comes to health benefit management and they have reportedly laid off their risk at a pretty good discount. The union will be looking for guaranteed costs at levels well below where the auto companies were getting the job done. Competition will drive margins down on what will be a very risky business.
But the health plans need growth and they will have no choice but to enter this sector if they want to continue to satisfy Wall Street's expectations for growth.
VEBAs will be the subject of some pretty brisk competition in the coming years. But maintaining benefit levels for the unions at maybe 70% to 80% of what the auto companies were paying out won't be an easy business.
But done successfully, it will not only make the union and Wall Street happy, it can also show us the value that the private markets can deliver in managing health care costs.