Innovation out of Necessity

General Motors and the United Auto Workers union are closing in on a new labor contract that could alter the way the Detroit-based carmakers provide healthcare benefits for their workers. GM is proposing to transfer about $55bn in future healthcare liabilities to a union-managed fund, known as a Voluntary Employees' Beneficiary Association (VEBA.

Benefits for retirees alone makeup more than half of the $20 per hour gap between wages and benefits paid by the Detroit carmakers and their rivals based overseas.

GM has pushed hard for the creation of the VEBA as a replacement for an open-ended guarantee of benefits for UAW retirees. Instead of relying on the auto makers for retirement benefits, the UAW would oversee billions of dollars provided for retirees, and it would have to decide to trim benefits if the fund was running low on money. VEBAs were created to pre-fund retiree health obligations for people covered under collective bargaining agreements. Employers could form these for other employees as well, but they would not receive a tax deduction, so nobody is doing that.

Given the recent GM/UAW discussions, I was curious as to what other organizations are doing to control healthcare costs. In addition to VEBAs, two additional healthcare provider options are emerging:

Competing Managed Care Programs
As health-care costs continue to rise, many companies are turning toward managed-care to help them control their medical-benefits costs. The majority of companies that engage these methods for their active work forces extend them to their retiree population as well.

However, the Ohio Retirement Systems,has implemented a managed-care plan that uses two competing health-care networks to deliver high-quality, cost-effective care to retirees and their dependents. For this particular plan, not only must the health-care networks—Aetna and Blue Cross/Blue Shield—compete in the initial selection process, they must continue doing so in the day-to-day care of plan participants.

The plan, which covers non-Medicare, nonprescription-drug claims in Ohio, uses the point-of-service model. Health-plan participants have the choice of staying within their chosen network or going outside the network each time they seek care.

The two networks provide identical benefits. They compete for plan participants on the basis of quality, access, service, and cost. As a result, participants receive both cost savings and improved quality. Approximately 85,000 retirees and their dependents participate in the managed-care plan.

Healthcare Coalitions
Instead of waiting for federal health-care reform to address the critical issue of soaring costs, employers in many communities are joining forces to reform the system by forming healthcare coalitions. Through their combined purchasing power, these coalitions are changing the way that health care is purchased and delivered in this country.

In Minneapolis, for example, the HR executives of several large, self-insured companies have pressured local providers to put greater emphasis on the quality and cost-effectiveness of care. A major aim of the coalition is to cut back on the care delivered by expensive specialists, and instead to rely more heavily on primary-care doctors.

At last count, there were close to 100 of these employer-driven coalitions, according to the National Business Coalition Forum on Health in Washington, D.C.