A potential plan to pool the health care purchasing power of Detroit’s Big Three automakers in the form of a CO-OP or similar entity sounds intriguing to industry insiders, but they also caution that it wouldn’t be an easy road.
Joint purchasing generally isn’t common, especially among the large employers, according to Steve Wojcik, VP of public policy at the National Business Group on Health. “But in this case it may actually make some sense,” he says, as long as it’s restricted to union workers and combines all of the Big Three automakers.
The United Auto Workers recently proposed to the Ford Motor Co. that health care benefits be pooled for about 295,000 of the company’s union and nonunion workers – a model that could potentially be duplicated for its two chief domestic competitors.
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The tricky part would be determining how to handle the totally different benefits that union and nonunion employees receive. Wojcik also doubts the Big Three would be willing to relinquish the management of the health benefits for its nonunion workforce.
Despite leveraging the tremendous purchasing power of UAW members, Wojcik says union and management still would have to find a way for their generous health benefits package to not trigger the Affordable Care Act’s Cadillac tax in 2018. “The average per-employee cost for union employees with the Big Three is already well over the 40% excise tax threshold of $10,200,” he says.
While the arrangement would differ from consumer-operated and oriented plans created under the ACA, the nation’s leading authority on CO-OPs says the intent is the same.
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It’s possible in some ways that management employees “would be subsidizing premium a little bit because people with higher income and better education tend to be less costly than those with lower education and income,” observes Martin Hickey, M.D., CEO of New Mexico Health Connections and chairman of the board of the National Alliance of State Health CO-OPs. Then again, he suggests that managers may prefer more expensive products with greater choice, as well as an ability to seek treatment at the famed Mayo or Cleveland clinics.
Hickey says another possibility is that UAW member health care could be sub-contracted out on a risk basis to the Henry Ford Health System or different narrow networks of doctors, hospitals and ancillaries. Hickey says it’s also possible for the UAW to approach Consumers Mutual Insurance of Michigan about outsourcing to the state’s CO-OP infrastructure, claims and member services.
Whatever the case, his point is that it’s imperative to enlist the right vendors at the right prices with access to the necessary medical analytics to do predictive modeling for more proactive intervention on high-risk individuals.
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“If it’s a CO-OP and run as a not-for-profit, they’re not paying federal tax, but they’ll pay whatever kind of safe premium tax is involved,” Hickey says. “They’ll save on potentially high compensation senior executives, and they won’t be contributing to the improvement of the stock or the wealth of the shareholder, which is how it works in the for-profit companies.”
Since the UAW’s $61 billion Voluntary Employees’ Beneficiary Association arrangement established in 2010 for retiree health care appears to be working well, the thinking is that it could help inspire similar success for active employees, observes Julie Stich, director of research at the International Foundation of Employee Benefits, whose roots stem from collectively bargained and multiemployer plans.
An ability to pool active workers at all Big Three automakers “would vastly increase their health care purchasing power,” says Stich. She says some of the cost-management options available might include directly contracting with providers, creating a provider network, and/or contracting with centers of excellence, while disease management programs could become more efficient. She also notes that economies of scale would likely decrease administrative costs.
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A private exchange structure might be an interesting fit for this proposed arrangement, says Barbara Gniewek, a principal in the health care practice of PricewaterhouseCoopers who oversees the Private Exchange Evaluation Collaborative.
The promise of a defined contribution approach, which powers this care delivery model, is that it could help UAW members become better consumers. “Pretty much anything you do with an exchange you can do without an exchange,” she adds. “It’s really about changing how people use health care. But the exchange creates some technology that makes it a little bit easier.”
Might the UAW proposal inspire other industries to pool their health care purchasing power? Stich believes business leaders across the U.S. “will likely be watching to see if this proposed co-op or pool is created, how smoothly it is implemented and if it is successful.”
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Early adopters of private exchanges involved hospitality and retail industries whose needs and demographics are similar to the UAW, Gniewek notes. But her sense is that most large employers within, say, financial services, or hospital chains would rather pursue their own solutions.
“Would it add value?” she asks. “I could see how if you had a union population that kind of goes across employers, that’s easily attractive. But when you’re not sharing employees, I’m not sure there’s an appetite for it.”
