Wednesday, March 2, 2011

Union Bailout Fund Will Need Its Own Bailout Soon

This morning the Administration released a report on the activities of the Early Retiree Reinsurance Plan during calendar year 2010.  While the report claims the program “is preserving access to affordable health coverage,” in reality the program is providing federal funds – at fiscally unsustainable levels – to unions and state and local governments, many of which have overly generous health benefits.  Some interesting nuggets from the report:

  • The program paid out $535 million during only three months.  (Page 11 of the report notes that “claims reimbursement began in October 2010,” and the report only covers payments through December 2010.)  This swift level of federal disbursements is consistent with the Administration’s budget justification to Congress, which noted that the $5 billion appropriated for the program – and intended to last through December 2013 – would be spent out by October 2012 at the latest.  (See page 233 of this report.)
  • While the Administration notes that thousands of sponsors have been approved for the program, only 253 plans – or fewer than 5% of the plans with approved applications – have actually received funding.
  • Those plans that HAVE received funding are overwhelmingly state and local governments.  Government health plans represent 47% of the applicants to the program, have 53% of the retirees whose costs have been reimbursed by the federal government, and have received 56% of the total reimbursements from the program.
  • Page 5 of the report includes a chart totaling the state plans receiving funds from the reinsurance program.  A total of 12 state health plans received $208.7 million – or nearly 40% – of the $535 million distributed by the program.
  • Union plans were also big winners from the retiree reinsurance program.  Page 10 of the report notes that 11,679 retirees in the UAW Retiree Benefits Trust had their claims reimbursed by the federal government – nearly one in five of all the beneficiaries in the program were UAW plan participants.  The report notes that the largest federal payment to a plan totaled $105.8 million – nearly 20% of total program spending; while the report doesn’t specify the recipient of that largesse, it is almost certainly the UAW Retiree Trust.

At a time when President Obama talks of an “assault on unions,” it’s certainly interesting that state and local governments, along with old-line manufacturing unions like the UAW, are relying on what amounts to a $5 billion bailout from the federal government to help them pay for retiree health benefits they can no longer afford.  It’s also interesting that this bailout fund is being used so rapidly that it’s likely to be exhausted by the summer of 2012, which may be of passing interest to both the UAW and President Obama.  More broadly however, the report once again illustrates how dumping trillions of dollars into a broken health care system – in this case, the sieve of unsustainable promises made by governments and employers alike, often at unions’ behest – does not constitute true reform.