Ford hasn’t always had the best relationship with the United Autoworkers Union (UAW). Back in 2007, the company’s employee healthcare costs were eating up the carmaker’s meager profits. After posting quarter after quarter of disappointing earnings, stockholders were putting the big squeeze on America’s pioneer of the modern automobile. That was before economists noticed (or perhaps, acknowledged) that sub-prime mortgages were a bad thing.
To dig out from under its messy employee obligation to provide ongoing, long-term healthcare to its retirees, Ford reluctantly agreed to begin depositing cash into a trust fund that would be administered and operated by UAW once $6.5 billion piles up. By New Years’ Day, Ford had not only met the monetary benchmark, but exceeded it by another half-mil.
“The transfer of these health care liabilities to the VEBA trust is the culmination of several years of work and will significantly improve our competitiveness in the United States,” Ford CFO Lewis Booth said in a statement. “We also have shown confidence in our liquidity…by pre-paying $500 million of debt.”
At the time the arrangement was made, Ford’s public tone was far less positive when it came to its future outlook. Its cars were considered tired, quality suffered and continuous public spats between Henry Ford’s great grandchildren (who held controlling public interest and managed the company) and the stockholders were routinely covered in national headlines. Now the company has not only rebounded, refusing to accept any part of a public government bailout that its peers would later have to extend payment on, but Ford has become a trend-setter in automotive design. Can industry analysts expect the automaker to extend its leadership into the boardrooms of health insurers as well?
When a company or large organization becomes a self-insured entity, the company is assumed to have amassed enough financial liquidity to assume its own risk and the financial risk associated with its employees’ health insurance. In Ford’s case, the company accepted responsibility for its retiree’s healthcare in a long-term buy-out agreement so management could reduce its workforce quickly and stave off continued losses.
Traditionally, only public / government businesses had the financial pull and employee base to justify funding its own health insurance plan. But as planned federal healthcare reforms become law, self-insurance may be more common among smaller corporations and those not typically self-insured today. That’s because one of the most controversial provisions in the Senate’s health reform plan provides for broad new taxes on commercial insurance companies.