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Published: Spring, 2005; Vol 7, Num 1

Health Care Cost Crisis Spurs Consideration:

Mergers: an Option for H&W Funds

Against the backdrop of the health care cost crisis in the United States, some LIUNA health and welfare funds are embracing reconstructive surgery – not for their members, but for the funds, themselves.

Take the situation in Texas.

Two years ago, with member growth limited, the state’s two LIUNA health and welfare funds faced serious problems. The North Central Texas fund, with approximately 700 members, had a dwindling reserve, yet its operating costs were rising steadily, driven by the nation’s general health care cost inflation. On the other hand, the Southern Texas fund had a solid reserve but less than half the number of members.

Under the circumstances, it was only a matter of time before rising costs caught up with each fund, possibly dragging each into insolvency.

“It was time to consider how best to ensure that Texas Laborers would continue to have access to comprehensive benefits at affordable cost,” says James C. Hale, LIUNA Vice President and Ohio Valley and Southern States (OV&SS) Regional Manager. “Merging the two funds into one solid, substantial fund with a chance to fight its way through both the cost crisis and the protracted struggle to enlarge union market share in Texas became a viable option.”

Even in good conditions, a merger can make sound sense. For instance, five years ago, in the wake of a successful effort to re-organize New Jersey’s building Laborers’ local unions to achieve a common, statewide collective bargaining agreement, 53 of the state’s health and welfare, annuity and pension funds merged into a single entity (see LIFEINES, Winter 2003). The new structure is more efficient; administrative and collection costs dropped by 50 percent, saving money for benefit enhancements.

In difficult conditions, particularly in an area with small funds, a merger may be the only option to ensure survival.

“Given the nation’s health care cost crisis and the difficult challenges facing all health service providers, an increasing number of our funds recognize the need to consider merger possibilities,” says LIUNA General Secretary-Treasurer, New England Regional Manager and LHSFNA Labor Co-Chairman Armand E. Sabitoni. “We encourage fund trustees to look at every possible option out there to save costs and continue to provide superior services.”

The Texas merger reveals both the obstacles and the potential involved. A little in-state rivalry, particularly along the Dallas-Houston corridor, is not uncommon in Texas, and, two years ago, as the Texas trustees considered their options, they were cautious about the possibility of a merger. Different management associations had negotiated each health and welfare fund agreement and provided trustees for each respective board. Each perceived varying strengths and weaknesses in their partner in the proposed merger. Among the LIUNA trustees, less rivalry existed because, under the direction of International Representative Gary Slaydon, some of the Texas local unions were being consolidated.

In addition to different boards of trustees, administrators and consultants, each fund had distinct eligibility rules, contribution rates and benefit structures. To achieve a merger, compromise would have to be reached on each score.

Slaydon and OV&SS Field Coordinator Jamie Peers, both well acquainted with the dynamics of the nation’s health care cost crisis, urged all the parties to keep every option open. Meanwhile, Peers worked on specific contribution rate and eligibility proposals, and LHSFNA Health Promotion Division Director Mary Jane MacArthur provided options for a combined benefit structure. Using shuttle diplomacy, Slaydon presented the developing package of compromise proposals to the trustees in Dallas and Houston.

Finally, in late 2004, the eventual compromise began to take shape. “This was not an easy decision for anyone involved,” says Paul Klass, the administrator of the new statewide fund – the Texas Laborers’ Health and Welfare Fund. “For continuity and to avoid hard choices, the trustees decided to bring all the former trustees onto the new board. That smoothed the path. Also, both funds had the same consultant, so we didn’t have to choose between two of them. The accountant position will go out to bid. The biggest debate was over the investment manager, but we decided to check his progress six months down the road and then decide if a change is needed.”

The compromise on eligibility was more difficult. “It’s going to be a little harder for some Laborers to qualify,” says Peers, who had to deal with the fact that one fund had a high number of non-construction, service workers employed at local air force bases while the other fund was geared toward construction. “The two just didn’t fit real well together.” The new rule requires 130 hours per month for three months before eligibility is conferred.

The established benefits of both plans as well as the needs of the participants were taken into account when the new benefit structure was designed. “It is always a balancing act when two funds merge to ensure that the best features of each are preserved,” says MacArthur. “While it is difficult to satisfy all members, the new structure is designed to make sure that participants have appropriate coverage for necessary health services.” Among the new plan’s features are prescription drug services through LaboreRx and a wellness benefit that encourages an annual check-up.

The new fund, still small in total membership, now has reserves of about $8 million. “This should be adequate,” says Klass, “but there’s no denying that we’re in a battle to maintain a consistent, sustainable level of benefits for the membership in the years immediately ahead.”

One way to ensure long-range viability is to educate the membership to be effective health care consumers. An initial direct mail campaign to inform members of the changes in their plan will be followed up with information in the regular, quarterly wellness newsletter that is produced with assistance from the LHSFNA Health Promotion Division.

“In Texas,” says Hale, “we had to take decisive action. Not only do our members there depend on our fund for health services, but the benefit program also is an important part of our efforts to organize the unorganized. The foundation of the funds had to be shored up. The merger, as difficult as it was, did that for us. Now, we are in a good position to serve our members and build union market share in Texas.”

In New Jersey, a heavily unionized state, the health and welfare fund merger allowed significant cost savings. In Texas, with little union tradition or base, the merger provides a new foundation upon which to build. In both situations, the merger – difficult to conceive and even more difficult to deliver – is paying dividends.

“Mergers aren’t the answer everywhere,” says Sabitoni, “but there are times and places where they should be considered. Given the health care cost crisis that our funds face, many may want to consider what a merger might do for them.”