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Part IV

History and consequences

This story is the fourth part in the series Patriot Coal: An American Bankruptcy. To begin reading the story from the beginning, jump back to the first part, Take Warning.

On October 5, 2016, the UMWA sent a letter to some 12,500 miners who were receiving healthcare benefits through one of the union’s Voluntary Employees Beneficiary Associations — or VEBAs — telling them that they would stop receiving benefits on December 31.

VEBAs have existed since the 1920s but have come into vogue in recent years as a response to the bankruptcy-retiree problem. They have been used more and more frequently, most notably as part of an agreement between the United Autoworkers and the big three car manufacturers in 2007. VEBAs allow unions to invest company provided money however they see fit. “To stretch it for the benefit of their retirees,” as one bankruptcy scholar put it.

“[A]ll beneficiaries who receive benefits as a result of the Patriot bankruptcy will be terminated from coverage on December 31, 2016,” the letter read, in part. “The Trustees of the Patriot VEBA truly regret these actions must be taken. We have and continue to be committed to providing you the best service possible under the Patriot VEBA but the current financial crisis cannot be averted absent Congressional action.”

Healthcare in the coalfields of rural Appalachia has a long and tortured history, one that is still not entirely settled. According to those who have studied the issue, the UMWA was the force that brought a modern system of healthcare to the region in the 1950s and 60s. Over time, that system has broken down, resulting in a patchwork of overlapping health services, some of which are hard pressed to serve the rural areas of the region.

Richard Mulcahy, a history professor at the University of Pittsburgh, literally wrote the book on the UMWA’s health and retirement fund. In the early 20th Century, a two-tier system of healthcare emerged: urban and rural. Those who cared about improving healthcare looked at national averages, which showed improvement across the country. “But when you separated it out, you saw that urban areas were doing well but rural areas were being left far behind,” Mulcahy said.

Enter John L. Lewis, the fiery leader of the UMWA from 1920 to 1960. It is a common saying in the coalfields of southern West Virginia that in the 1960s, there were three pictures in the living room of every union miner: one of Jesus Christ, one of John F. Kennedy and one of John L. Lewis.

Lewis was a Welsh Methodist from Iowa with sweeping black locks of hair and large bushy eyebrows. Photos of him still hang in the UMWA offices, usually showing him wearing a miner’s helmet, his face covered with coal dust. Personally very honest, according to Mulcahy, he was nevertheless constantly bent on acquiring power, often through questionable means. “Power with a purpose,” as Mulcahy describes it. “Ultimately with the idea of doing good.”

Lewis had his best shot at reforming the rural system of healthcare for his members in 1946 when President Truman temporarily seized the mines to resolve a labor strike. Lewis and Secretary of the Interior Julius Krug signed, with President Truman looking on, the National Bituminous Wage Agreement — sometimes referred to as the “Krug-Lewis Agreement” — on May 29, 1946 at the White House.

The agreement created two separate funds — one for welfare and retirement and one for medical and hospital expenses—that were later combined into the UMWA Health and Retirement Fund. The UMWA’s attorney at the time, Welly Hopkins, produced a document in early May of 1946 that outlined the mission of the fund. The “Brief Outline,” as it was called, was an expansive social insurance program, according to George S. Goldstein, who wrote a history of the rise and decline of the fund. It included everything from retirement, disability, unemployment and health benefits to college scholarships and emergency relief programs.

The Krug-Lewis agreement itself was much narrower in scope than what the union had hoped to achieve, but it gave Lewis the ability to negotiate a contract with the coal operators to create a much more comprehensive system of social support than had ever existed in the industry.

The agreement did have a significant impact on the lives of coal miners and their families—creating a network of hospitals in southern Appalachia—but its influence and stability waned over time. It was gradually replaced by a system in which the coal companies paid for private insurance for their employees.

In March 2016, Cecil Roberts, the president of the UMWA, told the Senate Committee on Finance that the financial crisis in 2008 – 2009 “blew a gaping hole” in the union’s projections for its 1974 Pension plan, which was 93 percent funded in 2007. “The 1974 plan today is projected to become insolvent within the coming decade. With the bankruptcy courts allowing companies to withdraw from the Plan, the insolvency looms ever larger and closer,” Roberts said.

Roberts told the committee that though the average UMWA pension is relatively small — about $530 per month — the plan pays out about $600 million per year in total benefits, approximately 15 percent of its total $3.8 billion in assets. The plan’s actuary projected that the fund would be insolvent in the 2025 – 2026 plan year absent Congressional intervention. The Pension Benefit Guaranty Corporation, which would assume some amount of responsibility for the pensions if the fund went under, projected an earlier date for insolvency — as soon as 2020.

In response to the crisis, Senator Joe Manchin, a Democrat from West Virginia, introduced The Miners Protection Act. The Act would use money from the Surface Mining Control and Reclamation Act of 1977 to bridge the gap between the amount of money in the union’s multi-employer health benefit plan and the amount of money needed to provide healthcare and pensions to 22,600 retired miners from Patriot and other companies that have gone bankrupt.

Opposition emerged from the conservative Heritage Foundation, among others. The Foundation argued that the money appropriated from SMCRA would not be enough to cover the benefits. In this scenario, Congress would be forced to authorize general taxpayer funds for the program, which would amount to a government bailout of a private-sector union, setting a precedent for other multi-employer pension plans as well as state and local public-sector pension plans. “A federal bailout of private pensions would send a dangerous message to underfunded pension systems that they need not reform because the federal government will force taxpayers to keep the promises that they cannot,” wrote Rachel Greszler in a report for the Heritage Foundation.

Ms. Greszler, who did not respond to a request for comment, also raised some question as to whether the Krug-Lewis Agreement was really an agreement between the government and the union or just a temporary solution to a labor dispute. She was not alone in her skepticism about what the agreement accomplished. Even Mulcahy, the historian who wrote the book on the union’s healthcare program, said he had his doubts about the legitimacy of the union’s argument on those grounds.

“Yes, the federal government did seize the mines but it wasn’t a true nationalization,” Mulcahy said. “Why not be honest and say, we just don’t want to abandon these people. We need to take care of this because we’re talking about putting families out.”

The union has made the Krug-Lewis Agreement the centerpiece of their campaign to secure benefits for their retirees and has pointed to a long line of legislation supporting the agreement’s principles.

“Coal miners made a commitment to provide the nation with much-needed energy, even at the risk of their own lives and health in often dangerous conditions,” Roberts told the Senate committee. “The government committed that upon their retirement they would have pensions and health care for life. The miners lived up to their commitment and the federal government has enacted federal legislation on numerous occasions to live up to its commitments.”

Roberts highlighted the fact that many of the senior executives at Patriot Coal and other coal operators that had been able to discharge their obligations through bankruptcy were paid millions of dollars in bonuses at the same time they were avoiding paying healthcare benefits to their retired employees.

It was a theme Senator Manchin picked up on during a recent visit to Matewan, West Virginia, the historic site of a 1920 battle between local miners and private detectives hired by coal operators to remove families from a coal camp established outside of the town.

“How long did it take them to bail out Wall Street?” Senator Manchin said to a group of miners at a UMWA-sponsored meeting in late March. “They started working the same night the [financial] crash happened. If you can bail out Wall Street in one day, can’t you at least take care of the obligation to the United Mine Workers of America? Can’t you take care of the people who made this country?”

Congress passed a stop-gap measure in late December 2016 that continued funding for the pension and healthcare benefits through the end of April 2017. Sen. Manchin re-introduced his bill in January and Senate Majority Leader Mitch McConnell created his own version of the bill. Both senators have been optimistic that, with the support of President Trump, who received overwhelming support from coal country, they could get something passed. At issue is whether the pensions and healthcare benefits will be addressed at the same time. Various measures have been proposed, including most recently a GOP-sponsored plan that would extend the coverage of the Miners Protection Act to retirees of companies that have not gone through bankruptcy.

The miners in Madisonville, Kentucky are getting tired of all the political maneuvering.

“We’ve been basically fighting for this for the last four years,” said Robert “Bud” Lear, 74, a retired Peabody miner and Navy veteran. “Not knowing basically one month to the next if you’re going to have medical care or not. After four years, it starts to take a toll on a person not knowing really what’s going to happen.”

Daniel Flatley (@daniel_flatley) is a West Virginia native and a former Marine. He covered politics and government at a newspaper in upstate New York before attending the Columbia University Graduate School of Journalism, from which he will graduate in May 2017.

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