Limits employer health fund contributions for employees who retire after 06/30/02, based upon a percentage of the monthly health insurance premiums. Creates a phased introduction of a maximum employer contribution based upon the fiscal year in which the employee retires.

A BILL FOR AN ACT

SECTION 1. The legislature finds that health benefits are a significant component of the total compensation package for public employees and a significant cost to public employers. The large number of baby boomers approaching retirement, increasing health care costs, and retirees' increased life expectancies have raised concerns about the future financial stability of the current pay-as-you-go funding method of the Hawaii public employees health fund.

Established by chapter 87, Hawaii Revised Statutes, the health fund is a trust fund attached to the department of budget and finance for administrative purposes. The health fund is controlled by a nine-member board of trustees appointed by the governor. The director of finance is an ex officio member of the board and custodian of the fund. The board negotiates employee benefit plan contracts with insurance carriers and oversees enrollment and financial operations.

The health fund provides health benefits, including medical, hospital, surgical, prescription drug, vision, dental, and life insurance benefits, long-term care, and Medicare Part B premium reimbursement, to eligible active state and county employees, retirees, and their dependents.

Each month, the health fund receives contributions from employers and employees for health benefits. From fiscal year 1995-1996 to fiscal year 1999-2000, employer contributions rose from approximately $235.3 million to $287.1 million and employee contributions declined from about $39.2 million to $32.3 million because of the large migration of employees from the health fund plans to the union plans. As of July 31, 2000, a total of 81,677 active employees and retirees were enrolled in medical plans. Of these, about sixty-two per cent were enrolled in the health fund medical plans and about thirty-eight per cent in union medical plans. Among active employees, 19,501, or about thirty-nine per cent, were enrolled in the health fund's medical plan, while 31,101, nearly sixty-two per cent, were enrolled in union medical plans. Each month, the health fund "ports", or transfers, to the union health plans the employer contributions for the employees enrolled in the union plans.

Various medical plans are offered, including a fee-for-service medical plan through the Hawaii Medical Service Association, and two health maintenance organization plans, Kaiser Permanente and Kapi'olani Health Hawaii, although Kapi'olani Health Hawaii ends June 30, 2000. Eligible employees and retirees can enroll in a union-sponsored health benefit plan in lieu of a plan provided directly by the health fund. Various employee organizations or unions sponsor health benefit plans for their members, including the Hawaii Government Employees Association, the United Public Workers, the Hawaii State Teachers Association, the University of Hawaii Professional Assembly, the State of Hawaii Organization of Police Officers, and the Employees Association of the City and County of Honolulu.

For employees hired before July 1, 1996, public employers pay the entire monthly health care premium for employees retiring with ten or more years of credited service. For those with fewer than ten years, employers pay half the monthly premium.

For employees hired after June 30, 1996 and who retire with fewer than ten years of service, public employers pay no contributions. For these later hires retiring with between more than ten and less than fifteen years of service, employers pay half the retired employees' monthly Medicare or non-Medicare premium. Those with more than fifteen and less than twenty-five years of service have seventy-five per cent of their premiums paid. Public employers pay the entire premium for those with twenty-five or more years of service.

Retirees enrolled in both the federal Medicare plan and the health fund's Medicare Supplement plan or the Medicare Risk plan receive a monthly Medicare Part B reimbursement from the health fund. Spouses participate in these retiree benefits as well.

The auditor, in a report entitled "Actuarial Study and Operational Audit of the Hawaii Public Employees Health Fund" Report No. 99-20, dated May 1999, found that the presence of union plans competing with the health fund for enrollees will continue to drive state and county costs higher, perhaps by several million dollars a year, because of a phenomenon called adverse selection. The least costly strategy for enrollees is the most costly for employers. The existence of union plans has also increased the premium costs for participants enrolled in the health fund plans.

The auditor also found that the health fund's cost to provide health benefits for active employees and retirees as well as the post-retirement health benefit liability have increased dramatically by five-fold over the past decade. The auditor's most likely or intermediate estimate is that as of July 1, 1998, the State's and counties' accrued unfunded liability for providing future retiree health benefits, under the current plans, is $4.5 billion and the most likely estimate of the unfunded liability for the year 2013 is $11.4 billion.

The auditor made the following recommendations:

The purpose of this Act is to phase in, on a prospective basis, a reduction of employer contributions for health insurance premiums for future retired government employees.

SECTION 2. Chapter 87, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§87- Employer contributions for retired employees. (a) Notwithstanding any other provision of law, the monthly contribution the State and the several counties shall pay to the fund for retired employees shall be no greater than the amount specified in subsection (b) for the following benefits:

(b) The percentage of the total premium cost to be contributed by the State and the counties, as employers, shall be no greater than:

SECTION 3. Section 87-6, Hawaii Revised Statutes, is amended to read as follows:

"§87-6 Contributions by an employee-beneficiary for health benefits plans. (a) Each employee-beneficiary shall make a monthly contribution to the fund amounting to the difference between the monthly charge of the health benefits plan selected by the employee-beneficiary and the State's and county's contribution to the fund.

Nothing in this section shall prohibit any employee-beneficiary from participating in a cafeteria plan authorized under section 125 of the Internal Revenue Code of 1986, as amended, and part II of chapter 78.

(b) During the period the health benefits plan selected by an employee-beneficiary is in effect, the employee-beneficiary shall authorize, if otherwise allowed by law, the employee-beneficiary's contribution to be withheld and transmitted to the fund monthly by the comptroller or finance officer who disburses the employee-beneficiary's compensation, pension, or retirement pay. If, however, an employee-beneficiary's contribution to the fund is not withheld and transmitted to the fund, the employee-beneficiary shall pay the monthly contribution (1) directly to the fund by the first day of each month, in the case of an employee-beneficiary who normally receives the employee-beneficiary's compensation from the comptroller of the State, or (2) in the case of all other employee-beneficiaries, to the respective finance officer from whom the employee-beneficiary normally receives compensation for transmittal to the fund by the first day of each month.

[(c) Notwithstanding any other law to the contrary:

(d)] (c) Subsection (a) notwithstanding, an employee-beneficiary's monthly contribution to the fund, amounting to the difference between the monthly cost of the health benefits plan selected by the employee-beneficiary and the State's or appropriate county's contribution to the fund, shall be deemed to include the amount which would have been the employee-beneficiary's contribution if the employee-beneficiary had not elected to participate in the cafeteria plan."

SECTION 4. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 5. This Act shall take effect upon its approval.