Honorable Robert Bunda

President of the Senate

Twenty-First State Legislature

Regular Session of 2002

State of Hawaii

Sir:

Your Committee on Labor, to which was referred H.C.R. No. 139, H.D. 1, entitled:

begs leave to report as follows:

The purpose of this measure is to request that the Auditor conduct a study on Voluntary Employee Beneficiary Associations (VEBA) to determine their feasibility as viable health insurance plans for public employees, retirees, and their dependents.

The measure also requests that the Auditor include in the report, the ramifications of the coexistence of both a VEBA and the Hawaii Employer-Union Health Benefits Trust Fund, and whether this is a feasible option.

Your Committee finds that rising health care costs, inflation, and an aging workforce are seriously threatening the State's fiscal ability to provide health benefits to Hawaii's approximately 83,000 active and retired public employees, as well as their dependents. To safeguard the strength of the public employees health benefits system, the Legislature passed Act 88, Session Laws of Hawaii 2001 (Act 88), last year.

Act 88 created the Hawaii Employer-Union Health Benefits Trust Fund (Trust Fund), which is to be implemented starting July 1, 2003. Under Act 88, all public employees and retirees will be grouped into one large pool of consumers, thereby increasing the trust fund's ability to negotiate lower health insurance rates.

Your Committee also finds that under section 501(c)(9) of the Internal Revenue Code, an employee organization may authorize the establishment of a tax-exempt VEBA to provide life, sick, accident, medical, or other benefits to members of the VEBA and their dependents.

Your Committee further finds that while proponents of VEBAs claim that having a smaller consumer pool and tailoring benefit packages will better control health care costs, maintaining both VEBAs and the newly-created Trust Fund may result in the duplication of services and add additional unforeseen costs to the State.

As affirmed by the record of votes of the members of your Committee on Labor that is attached to this report, your Committee concurs with the intent and purpose of H.C.R. No. 139, H.D. 1, and recommends its adoption.