HOUSE OF REPRESENTATIVES

THE TWENTY-SECOND LEGISLATURE

REGULAR SESSION OF 2003

A G E N D A

In response to spiraling health care costs and an estimated annual liability of over $1 billion, the Legislature enacted Act 88, Session Laws of Hawaii 2001, to establish the Hawaii Employer-Union Health Trust Fund (EUTF) as a single health benefit delivery system for State and county employees, including both active and inactive retirees.

The purpose of the EUTF was to provide the State with the necessary flexibility and authority to develop health benefit plans for each of the several civil service employee groups. The ultimate goal of this legislation was to "save Hawaii's taxpayers tens of millions of dollars in its initial years, and over a hundred million dollars over the course of ten years" (See, House Journal, Regular Session 2001, at 908). To do this, Act 88 merged the State Employees Health Fund with various union based health plans that were in existence at that time. By pooling the membership of these various plans with the State Employees Health Fund, it was believed that Act 88 would provide the newly created EUTF with the leverage to negotiate quality health care plans with insurance carriers at a reduced cost.

To ensure that there be sufficient time for the EUTF to become operational, Act 88 specified that the Public Employees Health Fund, Chapter 87, Hawaii Revised Statutes, would be repealed and all employees under the Public Employees Health Fund would be transferred to the Trust Fund on July 1, 2003.

Under Section 501(c)(9) of the Internal Revenue Code, a tax-exempt voluntary employees' beneficiary association (VEBA) can be established to provide life, sick, accident, medical, or other benefits to members of the VEBA or their dependents. In recent years, the Hawaii State Teachers' Association has established a VEBA Trust, which offers union members health insurance benefits. It currently is the only public employee union that utilizes a VEBA Trust. However, there are indications that other public sector unions are either planning to, or are in the process of establishing VEBA Trusts for the provision of health insurance benefits to their members.

VEBAs are not fully controlled by the State, even though a major portion of the moneys in a VEBA may come from the State. Rather, VEBAs are subject to federal requirements under the Internal Revenue Code and the federal Employee Retirement Income Security Act.

During the Regular Session of 2002, a measure moved through the legislative process that served as the source of considerable discussion on the EUTF and the provision of health benefits to public employees. This measure sought to allow the establishment of VEBA Trusts under State law and exempt VEBA Trusts from participation in the EUTF. Due to intense lobbying by HSTA and other public sector unions, this bill was one of the most contentious measures before the Legislature last year.

Pursuant to this, the Legislature adopted House Concurrent Resolution No. 139, House Draft 1, which requested the Auditor to conduct a study on VEBA Trusts to determine their feasibility as viable health insurance plans for public employees, retirees, and their dependents. However, earlier this month, the House Committee on Labor and Public Employment learned that the Auditor was not able to hire a contractor to perform the study, and that no study will be forthcoming.

Also, between the adjournment sine die of the 2002 Regular Session and the convening of the 2003 Regular Session, the members of the EUTF Board of Trustees may not have completed business necessary for the transfer of the Health Fund into the EUTF, effective July 1, 2003.

If the EUTF Board of Trustees are not able to administer health benefits at the time the Health Fund is repealed, thousands of government employees, retirees, and their dependents could conceivably lose their health coverage, posing a significant danger to the health and welfare of the entire State.

Accordingly, the House Committee on Labor and Public Employment has requested the following agencies and organizations to present status reports, findings, and recommendations to the Committee for an appropriate legislative response:

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