Public Employees Health Fund

Establishes Employer-Union Trust Fund pilot project to begin in
2001.  Allows for the porting of Medicare Part B to employee
organizations.  (SD2)

HOUSE OF REPRESENTATIVES                H.B. NO.           H.D. 2
TWENTIETH LEGISLATURE, 1999                                S.D. 2
STATE OF HAWAII                                            

                   A  BILL  FOR  AN  ACT



 1      SECTION 1.  The legislature finds that Act 146, Session Laws
 2 of Hawaii 1961, established the public employees health fund
 3 ("Health Fund"), later codified as chapter 87, Hawaii Revised
 4 Statutes.  Currently, the Health Fund provides state and county
 5 public employees and their dependents with a health benefits
 6 plan, a dental benefits plan for certain children, a group life
 7 benefit program, and long-term care benefits (although this
 8 program has not yet been funded).  The State and the counties as
 9 employers, and public employees share in the cost of the health
10 benefits through the payment of required monthly contributions to
11 the Health Fund.
12      The legislature, in Act 309, Session Laws of Hawaii 1996
13 (Act 309), stated that:  ". . . the present governance structure
14 to determine and fund health benefits for public employees and
15 retirees is not only cumbersome and inflexible, but does not
16 foster cost-efficiency.  Benefits are statutorily established and
17 administered by an independent board of trustees within a fixed
18 statutory framework.  At the same time, public employer
19 contributions for these health benefits are negotiated separately

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                                     H.B. NO.           H.D. 2
                                                        S.D. 2

 1 through collective bargaining agreements with public employee
 2 organizations.  Consequently, there is little connection between
 3 benefit levels and costs, and limited latitude to design benefit
 4 packages that minimize costs and better meet the health care
 5 needs of employees."  Act 309 further stated that ". . . public
 6 employers and public employee organizations should be involved in
 7 determining health care coverage and costs because health
 8 benefits have not only become a significant component of the
 9 total compensation package for public employees, but represent a
10 significant cost to public employers.  The employer-union trust
11 concept for determining and administering health benefits
12 provides a mechanism for linking benefit levels and costs, as
13 well as the necessary flexibility to establish appropriate health
14 benefits coverage."
15      Toward this end, Act 309 required the director of finance to
16 establish a committee comprised of representatives from state and
17 county public employers and public employee organizations to
18 develop and recommend a proposal to implement an employer-union
19 trust concept for determining and administering public employee
20 and retiree health benefits ("employer-union trust concept
21 committee").  The proposal was to include a suggested trust
22 structure and necessary statutory changes to chapters 87 and 89,
23 Hawaii Revised Statutes.  Although Act 309 required the director

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                                     H.B. NO.           H.D. 2
                                                        S.D. 2

 1 of finance to report to the legislature prior to the convening of
 2 the 1997 Regular Session, no report was submitted.  In subsequent
 3 years, various legislation has been introduced to alter the
 4 composition of the committee and to extend its term to allow for
 5 continued discussion on the issue with the hope of someday
 6 obtaining a recommendation.  Meanwhile, the legislature is keenly
 7 aware that the large number of "baby boomers" are approaching
 8 retirement, the increasing cost of health care, and the retirees'
 9 increased life expectancy threatens the future financial
10 stability of the current "pay-as-you-go" funding method.  Based
11 on these findings, the legislature believes that the time has
12 come to effectuate significant change in the provision of health
13 care benefits for its employees, retirees, and beneficiaries.
14      In the meantime, the legislature is committed to making the
15 health benefits plan of the public employees health fund more
16 competitive with other health benefits plans.  To accomplish
17 this, the porting of Medicare Part B reimbursements is crucial to
18 evening out the actuarial experience of the public employees
19 health fund's pool of beneficiaries.  By authorizing the porting
20 of Medicare Part B reimbursements to employee organizations'
21 health benefits plans, retirees have more of an incentive to
22 switch to employee organization health benefits plans if allowed
23 to retain the Medicare Part B reimbursement.

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                                     H.B. NO.           H.D. 2
                                                        S.D. 2

 1      The purpose of this Act is to establish an employer-union
 2 trust fund pilot project and to allow for the porting of Medicare
 3 Part B reimbursements to employee organization health benefits
 4 plans.
 5      SECTION 2.  (a)  For the purposes of this Act:
 6      "Health fund" means the public employees health fund under
 7 chapter 87, Hawaii Revised Statutes.
 8      "Pilot project" means an employer-union trust fund pilot
 9 project established by the public employees health fund pursuant
10 to this Act.
11      (b)  There is established an employer-union trust fund pilot
12 project to be administered by the health fund.  The pilot project
13 shall commence on July 1, 2001, and shall cease to exist on
14 June 30, 2003, unless otherwise extended by the legislature.
15      (c)  No later than December 31, 1999, the health fund shall
16 establish criteria for the selection of the public sector union
17 for the pilot project and cost-performance guidelines by which
18 the pilot project is to be evaluated.  The health fund, prior to
19 selecting a public sector union to participate in the pilot
20 project, shall submit a report containing the selection criteria
21 and cost-performance guidelines to the legislature prior to the
22 convening of the 2000 regular session.  By June 30, 2000, the
23 health fund shall select one public sector union to establish the

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                                     H.B. NO.           H.D. 2
                                                        S.D. 2

 1 employer-union trust fund under the pilot project.
 2      (d)  Upon the selection of the public sector union as
 3 provided under subsection (c), the health fund shall allocate to
 4 the employer-union trust fund the total sum of money owing to its
 5 employee-beneficiaries from any rate credits or reimbursements
 6 from any carrier or self-insured plan or any earning or interest
 7 derived therefrom.  The employee-beneficiaries of the employer-
 8 union trust fund shall include all the members of the selected
 9 public sector union, including retirees.
10      (e)  Notwithstanding the contribution deposit requirements
11 of chapter 87, Hawaii Revised Statutes, for the purposes of
12 effectuating the pilot project, the health fund, for the time
13 period in which the pilot project is in effect, shall port to the
14 employer-union trust fund all contributions made by public
15 employers and employee-beneficiaries to the health fund for
16 employee-beneficiaries who are members of the selected public
17 sector union.
18      (f)  At least twenty days prior to the 2002 and 2003 regular
19 sessions, the health fund shall report to the legislature on the
20 status and efficacy of the pilot project.  These reports shall
21 include information on cost/benefit comparisons between health
22 fund plans and the pilot project plans and employee-beneficiary
23 satisfaction with the health benefits plans offered by the pilot

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                                     H.B. NO.           H.D. 2
                                                        S.D. 2

 1 project.
 2      (g)  Upon completion of the pilot project, the provision of
 3 health benefits of the employee-beneficiaries participating in
 4 the pilot project shall revert to the employee-beneficiaries'
 5 choice of health benefits plans offered by the health fund."
 6      SECTION 3.  Section 87-27, Hawaii Revised Statutes, is
 7 amended to read as follows:
 8      "87-27  Supplemental plan to federal Medicare.  Any other
 9 provision of this chapter notwithstanding, the board of trustees
10 shall establish, effective July 1, 1966, a health benefit plan
11 which takes into account benefits available to an employee-
12 beneficiary and spouse under the federal Medicare plan, subject
13 to the following conditions:
14      (1)  There shall be no duplication of benefits payable under
15           federal Medicare but the plan so established by the
16           board shall be supplemental to the federal Medicare
17           plan.
18      (2)  The contribution for voluntary medical insurance
19           coverage under federal Medicare may be paid by the
20           fund, in such manner as the board shall specify, in the
21           case of an employee-beneficiary who is a retired
22           employee, and spouse while the employee-beneficiary is
23           living, including members of the old pension system and

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                                     H.B. NO.           H.D. 2
                                                        S.D. 2

 1           after death the employee-beneficiary's spouse provided
 2           the spouse qualifies as an employee-beneficiary;
 3           provided that the counties, through their respective
 4           departments of finance, shall reimburse the fund for
 5           any contributions made for county employee-
 6           beneficiaries under this paragraph.  In the case of an
 7           employee-beneficiary who is a retired employee, and
 8           spouse who participates in the supplemental plan to
 9           federal Medicare of an employee organization, the
10           employee-beneficiary shall be entitled to the same
11           amount paid by the fund to employee-beneficiaries who
12           participate in the supplemental plan to federal
13           Medicare established by the fund and who have enrolled
14           in the voluntary medical insurance coverage under the
15           federal Medicare plan.
16      (3)  The benefits available under the plan, when taken
17           together with the benefits available under the federal
18           Medicare plan shall, as nearly as is possible,
19           approximate the benefits available under the plans set
20           forth in section 87-22.  If, for any reason, a
21           situation develops where the benefits available under
22           the supplemental plan and the federal Medicare plan
23           substantially differ from those that would otherwise be

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                                     H.B. NO.           H.D. 2
                                                        S.D. 2

 1           available, the board is authorized to correct this
 2           inequity to assure substantial equality of benefits.
 3      (4)  Any employee-beneficiary or dependent-beneficiary who
 4           is enrolled in the federal Medicare plan shall
 5           participate in the supplemental plan to be set up
 6           hereunder, and any employee-beneficiary or dependent-
 7           beneficiary eligible for, but not enrolled in the
 8           federal Medicare plan, may participate in such other
 9           plans as are set forth in section 87-22." 
10      SECTION 4.  This Act shall take effect on July 1, 2500, and
11 shall be repealed on June 30, 2003.