Honolulu, Hawaii
                                                   , 1999

                                 RE: S.B. No. 1137
                                     H.D. 2

Honorable Calvin K.Y. Say
Speaker, House of Representatives
Twentieth State Legislature
Regular Session of 1999
State of Hawaii


     Your Committee on Finance, to which was referred S.B. No.
1137, H.D. 1, entitled: 


begs leave to report as follows:

     The purpose of this bill, as received by your Committee, is
to extend the Hawaii Public Employees Health Fund's (Health Fund)
health insurance coverage to include:

     (1)  Unmarried children under age 24 who are full-time
          students; and

     (2)  Unmarried children, regardless of age, who are
          incapable of self-support due to a mental or physical
          incapacity that existed prior to the child's reaching
          age 19.

     For purposes of public hearing, your Committee circulated a
proposed H.B. No. 1137, H.D. 2, which controls the rising cost of
health benefits plans by capping the amount the State may
contribute annually to the Health Fund for health benefits plans
to $240,000,000.

     The Hawaii State Commission on the Status of Women and one
individual testified in support of the original measure.  The
Department of Budget and Finance (B&F) testified in support of
the proposed measure.  The Health Fund, the Honolulu Police

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                                 Page 2

Department, the United Public Workers, the State of Hawaii
Organization of Police Officers, the Hawaii Government Employees
Association and its Retirees Unit, the Hawaii State Teachers
Association, and the Hawaii State Commission on the Status of
Women commented on the proposed measure.

     The proposed H.D. 2 sets a maximum of $240,000,000 per year
that may be expended for health benefits.  B&F testified that
rather than imposing a cap, it would be more effective to
implement cost savings by making changes to one or more variables
that affect the cost of providing health benefits for state and
county employees and retirees.  These variables include benefit
levels, negotiated premium rates, the number of enrolled actives,
the number of enrolled retirees, the number of actives and
retirees enrolled in self or family plans, and the contribution
rates negotiated through the collective bargaining process.

     B&F also pointed out the extreme difficulty of achieving
total cost savings under current provisions of the Hawaii Revised
Statutes.  According to B&F, part of the problem with the
proposed draft is that the Health Fund not only procures health
benefits for the State, but also for the various counties and the
boards of water supply.  A cap imposed only on the general
revenue funded beneficiaries of the Health Fund may not be
feasible because of the resulting need to bifurcate the non-
general fund beneficiaries from general fund beneficiaries in
securing health benefit insurance plans.  Such a bifurcation,
were it possible, would create two versions for each benefit
plan, one with a state cap and one without a state cap.

     As this measure moves to Conference, your Committee might
consider imposing a cap on the Health Fund's total procurement
expenditures to accomplish the desired intent of this proposed
draft, not only for the State but also for the counties and
boards of water supply.  For the fiscal year ending 1998, the
total contributions against which the Health Fund could make
premium payments and port to union trust funds was $295,000,000.
The dollar amount of the cap would apply to the estimated amount
of contributions that would be required for the fiscal year
ending in 2001 or thereafter.

     Your Committee believes that the State should consider other
cost-controlling mechanisms for health care expenditures, such

     (1)  Mandating retirees to apply for Medicare;

     (2)  Setting a sixty percent contribution for medical
          coverage for all active employees; and

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                                 Page 3


     (3)  Holding the Health Fund trustees to a fiduciary duty to
          the State.

     Upon further consideration, your Committee has amended this
measure by deleting its substance and incorporating the
amendments made in the proposed H.B. No. 1137, H.D. 2, along with
technical, nonsubstantive amendments for clarity and style.

     As affirmed by the record of votes of the members of your
Committee on Finance that is attached to this report, your
Committee is in accord with the intent and purpose of S.B. No.
1137, H.D. 1, as amended herein, and recommends that it pass
Third Reading in the form attached hereto as S.B. No. 1137, H.D.

                                   Respectfully submitted on
                                   behalf of the members of the
                                   Committee on Finance,

                                   DWIGHT Y. TAKAMINE, Chair