Honolulu, Hawaii

, 2001

RE: S.B. No. 1044

S.D. 1

H.D. 1

C.D. 1



Honorable Robert Bunda

President of the Senate

Twenty-First State Legislature

Regular Session of 2001

State of Hawaii

Honorable Calvin K.Y. Say

Speaker, House of Representatives

Twenty-First State Legislature

Regular Session of 2001

State of Hawaii


Your Committee on Conference on the disagreeing vote of the Senate to the amendments proposed by the House of Representatives in S.B. No. 1044, S.D. 1, H.D. 1, entitled:


having met, and after full and free discussion, has agreed to recommend and does recommend to the respective Houses the final passage of this bill in an amended form.

The purpose of this bill is to establish a single health benefits delivery system for State and county employees, retirees, and their dependents. The new system will be known as the Hawaii Employer-Union Health Benefits Trust Fund (Trust Fund).

Your Committee on Conference finds that providing quality health insurance meeting the needs of all public employees and their dependents is a top priority. At the same time, one of the State's chief concerns is how it will be able to afford escalating health insurance costs for State and county public employees, retirees, and their dependents under the Hawaii Public Employees Health Fund (Health Fund).

Health benefits are a significant component of the total compensation package for public employers and comprise a substantial part of the State's payroll costs. Contributions for public employee health benefits in Hawaii consume about 10 percent of the State's operating expenses.

In 1999, the Legislative Auditor found that if the State maintains the current Health Fund system, the cost of employer contributions will exceed $1,000,000,000 in 2013.

The Health Fund was established in 1961 to provide health benefits for state and county workers. The Health Fund now offers a comprehensive package of benefits, including medical, prescription drug, vision, dental, long-term care, and life insurance benefits.

Beginning in 1984, eligible employees were given the option of obtaining health benefit coverage through union-sponsored plans, instead of the Health Fund. Since then, the percentage of active employees participating in union plans has grown dramatically.

Under the Health Fund, the State and counties pay 60 percent of the premiums for active employees and their dependents. Active employees pay the remaining 40 percent of the premiums. Retirees do not pay for their premiums.

On the other hand, the Health Fund contributes roughly 70 to 90 percent of active employee insurance premiums under union plans. The unions have been able to attract more employees because they have been able to negotiate more competitive benefit packages with insurance carriers. Moreover, the unions have been able to keep costs down because they do not offer coverage to retirees, who are generally higher risks than younger, active employees.

This inequity is further compounded when unions are refunded for the overpayment of premiums. Even though the Health Fund pays for the bulk of union-plan premiums, none of the refunded money is returned to the Health Fund.


This bill seeks to address these concerns by repealing the existing Health Fund and replacing it with an employer-union trust structure to provide a single health benefits program for public employees, retirees, and their dependents.

If nothing is done now, the spiraling cost of the Health Fund will create significant financial hardships for state taxpayers. Recognizing the urgency of this matter, your Committee on Conference finds that reforming the Health Fund is the responsible thing to do.

This bill will ensure that the Health Fund, and the succeeding Trust Fund, will remain solvent. Consolidating the health benefits programs under the existing system will ensure the solvency of the State, as well as benefit all public employees and retirees today and in the future.

It is not the intention of your Committee on Conference that public employees and retirees suffer a diminishment of existing health benefits. This bill will give the governing boards of the Trust Fund and the Health Fund, during the transition period, complete discretion, authority, and flexibility to devise and maximize the levels and types of benefits available for public employees and retirees.

To ensure that the needs of the beneficiaries of the system are met, the bill provides for their representation on the Trust Fund Board. Further, the amounts of employer contributions will be determined through collective bargaining.

After careful deliberation, your Committee on Conference has amended this bill by:

    1. Clarifying definitions for "carrier," "employee," "employee-beneficiary," "health benefits plan," and "qualified-beneficiary;"
    2. Providing new definitions for "county," and "part-time, temporary, and seasonal or casual employee;"
    3. Changing the composition of the Board of Trustees of the Trust Fund (Board) to consist of 10 trustees as follows:

      (A) Five trustees, one of whom shall represent retirees, to represent employee-beneficiaries. The trustees shall be appointed from a list of three nominees per trustee submitted by the exclusive employee representative organizations; and

      (B) Five trustees to represent public employers;

    5. Establishing, as far as practicable, staggered four-year terms for all trustees;
    6. Clarifying that the Governor shall replace a trustee with a successor trustee representing the same interests as the person's predecessor;
    7. Providing that a majority of trustees, instead of two trustees, may call a Board meeting by giving at least 10 calendar days' written notice;
    8. Deleting the provision allowing any Board action to be taken by a simple majority. Instead, any action taken by the Board must be by concurrence of at least two votes; and
    9. Changing the quorum and voting requirements necessary for Board actions. Specifically:

(A) For any vote of the trustees representing public employers to be valid, three of these trustees must concur. These trustees will be deemed to have abstained from voting in the absence of concurrence;

(B) For any vote of the trustees representing employee-beneficiaries to be valid, three of these trustees must concur. These trustees will be deemed to have abstained from voting in the absence of concurrence; and

(C) Upon concurrence of six trustees, the Board shall participate in dispute resolution;

(9) Clarifying that long-term care benefits plans shall be at no cost to employers;

(10) Allowing the Board to contract with a carrier or third-party administrator to administer self-insured benefits for long-term care without regard to chapter 103D, Hawaii Revised Statutes (HRS);

(11) Requiring the State and counties to make a contribution equal to $50 per month, or such other amount to be determined by the Board, for voluntary medical insurance coverage under Medicare for each retired member or spouse of a retired member;

(12) Allowing the Board to adopt rules, without regard to chapter 91, HRS, governing dispute resolution in the event of impasse in decision-making. Rules governing dispute resolution shall be adopted with the concurrence of six trustees;

(13) Changing the base monthly contribution rates for health benefit plans for retired employees as follows:

(A) $218.00 for each employee-beneficiary enrolled in supplemental Medicare self plans;

(B) $671.00 for each employee-beneficiary enrolled in supplemental Medicare family plans;

(C) $342.00 for each employee-beneficiary enrolled in non-Medicare self plans;

(D) $928.00 for each employee-beneficiary enrolled in non-Medicare family plans;

(14) Clarifying that state agencies having control of funds other than the general fund shall reimburse the State for State contributions;

(15) Deleting amendments made to section 87-27, HRS;

(16) Specifying that for the initial appointment for trustees representing employee-beneficiaries, two members will serve four-year terms, two will serve three-year terms, and one will serve for a two-year term;


(17) Specifying that when submitting the list of nominees for the trustees representing employee-beneficiaries, the exclusive employee representative organizations shall indicate preferences for the length of the trustee's term for each set of nominees recommended to the Governor;

(18) Deleting the general fund expenditure ceiling provision;

(19) Appropriating $300,000 for fiscal year 2001-2002 for the hiring of necessary staff, consultants, and other administrative expenses to enable the Department of Budget and Finance to effectuate this measure;

(20) Changing the effective date to take effect on July 1, 2001, except that the section repealing chapter 87, HRS, would take effect on July 1, 2003. Further, all rules governing the Health Fund will remain in effect until the Trust Fund adopts new rules; and

(21) Making other technical, nonsubstantive amendments for purposes of style, consistency, and clarity.

This bill, as amended, would result in potential cost savings of $65,000,000 by 2004. By the year 2013, cumulative savings could be as high as $903,797,000.

As affirmed by the record of votes of the managers of your Committee on Conference that is attached to this report, your Committee on Conference is in accord with the intent and purpose of S.B. No. 1044, S.D. 1, H.D. 1, as amended herein, and recommends that it pass Final Reading in the form attached hereto as S.B. No. 1044, S.D. 1, H.D. 1, C.D. 1.

Respectfully submitted on behalf of the managers: