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Tuesday, February 8, 2000

State funds to
unions scrutinized

Lawmakers question the use
of health-benefit contributions
amid a proposal for cost-cutting

By Rob Perez


The state gives labor unions millions of dollars annually to help pay for medical insurance for thousands of public employees, but it doesn't check whether that money is spent on its intended use.

That concern, formally raised in a legislative auditor's report completed after last year's session, surfaced yesterday as senators heard testimony on several bills related to government-funded health benefits.

Several members of the Senate labor and commerce committees questioned how the Cayetano administration can propose cutting certain benefits to save costs while serious cost-related issues remain unresolved.

Among other things, they noted that the Hawaii Public Employees Health Fund, which pays roughly 60 percent of premiums for state and county workers, has never audited such expenditures for employees who join union-sponsored plans instead of getting coverage under the health fund.

In the 1997-98 fiscal year, the governments' contributions to union plans totaled nearly $64 million, according to Auditor Marion Higa's May 1999 report.

"I'm just wondering who could go into those books to ensure beneficiaries are truly getting their money's worth?" said Sen. Marshall Ige (D, Kaneohe-Enchanted Lake). "Somebody needs to stand up for them."

The union plans, for the most part, came of age during the second half of the 1990s and now cover more active employees than the health fund. One of the prime attractions has been that the plans typically offer comparable or greater benefits at a lower cost to employees.

The state and counties provide the funding for their respective shares of employee premiums, but the health fund, a state organization run by a nine-member board, handles payments and other coverage-related issues.

Gov. Ben Cayetano is proposing to scrap the fund altogether and replace it with an employer-union trust, essentially turning over all medical coverage to the unions. The state and counties would then provide a flat dollar amount per enrollee.

Even though the existing health fund pays millions each year to the unions, it has relied on a 21-year-old opinion of the Attorney General's Office to stay away from providing any accountability oversight, partly out of concern about possible liability problems.

The 1979 opinion stated that the board had no obligation to account for the premium payments once the money was in union hands.

"The present board is rethinking that position," said Neil Miyahira, the state's budget director and an ex-officio member of the board.

Board members have asked the AG's office to review the opinion and determine whether it still is valid. That review is pending, the AG's office said.

Higa noted in her report that the board is not meeting its fiduciary responsibility by ensuring that premiums paid to union plans are being used to buy health benefits. "The state's interest here is significant, as more employees have been enrolling in the union plans and the amount of premiums paid . . . to union plans has grown to many millions," she wrote.

Despite such lack of accountability, several union representatives said protections exist to ensure employer contributions are spent properly.

Maurice Morita, a legislative specialist for the Hawaii State Teachers Association, said his union's plan is the only one among the public-employee unions that is certified under the federal law governing private pension and benefit plans. That ensures the premium payments can only be used for health coverage, Morita told legislators.

Other union plans aren't certified under the same law, creating the potential for funds to be used for other purposes, Morita said, though he stressed he wasn't aware of any such diversions.

Melvin Higa, president of Royal State Group, which administers coverage for the Hawaii Government Employees Association, the state's largest public employee union, said in an interview that Royal State is a licensed mutual benefit society, which subjects it to scrutiny by the state insurance commissioner. It also is audited annually by an independent accounting firm, providing more safeguards, Higa said.

Royal State handles United Public Workers coverage as well.

Given that Cayetano is proposing benefit cuts for future hires, future retirees and, in at least one instance, for existing employees, several senators expressed reservations about the proposals knowing that serious financial and operational questions remain.

"There's a major problem here, and we're looking at taking it out on retirees," said Sen. David Matsuura (D, South Hilo-Puna).

Cayetano's proposals are being driven by projections showing that the governments' costs of providing health insurance likely will grow to nearly $1 billion by 2013. Switching to an employer-union trust with a set contribution from the government will help curb the escalating costs, Cayetano contends.

Several union representatives yesterday said they support the concept of a trust, but Cayetano's proposal is full of flaws.

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