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State retirees’
med insurance
costs soaring

The governor, House and
Senate spar over how to cut the
high cost of government
retirees' health benefits

Oregon's merger a lesson for isles

By Rob Perez
Star-Bulletin

WORST-CASE SCENARIO: An annual tab of more than $650 million.

BEST-CASE: Only $365 million annually.

MOST LIKELY: $456 million a year.

EVEN under the conservative forecast, the state and counties by the year 2013 will be paying nearly three times what they do now for health insurance for government retirees, according to a 1999 projection by a California consultant. Under the consultant's highest-priced scenario, the current annual tab of $127 million-plus will grow more than 400 percent.

Whatever the actual impact, the fiscal crunch is expected to be so severe that Gov. Ben Cayetano took the politically unpopular step this legislative session of proposing a cut in post-retirement benefits for future retirees and new hires.

He also proposed overhauling the state system for purchasing insurance and putting a cap on the amount the government pays toward premiums for active and retired workers. Without changing the existing system, the governments' share of that tab is expected to grow to nearly $1 billion annually by 2013.

While the House has gone along with most of Cayetano's proposals, the Senate largely has balked, substantially revising the governor's reform blueprint.

Like Cayetano, the Senate wants to save money by making the system more efficient, bringing all health coverage under one employer-union trust. The idea is to create a trust that would have more negotiating clout with insurers and more flexibility than the bureaucracy-laden Hawaii Public Employees Health Fund, which the trust would replace.

But in a key difference with the administration and the House, the Senate proposal enables the unions to continue operating -- within the trust system -- their own public-employee health plans using government contributions. Critics say that would substantially dilute the benefit of having all coverage under one umbrella. Union representatives say combining all the plans wouldn't necessarily result in more efficiency and better rates.

In another key difference, the Senate hasn't agreed to cut post-retirement benefits for future hires or to cap premium payments for retirees.

Instead, it wants the $11 billion Employees' Retirement System, which funds pensions for retirees, to eventually pick up the cost of their health coverage as well, though that likely wouldn't happen for at least a decade under the Senate proposal. The plan doesn't tackle the question of how to rein in the cost of covering retirees.

The state now pays 100 percent of premiums for retirees and their dependents -- one of the most generous policies among the 50 states. Cayetano is proposing that the government stop paying for dependent coverage for new hires once those employees retire. He also wants to cut in half the amount the state pays for survivor coverage of employees who retire after December 2001 and subsequently die. The House supports both proposals.

The Senate plan "doesn't address the fundamental problem of what's causing the major costs," said Neal Miyahira, the administration's budget director. "Somewhere along the line the costs have to be passed on to somebody."

Sen. Brian Kanno, who helped develop the Senate positions, said senators first want to address inefficiencies in the system. It would then be up to the new trust board, which would have an equal number of management and labor members but no retiree representative, to decide what to do about future retiree costs, said Kanno (D, Ewa Beach-Makakilo). "They would have to make some difficult decisions."

It may not get that far.

House members have criticized the Senate approach, saying it doesn't go nearly far enough in dealing with the growing fiscal crisis. The two sides have less than four weeks remaining in the session to strike a compromise.

Like Cayetano, House members have relied on some of the recommendations of state auditor Marion Higa to come up with their positions. Higa's report last year included the California consultant's projections.

"The whole impetus of the auditor's report was to try to address future costs," said Rep. Nathan Suzuki (D, Salt Lake), one of the more knowledgeable legislators on government benefits. The Senate plan, he said, seems to "move further away from the auditor's recommendations."

Although Cayetano and the House agree that the state should continue paying 100 percent of retirees' premiums, they are proposing to cap the premium at a set amount, to be used by the trust for purchasing coverage. The amount, as yet unspecified, would be adjusted annually, based on the local rate of medical inflation.

The Senate plan doesn't contain such a cap for retiree coverage. But it does require that the governments' contributions for active employees be a set amount, negotiated between management and labor.

For retiree premiums, the Senate wants to shift payment responsibility to the ERS -- provided the retirement fund is earning more than enough to cover its past and current costs. Kanno said the intent is to have the retirement fund cover health premiums each year after which it has been financially self-sufficient. The ERS, however, has never been self-sufficient, primarily because $1.3 billion from the fund was diverted by the Legislature over several decades (prior to 1997) for other state and county programs.

If the fund earns 8.5 percent annually on its investments during the next decade, the system is projected to become self-sufficient in about 2010, according to David Shimabukuro, ERS administrator.

Whether the fund can earn that return depends largely on how well its portfolio performs, something virtually impossible to predict.

"If they take away our money when we have a good year, that's less money we have for the bad years," Shimabukuro said. "That's a big concern."

Even if that wasn't an issue, however, the ERS board doesn't support using its assets to pay for health insurance. Doing so jeopardizes the system's federal tax-exempt status, Shimabukuro said.





Sen. Sam Slom, who supports the Senate proposal with reservations, said the government must honor commitments it made to retirees, no matter how difficult that will be financially. But benefits for new hires should be reduced to save money, said Slom (R, Kalama Valley-Aina Haina). "I see a tremendous cost problem coming up in the near future."

Sarah Moriyama, a retired school teacher, agrees that benefits already promised to retirees shouldn't be reduced. All the talk of changes, however, has her and other retirees nervous.

"We don't know what we're going to have, what we're going to lose," she said. "It's very unsettling."

---

Oregon’s merger a
lesson for isles

By Rob Perez
Star-Bulletin

BIGGER is better -- and more efficient. That was the rationale Oregon politicians embraced three years ago when they approved a plan to merge two systems used for purchasing health insurance for state employees.

One was run by the state and covered about 22,000 workers. The other was run by the state's largest public-employee union and covered 18,000 employees.

The merged entity now represents about 42,000 workers, plus more than 55,000 dependents. Those numbers have given the merged system more bargaining clout with insurers, one reason the state's premium increases have been lower than many other employers, according to Mylia Wray, administrator for the Oregon Public Employees' Benefit Board.

Has the merger resulted in better insurance deals for employees?

It depends on whom you ask. One union representative on the board says no. Another says yes.

How those workers have fared under the merger could offer lessons for Hawaii's public employees as lawmakers here consider whether to replace a system of multiple health plans run by the state and unions with something similar to Oregon's.

It took about two years to fully merge Oregon's two systems, and 2000 is the first year in which all 42,000 workers are in health plans created under the new system, Wray said.

Diane Lovell, a board member who represents about 5,000 American Federation of State, County and Municipal Employees in Oregon, said her union members generally have seen their benefits improve since the two systems merged.

"It's working remarkably well," she said.

But fellow board member Karla Spence, who works for the Oregon Public Employees' Union, the state's largest, said her members generally have seen their benefits erode or their out-of-pocket expenses increase.

She said the vast majority would like to return to the old system, when her union offered its own set of plans. "If we could go back, we'd do it in a heartbeat."

Spence acknowledged, however, that the new system eventually will provide advantages due to the greater purchasing power the board has. "In the long run, there's strength in numbers."

Wray said the best is yet to come, now that the merger is complete. "We think we've built the clout to be able to start" seeing more of the benefits, she said.