Advertisement - Click to support our sponsors.

Errors reduce
payments of life
insurance benefits

Just $1,800 was paid out in 'four
or five' public employees'
cases due to state
agencies' confusion

---

By Ian Lind
Star-Bulletin

Families of some public employees who died between July 1999 and June 2000 received less than 10 percent of the $25,000 life insurance benefit they were entitled to, a state official confirms.

Bert Nishihara, Hawaii Public Employees' Health Fund acting administrator, said reduced payments of just $1,800 were made in "four or five" cases before the error was discovered.

The errors occurred during the first year of a $3 million contract with Royal State National Life Insurance Co. to provide the group life insurance plan. The errors stemmed from confusion among state agencies in determining whether deceased employees had been retired or still active, and Royal State's failure to properly resolve discrepancies, according to some of those involved.

Nishihara said the problem was not extensive. There were 79 deaths of current employees among the 690 death claims filed during the year ending June 30, 2000, and problems arose in only a handful of those cases, he said.

The full amount of the policy, with interest, was later paid in each case, he said.

But a woman who had trouble collecting the insurance payments following her husband's death said state administrators were unresponsive, overly secretive and unhelpful in resolving the problems until her continued complaints drew the attention of elected officials. Ann James said she called Royal State seeking information on the life insurance benefits in April 2000, two months after the death of her husband, Ronald K. James, a University of Hawaii professor of special education.

James said she was told to expect a check for $1,800, although copies of the policy sent to all employees promised $25,000.

"Both agencies (the Health Fund and Employees' Retirement System) told me that I would get a monthly retirement pension in addition to their payment of $1,800," James said.

"It's for your own good," James said she was told. "They just kept saying it, over and over and over. 'Oh, but you're getting the pension.'"

James objected, saying there should be no connection between the pension, paid by the retirement system, and the life insurance benefit, paid by Royal State.

A second woman, who asked not to be identified, said she was also told by Royal State to expect an $1,800 insurance payment.

"It was terribly unpleasant, but I would have been willing to accept it because it came during a most vulnerable period. I was bereaved. It's hard to handle when you're not as strong as usual, and at a time when you're least able to be assertive," she said.

James recalled being told that Royal State only paid the full $25,000 if an employee was not eligible for retirement when they died.

To reflect the right of survivors to collect pension benefits, the Employees' Retirement System retroactively classified the employees as retired, with a retirement date the day before they died. This retirement date was reported to the Health Fund, and later transmitted to Royal State. Mel Higa, Royal State's president, said his company thought the employees were already retired, based on certification received from the Health Fund.

When she was unable to resolve the issue, James contacted nearly 100 officials, including members of Congress and all members of the Legislature. "I was operating on anger, just plain anger," James said.

"I am just responsible for myself and a 6-pound dog," James said. "But a lot of people have children, parents, in-laws or grandchildren, and that money might make a hell of a difference to them."

James credited strong responses by U.S. Rep. Patsy Mink and state Rep. Galen Fox for forcing a re-examination of the problem. Others, including Gov. Ben Cayetano, did not respond, she said.

James' complaint triggered an audit by Royal State to find other cases where errors might have been made, Higa said.

The Health Fund was notified of the audit by Royal State Vice President Gordon Murakami in a letter dated May 24, 2000, according to minutes of the fund's board of trustees.

Those minutes do not show whether trustees were ever informed of the erroneous payments, discussed the nature or extent of the problem, or received any report from Royal State or their own staff on the outcome of the audit.

Nishihara told the Star-Bulletin he did not recall the matter coming before the board, but said he did not attend all meetings during that period. Nishihara was named acting administrator in November 2000, following the retirement of Cenric Ho.

Retirement system Administrator David Shimabukuro did not respond to repeated messages from the Star-Bulletin seeking comments on the situation.

Royal State was awarded the life insurance contract on a controversial 4-3 vote of the Health Plan board of trustees in December 1998. The vote was immediately challenged by Cayetano, who said two trustees had a conflict of interest because they worked for public employee unions represented on the Royal State board of directors.

The contract was finally signed in July 1999 after the state Ethics Commission ruled the vote did not violate state law.