Medical insurance rates for state and county workers are expected to rise by 13.6 percent starting Jan. 1, fueling controversy over who pays how much.

The proposed rate increase comes on top of an average 23 percent increase that started in July, meaning that by January state and county workers' medical premiums will have shot up almost 37 percent.

Who will pay for that increase is still an issue for state and union negotiators. Gov. Linda Lingle is insisting that the state not pay any more than it currently does for employee medical insurance and that the workers pick up the excess payments for the increases.

Unions are insisting that the state maintain its existing split, with the state picking up 60 percent of the tab.

The Hawaii Employer-Union Health Benefits Trust Fund was told yesterday that rising demand for medical services and rising costs mean Hawaii Medical Service Association and Health Management Associates charges will increase.

“;This is what the trend analysis shows — the rate of increase in costs and the rate of utilization,”; said Jim Williams, fund administrator.

“;We think the turmoil in the state employment situation and the state budget situation has caused a spike in utilization,”; Williams explained.

Yesterday, the fund's trustees — five representing the public worker unions and five from state and county management — failed to approve the rate increase proposal, but they decided to hold a special meeting Tuesday to vote again.

“;I think it is inevitable,”; said John Radcliffe, a trustee representing the unions. “;I don't think the board has a choice.”;

The Employer-Union Health Benefits Trust Fund in 2008 reported it had 54,684 active union members participating in the health plans and estimated the fund handles medical insurance for 225,000 people in Hawaii, including retirees and dependents.

During the meeting, the unions' trustees voted for the increase and the management representatives refused to vote, effectively killing the motion.

After the vote, Radcliffe asked management trustee Stan Shiraki why he didn't vote.

“;Do you think conditions are going to change next week?”; Radcliffe asked.

Shiraki said he would not answer Radcliffe's questions.

The rates were proposed by AON Consulting, the firm hired by the fund to study rates for all the employee classes.

Radcliffe said the fund has already taken steps to cut costs, including requiring employees to use a national mail-order program for prescription drugs and also audit the dependents on the plan to make sure that the insurance isn't paying for nonfamily members.

“;More people are using the EUTF services in greater numbers because they fear they will not be able to do so in the future,”; Radcliffe said, calling it a “;medical hysteria.”;

Williams warned the trustees that if they do not increase the rates now, they will be faced with serious shortfalls by February.

Williams said the fund would lose $2.7 million a month if rates are not increased by January.

“;The more we delay on deciding, we face the possibility the increase will be even more difficult to face,”; warned Chairman George Kahoohanohano during the meeting.