Today, in Part 2 of our “On the Hook” series, Greg Wiles explores the current state of the Employer-Union Health Benefits Trust Fund.

In addition to his in-depth article, Greg also produced a backgrounder on what is an important, but potentially daunting, topic.

These topic pages are among the key benefits of full membership in Civil Beat.

Here’s an example of some of the background from his topic page that might help deepen understanding of the topic, and of our approach to covering issues important to Honolulu and Hawaii.

TOPIC PAGE

Overview

The fund oversees health and life insurance benefits for 169,708 public workers, retirees and dependents. One national study shows Hawaii’s unfunded liability is among the highest in the nation on a per-capita basis, because of health-care benefits provided retirees. The agency has faced numerous financial and administrative difficulties over the last 18 months, with many having their root in rising health-care costs and usage. The EUTF has had to seek ways to minimize the increases in premiums as it tries to provide reasonably priced benefits for public employees.

The health benefits include health insurance, prescription drug, dental and vision coverage as well as a chiropractic plan. Currently more than $500 million is paid in annually by employers and employees for the EUTF’s health coverage. (The agency’s fiscal year runs from July 1 to June 30.)

Funding

The EUTF’s health plans are broken into two broad categories — self-insured and fully funded.

Self-insured means EUTF acts as its own health insurance company of sorts – it sets and collects premiums from the state and counties and employees and oversees policy. The EUTF contracts with administrators to process claims and maintain provider networks. The self-insured plans are administered by the Hawaii Medical Service Association (80/20 plan) and HMA (90/10). Fully insured, or health maintenance organization, plans are also available through Kaiser Permanente. InformedRx is the pharmacy benefits manager; Hawaii Dental Service and Vision Service Plan are also vendors. Coverage under the self-funded plan is much like a so-called preferred-provider program that many in Hawaii subscribe to through private insurers – a plan that allows them their choice of medical providers.

The other part of the EUTF’s insurance offerings is a so-called fully insured plan. It involves the EUTF contracting with a managed-care organization such as Kaiser Permanente, which sets rates on its own and provides coverage and services.

Retiree benefits could become a major budget problem for state and county governments depending on future accounting requirements. Hawaii is one of at least 29 states that have been on a “pay-as-you-go” system for paying retiree costs and have not set aside money for these costs in the future.

Hawaii has started reporting this liability but has yet to follow some other states that are starting to set aside funds for these future costs. There is no requirement that states pre-fund these expenses and Hawaii is in compliance with reporting rules for now.

A September 2008 report for the EUTF prepared by Aon Consulting estimated the unfunded liability at $10.3 billion for the year ended July, 1, 2007. The report also calculated how much money would be required annually to make regular contributions to the plan and amortize the unfunded liability over a 30-year period. This annual cost amounted to $752 million, or more than the budget of some state agencies.

Some of Hawaii’s counties have started to set aside money for OPEB. The state has yet to do so.