Bill seeks to address the Employer-Union Trust Fund unfunded liability by creating a Captive Insurance Company

REPORT FROM THE HOUSE MAJORITY – A conference committee comprised of House and Senate members will meet tomorrow, 4/24/13, at 10:30am in room 325 at the State Capitol, to attempt to address differences in SB946 SD1 HD1 relating to the unfunded liability of the Employee Union Trust Fund (EUTF).

One of the differences between the House version and the Senate version involves the proposed Captive Insurance Company which was inserted by the House from HB 1459 introduced by Rep. Romy Cachola (Sand Island, Mokauea, Kapalama, Kalihi Kai).

Cachola who authored HB 1459 issued the following statement on the eve of the conference meeting.

The purpose of the Employer-Union Trust Fund (EUTF) is to fund the healthcare needs of the State’s active employees, retirees, and their dependents (members).  However, the ever increasing cost of health care and the resulting growth in health care premiums, coupled with decades of a ‘pay as you go’ approach has left the EUTF with an unfunded liability of about $18.2 billion.

Short of raising taxes, laying-off employees or reduce employee benefits; funding $520 million is nearly impossible due to competing needs to fund collective bargaining agreements, and new and existing programs.
The House Finance and Senate Ways and Means committees agreed to fund $100 million in FY14 and $117 million in FY 15. We need to do more than just setting aside a token amount of contributions, we need to find innovative ways to slow down, reduce, stabilize and fully fund the unfunded liability.

The State House of Representatives voted to endorse a proposal to the Senate under SB 946 SD1 HD1, which would jointly address the unfunded liability and create a program with alternative means of saving the state money.  In addition to increasing the State’s contributions to pre-fund future retiree healthcare costs, the State is to create a captive insurance company within the EUTF that covers only government employees.

Here are the advantages of a State captive insurance company:

1.      According to a report by the State of Hawaii Insurance Division there is a potential for the State to find savings of 5%-25% by creating a captive insurance company. At the current costs of $800 million in healthcare premiums, this would amount to a $40 million savings at the most conservative estimate. Once the said savings are realized, there will be no increase in healthcare premiums for both employer and employees the following year. These savings will also be placed in a reserve account for future use.
2.      By insuring the public employee health benefit in a captive, the state and counties (employer) and EUTF members will not be susceptible to continuously increasing health insurance rates requested by health insurers.
3.       Ability to directly negotiate prices with physicians, surgeons, hospital, and other healthcare providers which results to better understanding of actual costs of health care benefits from the actual providers of services.
4.       Earning investment income on loss reserves for future claims payments that have not yet been paid.
5.       Additional savings due to direct access to the wholesale price of reinsurance. Reinsurance is needed to protect the captive from catastrophic events.

Additionally, this out-of-the-box approach in addressing our unfunded liability through direct contributions and innovative cost-saving measures, demonstrate our serious commitment to solving this critical and difficult issue. This could translate into improving bond ratings allowing the state and county to float bonds at a lower interest rate and less debt service to fund large-scale infrastructure improvement projects.

The EUTF’s unfunded liability is not a new problem and it will not go away.  A one year delay translates to over a billion dollars added to the current $18.2 billion liabilities. It will take new, innovative and bold action to resolve it.

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