Column: State should self-insure health plans for employees, retirees

Gov. David Ige’s July 17 COVID-19 emergency proclamation suspended the law requiring the state, counties and their employees to pay annual contributions to the Employer-Union Health Benefits Trust Fund (EUTF) for fiscal year 2020-2021.

Consider these critical challenges to the state in the present fiscal year 2021:

>> The state must balance its budget, even though the state revenue shortfall is about $2.3 billion.

>> The state faces threatened furloughs or reduction of state employees’ wages by 10%.

>> The state is facing a likely downgrade of its bond rating.

Unless something is done, these challenges will worsen our future unfunded liabilities. We propose that the state change administration of health-care benefits for employees, retirees and their dependents from a fully insured model using a third-party insurance plan, to a self-insured model. This would make the state itself bear the risks of health care, but it is highly manageable.

The National Conference of State Legislatures says 46 of 50 states now self-fund at least one of their health plan options offered for state employees, and 29 states fully self-insure all state employee health plan options. Those states that have switched to self-insuring health benefits have stabilized premium payments and substantially lowered administrative costs while still maintaining a high level of benefits.

As of fiscal year July 2019-June 2020, we have already pre-funded about $3.7 billion, all of which can and should be used to assure the stability of the EUTF. Out of this total, $2 billion could be used as an insurance reserve fund for the self- insured model. Anything over $2 billion could establish a stabilization fund, used to subsidize employee benefits against increases in premium payments. Investment income from both accounts could be added to this stabilization fund. Legislation would require these two funds must not be raided for any other purpose.

Establishing these reserve and stabilization funds with existing money from the pre-funding account would put Hawaii in a much better position than most other states that have adopted the self-insured model.

In addition to saving contributions to future liabilities, the self-insured model also carries substantially lower ongoing administrative costs. Utah saw administrative costs drop from 15% to 5% after moving to self-insurance. Connecticut saw administrative costs drop from around 20-25% to 3.5% after switching from managed care insurance plans to self-funding for their Medicaid program. Reduced administrative costs would assure that money now allocated in the state budget for health insurance premiums would be adequate to pay for the health care needs of state and county employees and retirees for years to come.

Savings from a self-insured model would be around $500 million/year from not pre-funding future liabilities, plus perhaps $175 million/year from administrative savings, for $675 million/year savings for the state and county budgets. These savings could:

>> Reduce the state’s and counties’ current budgetary crises.

>> Reduce the threat of furloughs and layoffs and reductions in services.

>> Improve the fiscal stability of both the state and counties, upgrading their bond ratings.

This model of self-insured health care is an innovative strategy that has been implemented in many other states throughout the country. It can avoid overburdening taxpayers with increases in the general excise tax and real property taxes and fees, while continuing to support state and county government workers, retirees and their dependents, and help promote a financially stable Hawaii for the future. We urge the state Legislature to adopt such legislation right away.

Melodie Aduja chairs the Democratic Party of Hawaii’s Health Committee; Stephen Kemble, M.D., an assistant clinical professor of medicine and psychiatry, is a past president of both the Hawaii Psychiatric Medical Association and the Hawaii Medical Association.