Column: Self-insurance for EUTF would increase risk without benefit

The SARS-CoV-2 virus has brought the world to its knees, sickening and killing millions. Not in a generation has the importance of health and sustainability been so clear. The Hawaii Employer- Union Health Benefits Trust Fund (EUTF) provides medical, prescription drug, dental, vision and life insurance benefits to nearly 200,000 state and county employees, retirees and dependents. As the largest provider of such benefits in the state, it has been the center of much discussion. These discussions must start with facts.

Hawaii, like most other states prior to 2014, only paid the current retiree health care premiums under a fiscally unsustainable “pay-as-you-go” funding structure. No money was set aside as the employees earned their retiree health benefits, resulting in an unfunded liability. As of July 1, 2020, the state’s unfunded liability for retiree health benefits was $8.9 billion. While this number is significant, the state‘s actuary had projected in 2013 the liability to be $10.7 billion on July 1, 2020.

Additionally, in the 2020 valuation, the state experienced a $733 million actuarial gain due to lower- than-projected retiree premiums that reduced projected state contributions by $3.6 billion over a 35-year period. This progress is due to many reasons.

The state has taken measures to address the unfunded liability by: 1) establishing a mechanism to fund the liability; 2) optimizing investment returns; 3) maximizing federal subsidies; 4) limiting growth in benefit plan costs; and 5) modifying retiree benefits for new employees.

Self-insurance, whereby the EUTF would assume all risk for payment of all claims under the health insurance plans it offers, is another mechanism that has been discussed. This arrangement has not been pursued by the EUTF because savings would be minimal, especially in comparison to the financial risk that would be assumed. There would no administrative cost savings. The cost to insure the EUTF against unexpected claims is estimated to be $13 million annually. As a point of reference, the EUTF plans pay out over $750 million in state claims annually. Self-insuring could actually result in additional costs if these plans experienced losses.

Due to its scale, EUTF self-insured and insured methods would result in fairly stable and similar annual costs, with the insured model providing significant value in the event of catastrophe. Prefunding payments are not related to the insurance model used by EUTF plans. As described earlier, the large prefunding payments are the result of failing to fund retiree health benefits during their employment. The prefunding payments, required by Act 268 in 2013, will continue as scheduled unless its provisions are amended.

Facts are always important and especially so in these difficult times that require difficult decisions. The EUTF board continues to provide decision-makers and the public with the facts and well-supported recommendations as it undertakes its mission to provide employers, employees and retirees “quality benefit plans that are affordable, reliable and meet their changing needs.”

Roderick Becker is chairman, Damien Elefante is vice chairman and Christian Fern is secretary-treasurer of the EUTF board of trustees; this was submitted on the board’s behalf.