by Andrew Walden

Act 268 rules your destiny.  For the next 35 years, Hawaii’s budget will be controlled by its mandate to pay government employee and retiree health care obligations prior to funding any other item in the State, County, University, DoE, OHA, DHHL, or HHSC budgets.  Given the history of union health care funds in Hawaii, the best advice for taxpayers and union members is, “be afraid, be very afraid.”  

In addition to garnisheeing the General Fund, Act 268 switches Hawaii “Other Post-Employment Benefit” (OPEB) obligations from pay-as-you-go to a prepaid model.  An Hawaii Employer-Union Health Benefits Trust Fund (EUTF) Board actuary will determine the mandatory contribution amount for the State, its subsets such as UH and HHSC, and the Counties.  The actuary will bill each public employer for an “amortization payment” designed to eliminate the State’s unfunded liability over the course of 30 years.  Under law the EUTF will garnish GE Tax revenues and TAT revenues to make up for any deadbeat County or State public employer. 

Standard and Poor’s estimates Hawaii’s OPEB unfunded liability at $13.6B.  Conveniently, “amortization payments” begin in 2018, the year Neil Abercrombie’s putative second term will end.

OPEB-related corruption has been in the news for years.  For instance:

1. Executives are alleged to have looted $4.4M from Pacific Group Medical Association, which covered UPW and HGEA members, leading to its collapse in 1997.  An additional $67M went to ‘overhead expenses’ while only $61M in claims were paid.
2. UPW boss Gary Rodrigues and his daughter stole OPEB money in an insurance kickback scheme and went to prison for it; convicted November 19, 2002 on 101 and 95 counts, respectively.  Before his convictions, Rodrigues was appointed to selection commissions picking KSBE Trustees and State Judges.  Rodrigues was a board member of Royal State Insurance. 
3. The first CEO of EUTF, Mark Fukuhara, selected July 1, 2002, boasted a resume including, “Senior Vice-President and Chief Operating Officer with Hawaii Dental Service and, most recently, Vice-President and Chief Operating Officer with the Royal Insurance Agency.”  Both companies were heavily implicated in Rodrigues’ kickback schemes. 
4. HGEA, UPW and other public employees unions are believed to have received millions of dollars in kickbacks 1992-2002 from insurance providers through a $663M “porting” scheme publicly exposed by EUTF Chair Gregory Saito March 31, 2003.  The scheme has since been the subject of litigation without resolution and may continue to this very day.
5. Abercrombie, in December 2008, unilaterally and secretly changed employers’ OPEB contributions from 50% to 60% at a cost estimated to be $126M to the State.
6. The HSTA Membership Benefits Corporation filed for bankruptcy protection March 2, 2009 amid claims of embezzlement by top executives and gross financial mismanagement. 
7. In 2010 the HSTA Voluntary Employee Benefit Association Trust (VEBA) was folded into EUTF.  VEBA Trustees and beneficiaries sued demanding HSTA be given back $3.96M in surplus ‘porting’ that HSTA, unlike HGEA and UPW, had returned to the State.  
8. Under the current HGEA and UPW contracts, Royal State receives amounts running from $26.54 to $73.76 per employee for a “dual coverage” plan which serves as a backstop to HMSA.
9. Royal State’s current EUTF supplemental plan has a “maximum annual benefit” of $3100. It also covers up to 20 Chiropractic visits and pays a $2034 death benefit for any retired beneficiary.  According to its website, Royal State operations produce “a surplus fund ratio significantly more than the industry average.”  “Surplus fund ratio” is another term for “profit ratio.”  In other words, thanks to union negotiators, Royal State takes in a lot of money and pays out very little in benefits.
10. SB946 of 2013 would have converted EUTF into a ‘Captive Insurance’ company with secret financial statements and a board with five of eleven members appointed from lists approved by union bosses.  SB946 passed final reading in the House but fell short in the Senate.  The fact this bill went so far shows that Hawaii’s political leaders are not ready to confront the cabal of union bosses and insurance execs who rob taxpayers and union members.     

Just as with the ill-begotten Hawaii Clean Energy Initiative, which is producing dirty profits at the expense of Hawaii ratepayers, Act 268 was written on the ‘legislate first, ask questions later’ basis.  Only now are the first ideas about how to pay for all of this being floated. 

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Related:

• Creative Insolvency: EUTF to Enter ‘Shadow Insurance Industry’?
• S&P Pleased by Tax Hikes, Concerned About Abercrombie's Spending
• Hawaii leads nation in per-capita debt for unfunded union benefits
• HI unfunded liabilities: Unpredictable tsunami or government-made disaster?