Gov. Neil Abercrombie, alienating labor, defended his proposal yesterday to end state reimbursements for federal Medicare Part B premiums for retired public workers as essential to sustain the public-worker health system.

The governor appeared before the state Senate Judiciary and Labor Committee in a hearing room overflowing with public workers and retirees to describe the reimbursements as a bonus that can no longer be justified.

The 72-year-old governor said he was speaking as a public worker who has devoted his life to public service but does not believe he or others earned the benefit.

"This is a question of looking our survival straight in the face and seeing what can we do together to make this happen," Abercrombie said in his first testimony before lawmakers this session. "You cannot have people in the canoe with their arms folded watching everybody else paddle. Everybody has to do their share."

Abercrombie, a liberal Democrat, has been a loyal advocate for labor throughout his political career. Public-sector labor unions, including a few that backed his campaign for governor from the start, characterized his proposal as a betrayal of their social contract with the state. Several of the public workers and retirees at the hearing sat stone-faced, their arms crossed against their chests, as the governor spoke, and a few sighed and snickered as he tried to make his points.

Randy Perreira, executive director of the Hawaii Government Employees Association, described Abercrombie’s claim that Medicare reimbursements were not earned as "offensive." He said it would be wrong to violate a promise made to public-worker retirees.

"As a community we have looked to these people — these retirees — who have had a great hand in building our state, that we owe them an obligation," he said. "Our country is premised on the foundation that we that work, pay for the ones who have already worked before."

Perreira said Abercrombie, who has a six-figure salary as governor and federal and state pensions, should not liken himself to the average public-worker retiree.

"He’s got a job, though, you know, and he’s got multiple pensions," Perreira said as the audience applauded.

Unlike Abercrombie’s proposals to tax pension income and alcohol and soda, which have drawn broad disapproval, ending Medicare reimbursements for public-worker retirees might have support outside the labor union and retirement communities. The governor has offered the ideas to help close a projected two-year budget deficit of $700 million.

But Abercrombie has also put the Medicare reimbursement proposal in the context of the long-term structural changes many believe are necessary to sustain the Employer-Union Health Benefits Trust Fund and the Employees’ Retirement System.

The governor warned that the health care and retirement systems are at risk without changes. "We cannot run away from it," he said.

Public-worker retirees have been required to enroll in Medicare Part B since the EUTF was created in 2001 to replace the old state health fund. Medicare Part B covers doctors’ services, outpatient care, home health and some preventive services. The rationale, according to labor leaders, was that it was cheaper for the state to have retirees in the federal Medicare program than in the state’s health care pool. Retirees generally have higher health care costs than active public workers.

Social Security deducts the premium costs for public-worker retirees in Medicare Part B. The state, however, reimburses the premium costs in quarterly checks to about 30,000 retirees and their spouses.

Ending state reimbursements, according to the Abercrombie administration, would save the state $42 million next fiscal year and $47 million in fiscal year 2013.

Abercrombie told senators yesterday that he is open to thresholds, either based on age, retirement date or income, that would exempt public-worker retirees who heavily rely on the reimbursements. The reimbursement amounts for each retiree vary but exceed $1,150 a year.

State Attorney General David Louie, in a letter to senators on Thursday, said Abercrombie’s proposal — if passed by the Legislature as written — might be challenged in court as unconstitutional. The Hawaii Supreme Court, in Everson v. State, ruled last year that health benefits for retired state and county workers are accrued benefits that cannot be diminished under the state Constitution.

It is unclear, however, whether Medicare reimbursements are considered accrued benefits. State Sen. Clayton Hee (D, Kahuku-Kaneohe), chairman of the Senate Judiciary and Labor Committee, has asked the attorney general for an opinion on the matter by Tuesday before deciding how to proceed with the bill.

"This can’t be an easy thing for him, with his long pro-union record," Hee said of Abercrombie. "You might have expected this from a previous administration, but certainly not Neil Abercrombie. So it must be very difficult for him.

"But what that suggests is that he’s trying to unturn every stone to see where the solutions might be in addressing the shortfall. And, in addition to the shortfall, the social service safety net, education and simply trying to — I suppose — do what he believes a governor should be doing regardless of his political or philosophical beliefs.

"My guess is he understands that it’s a political liability for him."

The state House Labor and Public Employment Committee, meanwhile, moved out its version of the bill yesterday that would end Medicare reimbursements only for public workers hired after July. Retirees — and public workers who have 10 years on the job and are vested — would still get the reimbursements. Public workers who have not yet reached the 10-year mark would get a percentage of reimbursements equal to their years of service as well as enrollment in Medicare.

"I just don’t think it’s fair to take it away. If you’ve worked for the government for 30 years, and you’ve been getting your Medicare Part B for the last 10, to all of sudden say, ‘We’re not going to pay you Medicare anymore,’ to me that’s just a nonstarter," said Rep. Karl Rhoads (D, Chinatown-Downtown), chairman of the House Labor and Public Employment Committee.

J.N. Musto, executive director of the University of Hawaii Professional Assembly, which endorsed Abercrombie and aggressively campaigned for his election, cautioned senators about the unintended consequences of making adjustments to the public-worker health care and retirement systems. Along with potential disruptions, he said, rushing to make changes could undermine the social contract with public workers and the cultural emphasis Hawaii places on taking care of seniors.

"Let’s not do this one piece at a time. It’s not good. It truly is not good," Musto said.

Abercrombie, asked by reporters whether he expected such a strong reaction, said he believes he is speaking for the "silent majority" that understands something must be done.

"I am the governor," he said. "I’m not your pal. I’m not your counselor. I am the governor. And I am determined to be truthful with everybody about what we have to do together to survive."