Little has been done in recent years of economic stagnation to deal with the increasing liability for the costs of health care for retired state and county employees. The current Legislature’s proposed contribution is little more than acknowledgment of the problem, but it’s an important start. Lawmakers will need to follow through with a sustained commitment to avoid a fiscal emergency in the not-too- distant future.
House and Senate budget negotiators have agreed to devote $100 million in fiscal year 2014 and $117 million in fiscal year 2015 in payment on the state’s $16 billion unfunded liability in the Employer- Union Health Benefits Trust Fund, the health care fund for public workers and retirees.
Kalbert Young, the state’s budget director, has said Hawaii should be spending $500 million a year toward the liability.
The generous trust fund is there to pay as much as 100 percent of the health insurance premiums for more than 40,000 retirees, their spouses and dependents. That totaled $381.4 million in payments last year and is projected to grow to more than $1 billion by 2026.
Hawaii is not alone in dealing with the problem. The Pew Center on the States reported two years ago that states faced a daunting $555 billion in unfunded liabilities to finance retiree health coverage. The Illinois Supreme Court agreed on Thursday to decide whether retired state employees are protected by that state’s constitution from reduction in health care benefits.
Paying down unfunded liability is crucial, of course, but so is reforming too-generous benefits, particularly for future government hires and their spouses. These need to be addressed more firmly in the next legislative session.
A recent consultant report predicted that Hawaii will need to contribute $520 million annually for 30 years to eliminate the full liability. That amounts to the equivalent of 8.5 percent of the state’s proposed $6.1 billion general fund budget for fiscal 2014.
"This is a problem that has existed for decades … and because it’s decades in the making, the resources that it would take to address this problem now is significant," Young has warned. Paying $100 million now is "prudent financially," he added. A proposal floated in the Legislature would require the state to gradually increase the contributions over five years, at which point it would reach $520 million in annual payments.
With a general commitment to address the health fund problem, the Abercrombie administration has urged legislators to go forward with its other priorities: early-childhood education, information technology improvements and incentives to encourage entrepreneurs.
The Legislature has rightly given priority to catching up on long-neglected programs necessary for the future health and stability of the state. Installing a 21st-century IT system is one of them. So is the health benefits trust fund.
Randy Perreira, executive director of the Hawaii Government Employees Association, has expressed concern that a $100 million payment is "more symbolic than it is substantive." He is right. Legislators must go forward in future years gradually but relentlessly to eliminate the full liability. The alternative would be disastrous.
