The COVID-19 pandemic has disrupted Hawaii’s economy and placed the state under significant financial strain. Unfortunately, self-insurance is not the silver bullet that will easily solve the state’s and counties’ budget issues.
The recent opinion column, “State should self-insure health plans for employees, retirees” (Island Voices, Oct. 29), claimed that savings from a self-insured model for the state and counties would total about $675 million a year.
In fact, even if the Hawaii Employer Union Health Benefits Trust Fund (EUTF) board decided to self-insure all health plans, current law requires the state and counties to annually pre-fund employee retiree health benefits and pay down the current unfunded liability, a payment estimated at $521 million in fiscal year 2021.
In addition, there would be no administrative savings and certainly not $175 million annually. The EUTF fully insures three health benefits plans that are typically offered by the organizations under fully insured models leaving minimal, if any, opportunity for changing these to a self-insured model.
The EUTF self-insures two health benefits plans including prescription drug plans administered by CVS/SilverScript. The remaining HMSA medical, HDS dental and VSP vision plans can be viewed as self-insured up to the premiums and insured above the premium.
If there is a surplus or premiums exceed claims/expenses, the carriers (i.e., HMSA, HDS and VSP) refund the surplus back to the EUTF. If there is a loss or claims/expenses exceed premiums, the carriers are responsible for the loss.
The downside is an insurance charge, on the estimated $650 million in annual premiums, by the carriers which is projected to be $13 million annually. This is not an administrative cost but rather the cost of assuming the state’s risk.
Finally, self-insurance is not a free lunch. Although approximately $13 million annually would be “saved,” the trade-off is the risk of loss (claims/expenses exceed premiums) shifting from the carriers to the state and counties. Risk of loss impacts financial decisions — individuals purchase insurance, large insurers pass off risk on the reinsurance market and investors generally do not invest 100% of their portfolios in risk assets (e.g. equities).
The self-insurance model has been carefully evaluated by the EUTF and its consultants, and all have determined that the risk of loss by self-insuring is significant.
The bottom line is that self-insurance has the potential to save the state and counties only $13 million in return for assuming ALL the risk.
As we focus on public health during the pandemic, we must also focus on the state’s financial health, and that begins with good information. The EUTF board looks forward to continuing to provide its beneficiaries, decision makers, and Hawaii’s taxpayers with the facts and well-supported recommendations.
This was submitted on behalf of the EUTF board of trustees by Roderick Becker, chairperson, left; Damien Elefante, vice chair-person; and Christian Fern, secretary-treasurer. Co-signatories are Jacqueline Ferguson-Miyamoto, Audrey Hidano, Laurel Johnston, Celeste Nip, Osa Tui, Ryker Wada and James Wataru.
