REPORT TITLE: 
Captive Insurance

DESCRIPTION:
Establishes a plan for the formation and implementation of a
captive insurance facility to effectively manage the
administration and financing of the current and potential future
employee benefit obligations of the state and county
governments.  Replaces the Hawaii Public Employees Health Fund
with the Hawaii Insurance Exchange to provide employee benefits.
(HB3009 HD1)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        3009
HOUSE OF REPRESENTATIVES                H.B. NO.           H.D. 1
TWENTIETH LEGISLATURE, 2000                                
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                     A BILL FOR AN ACT

RELATING TO THE HAWAII INSURANCE EXCHANGE.



BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 1      SECTION 1.  This Act establishes a plan for the formation of
 
 2 a captive insurance company, to be known as the Hawaii Insurance
 
 3 exchange (exchange).  The purpose of the exchange is to cost-
 
 4 effectively manage and administer the financing of current and
 
 5 future employee benefit obligations of the state and county
 
 6 governments as may be imposed by collectively bargained
 
 7 agreements or other circumstances.  These obligations are
 
 8 currently addressed through the Hawaii public employees health
 
 9 fund (HPEHF), chapter 87, Hawaii Revised Statutes.  This Act is
 
10 not intended to reduce any benefits presently provided under
 
11 HPEHF.
 
12      The advantages of transferring the administration of
 
13 employee benefits to the exchange are many.  The exchange will:
 
14      (1)  Provide direct control over approximately $384,000,000
 
15           in premiums that are currently paid to third party
 
16           health plans and insurers, as well as the reserves held
 
17           by these plans and insurers;
 
18      (2)  Afford an effective means of addressing certain
 
19           concerns noted in the State Auditor's 1999 report,
 

 
Page 2                                                     3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1           "Financial Audit of the Hawaii Public Employees Health
 
 2           Fund," including financial accounting and internal
 
 3           control deficiencies, and the estimated accrued
 
 4           liability of the State and counties to provide
 
 5           $4,500,000,000 (as of July 1, 1998) of future retiree
 
 6           health benefits;
 
 7      (3)  Be able to capitalize on the nature and dynamics of the
 
 8           public employee group, which because of its large size
 
 9           facilitates the spreading of risk and minimizes the
 
10           potential for adverse selection;
 
11      (4)  Be a distinct legal entity in a regulated insurance
 
12           industry, able to directly access reinsurance and
 
13           capital market products and services by, for example,
 
14           utilizing bonds and other debt instruments to maximize
 
15           revenues;
 
16      (5)  Have the flexibility to utilize health insurance
 
17           companies, health care providers, and other related
 
18           services; and
 
19      (6)  Utilize exchange profits to fund vested retiree health
 
20           benefits, which are currently unfunded.
 
21      The captive insurance company proposed under this Act is
 
22 organized as a reciprocal insurer, or reciprocal insurance
 
23 exchange, pursuant to article 19, chapter 431, Hawaii Revised
 

 
Page 3                                                     3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1 Statutes.  The state and county governments are the underlying
 
 2 subscribers of the exchange.  Anticipated funding comprises of an
 
 3 initial surplus contribution of approximately $86,000,000,
 
 4 currently held by various health insurers that will be obtained
 
 5 from "rate stabilization reserves," and $13,000,000 in surplus
 
 6 employee contributions held by the HPEHF.  The anticipated annual
 
 7 premium will be approximately $298,000,000 for benefits identical
 
 8 to those currently provided through the HPEHF.
 
 9      The policies and operations of the exchange will be governed
 
10 by a subscribers' committee composed of thirteen persons
 
11 representing the state, counties, and public employee
 
12 organization subscribers.  The committee shall appoint an
 
13 attorney-in-fact to carry out the day-to-day management of the
 
14 exchange.  Among other things, the attorney-in-fact will:
 
15      (1)  Contract with independent third party providers for
 
16           services including accounting and financial reporting;
 
17      (2)  Provide for insurance and other regulatory compliance;
 
18      (3)  Coordinate claims adjusting, treasury, and investment
 
19           management;
 
20      (4)  Administer insurance and reinsurance; and
 
21      (5)  Provide safety and informational services for
 
22           employees.  
 

 
 
 
Page 4                                                     3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1                              Part I
 
 2      SECTION 2.  The Hawaii Revised Statutes, is amended by
 
 3 adding a new chapter to be appropriately designated and to read
 
 4 as follows:
 
 5                             "CHAPTER
 
 6                 PUBLIC EMPLOYEES HEALTH BENEFITS
 
 7                        PART I.  IN GENERAL
 
 8        -1  Employers governed.  This chapter applies to the
 
 9 following in their respective roles as employer:  the State, the
 
10 judiciary, the respective counties of Honolulu, Hawaii, Maui, and
 
11 Kauai, the department of education, the University of Hawaii, and
 
12 any instrumentality of the State or its political subdivisions.
 
13          -2  Benefits to be provided through the Hawaii
 
14 insurance exchange.  All benefits that are mandated by this
 
15 chapter shall be provided by the Hawaii insurance exchange
 
16 established in section    :1-101.
 
17          -3  Minimum benefits.(a)  Public employees shall be
 
18 entitled to health benefits pursuant to this chapter as a term of
 
19 their employment.
 
20      (b)  An employer governed by this chapter shall provide the
 
21 following benefits to its employees subject to the requirements
 
22 of this chapter:
 

 
 
 
Page 5                                                     3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1      (1)  A health benefits plan;
 
 2      (2)  A group life benefits plan; and
 
 3      (3)  A long-term care benefits plan.
 
 4          -4  Definitions.  For the purposes of this chapter:
 
 5      "Commissioner" means the state insurance commissioner.
 
 6      "Dependent-beneficiary" means a person eligible for benefits
 
 7 under this chapter through the person's relationship with an
 
 8 employee-beneficiary, and includes:
 
 9      (1)  The employee-beneficiary's spouse; and
 
10      (2)  Any unmarried child of an employee-beneficiary,
 
11           including:
 
12           (A)  A legally adopted child, stepchild, foster child,
 
13                or recognized natural child under the age of
 
14                nineteen, who lives with the employee-beneficiary
 
15                in a regular parent-child relationship; and
 
16           (B)  A child, regardless of age, who is incapable of
 
17                self-support because of a mental or physical
 
18                incapacity that existed prior to the child's
 
19                reaching the age of nineteen years,
 
20           deemed eligible by the subscriber's committee to
 
21           receive health or dental services of a health benefits
 
22           plan.
 

 
 
 
Page 6                                                     3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1      "Employee-beneficiary" means a person directly eligible for
 
 2 benefits under this chapter including:
 
 3      (1)  A public employee, who is either actively employed as a
 
 4           public employee or retired, and regardless of whether
 
 5           the employee retired prior to the establishment of the
 
 6           fund;
 
 7      (2)  The beneficiary of a public employee who is killed in
 
 8           the performance of the public employee's duty; or
 
 9      (3)  The beneficiary of a retired member of the employees'
 
10           retirement system, a county pension system, or a
 
11           police, firefighters, or bandsmen pension system of the
 
12           State or county, upon the death of the retired member,
 
13           and which beneficiary:
 
14           (A)  If a child, is not married and is under the age of
 
15                nineteen; or
 
16           (B)  If a surviving spouse, does not remarry;
 
17 provided that the person is deemed eligible by the subscribers'
 
18 committee to receive health or dental services of a health
 
19 benefits plan or a long-term care benefits plan.
 
20      "Employer" means the State, the judiciary, the respective
 
21 counties of Honolulu, Hawaii, Maui, and Kauai, the department of
 
22 education, the University of Hawaii, and any instrumentality of
 
23 the State or its political subdivisions.
 

 
Page 7                                                     3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1      "Exchange" means the Hawaii insurance exchange established
 
 2 in article I of chapter   .
 
 3      "Health benefits plan" means a schedule of benefits
 
 4 established by the subscribers' committee to provide, pay for,
 
 5 arrange for, or reimburse the cost of medical, hospital,
 
 6 surgical, prescription drug, vision, or dental services or
 
 7 supplies to be provided through the exchange.
 
 8      "Life insurance plan" means a schedule of benefits
 
 9 established by the subscribers' committee to provide life
 
10 insurance through the exchange.
 
11      "Long-term care plan" means a schedule of benefits
 
12 established by the subscribers' committee to reimburse the cost
 
13 of long-term care benefits to be provided through the exchange.
 
14      "Part-time, temporary, and seasonal or casual public
 
15 employee" means a person employed by the state or county
 
16 government or the legislature for less than three months or whose
 
17 employment is less than one-half of a full-time equivalent
 
18 position.
 
19      "Public employee" means an employee or officer of the state
 
20 or county government or the legislature:
 
21      (1)  Including:
 
22           (A)  An elective officer or a person who has served as
 
23                a member of the legislature for at least ten
 
24                years;
 

 
Page 8                                                     3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1           (B)  A per diem employee;
 
 2           (C)  An officer or employee under an authorized leave
 
 3                of absence;
 
 4           (D)  An employee of the Hawaii national guard although
 
 5                paid from federal funds;
 
 6           (E)  A retired member of the employees' retirement
 
 7                system, the county pension system, or the police,
 
 8                firefighters, or bandsmen pension system of the
 
 9                State or county;
 
10           (F)  A salaried and full-time member of a board,
 
11                commission, or agency appointed by the governor or
 
12                the mayor of a county; and
 
13           (G)  A person employed by contract for a period not
 
14                exceeding one year, where the director of human
 
15                resources development, personnel services, or
 
16                civil service has certified that the service is
 
17                essential or needed in the public interest and
 
18                that, because of circumstances surrounding its
 
19                fulfillment, personnel to perform the service
 
20                cannot be obtained through normal civil service
 
21                recruitment procedures;
 

 
 
 
 
 
Page 9                                                     3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1      (2)  But excluding:
 
 2           (A)  A designated beneficiary of a retired member of
 
 3                the employees' retirement system, the county
 
 4                pension system, or the police, firefighters, or
 
 5                bandsmen pension systems of the State or county;
 
 6           (B)  Except as allowed under paragraph (1)(G), a person
 
 7                employed temporarily on a fee or contract basis;
 
 8                and
 
 9           (C)  A person employed for less than three months and
 
10                whose employment is less than one-half of a full-
 
11                time equivalent position.
 
12      "Qualified-beneficiary" means, for purposes of a long-term
 
13 care benefits plan, a former public employee or a public employee
 
14 who is not eligible for benefits due to a reduction in work hours
 
15 including the employee's spouse or a divorced spouse of an
 
16 employee or retiree; provided that the employee or retiree was
 
17 enrolled in the plan prior to loss of benefits.
 
18      "Retiree" means a retired public employee.
 
19      "Subscriber" means the same as the term is defined in
 
20 section    :1-103.
 
21      "Subscribers' committee" means the same as the term is
 
22 defined in section    :1-103.
 

 
 
 
Page 10                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1          -5  Attorney-in-fact to prepare reports.  The attorney-
 
 2 in-fact of the exchange shall prepare and provide reports and
 
 3 other information as may be necessary, detailing projected costs
 
 4 with respect to the benefits to be provided:
 
 5      (1)  Pursuant to this chapter;
 
 6      (2)  At the request of parties to collective bargaining,
 
 7           mediation, or arbitration procedures held to reconcile
 
 8           issues or resolve an impasse, or held as provided by
 
 9           chapter 89;
 
10 provided that all parties to the procedure shall each agree to
 
11 place a single formal request to the attorney-in-fact and provide
 
12 detailed factors for analysis.
 
13                   PART II.  FINANCING AND COSTS
 
14          -25  Timing of payments.  Premiums and contributions
 
15 required under this part shall be paid on a monthly or bimonthly
 
16 basis, to be determined by the exchange.
 
17          -26  Premium payments by subscribers; public employees
 
18 generally.  Each subscriber shall pay to the exchange, a premium
 
19 equal to the amount established under chapter 89C or specified in
 
20 the applicable public sector collective bargaining agreement,
 
21 whichever applies:
 
22      (1)  For each employee-beneficiary and dependent-
 
23           beneficiary, to be used toward payment of the costs of:
 

 
Page 11                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1           (A)  An health benefits plan; and
 
 2           (B)  A group life insurance benefits plan;
 
 3           and
 
 4      (2)  For each dependent-beneficiary that is a child who has
 
 5           not attained the age of nineteen and is enrolled in an
 
 6           exchange dental benefit plan, to be used toward payment
 
 7           of the costs of the dental benefits plan.
 
 8          -27  Premium payments by subscribers; retired public
 
 9 employees with fewer than ten years of service.(a)  This
 
10 section shall apply to premium payments by subscribers of the
 
11 exchange for a retired public employee who is a member of the
 
12 employees retirement system, county pension systems, or police,
 
13 firefighters, or bandsmen pension system of the State or county,
 
14 and the retired member's dependent beneficiaries;
 
15 provided that this section shall not apply to a retired public
 
16 employee:
 
17      (1)  Hired after June 30, 1996;
 
18      (2)  Under section   -28; and
 
19      (3)  Who retires after June 30, 1984, with fewer than ten
 
20           years of credited service, excluding sick leave.
 
21      (b)  Each subscriber shall pay to the exchange a premium
 
22 equal to one-half the monthly medicare or nonmedicare premium, of
 
23 the retired public employee, for each employee-beneficiary and
 

 
Page 12                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1 dependent-beneficiary that is enrolled in a health benefits plan
 
 2 under this section, and for the following benefits:
 
 3      (1)  Hospital, medical, and surgical benefits;
 
 4      (2)  Prescription drug benefits;
 
 5      (3)  Vision care benefits; and
 
 6      (4)  Adult dental benefits.
 
 7      (c)  Each subscriber shall pay to the exchange a premium, as
 
 8 determined by the exchange, equal to the total monthly premium
 
 9 for each dependent-beneficiary that is a child who has not
 
10 attained the age of nineteen, of an employee-beneficiary enrolled
 
11 in the exchange's dental plan for children under this section.
 
12      (d)  Each subscriber shall pay to the exchange a premium
 
13 equal to the total monthly premium for each retired public
 
14 employee that is enrolled in a group life insurance benefits plan
 
15 under this section.
 
16          -28  Premium payments by subscribers; public employees
 
17 hired after June 30, 1996, and retired with fewer than twenty-
 
18 five years of service.  (a)  This section shall apply to premiums
 
19 paid by subscribers of the exchange for a retired public employee
 
20 who:
 
21      (1)  Was hired after June 30, 1996; and
 
22      (2)  Retired with fewer than twenty-five years of credited
 
23           service, excluding sick leave;
 

 
Page 13                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1 provided that this section shall not apply to a retired public
 
 2 employee who:
 
 3      (1)  Was hired prior to July 1, 1996, and transferred
 
 4           employment after June 30, 1996; or
 
 5      (2)  Has at least ten years of credited service and who has
 
 6           suffered a break in service.
 
 7 For purposes of this section "transfer" means to leave state or
 
 8 county employment and return to state or county employment within
 
 9 ninety calendar days.
 
10      (b)  For purposes of this section, if a public employee left
 
11 state or county employment and returned to state or county
 
12 employment after June 30, 1996, when the employee retires, the
 
13 employee's years of service shall be computed in the same manner
 
14 as set forth in chapter 88. 
 
15      (c)  Each subscriber shall pay to the exchange a premium
 
16 equal to:
 
17      (1)  One-half of the retired public employee's monthly
 
18           medicare or nonmedicare premium for the benefits in
 
19           subsection (d) for retired public employees with ten or
 
20           more years but fewer than fifteen years of service; or
 
21      (2)  Seventy-five per cent of the retired public employee's
 
22           monthly medicare or nonmedicare premium for the
 
23           benefits in subsection (d), for retired employees with
 

 
Page 14                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1           at least fifteen but fewer than twenty-five years of
 
 2           service.
 
 3      (d)  The subscribers' committee shall establish the
 
 4 following benefits under a health benefits plans for each
 
 5 employee-beneficiary and the employee-beneficiary's dependent-
 
 6 beneficiaries enrolled under this section:
 
 7      (1)  Hospital, medical, and surgical benefits;
 
 8      (2)  Prescription drug benefits;
 
 9      (3)  Vision care benefits; and
 
10      (4)  Adult dental benefits.
 
11      (e)  Each subscriber, after the retirement of a public
 
12 employee falling under this section, shall pay to the exchange a
 
13 contribution equal to the total monthly premium for each
 
14 dependent-beneficiary that is a child who has not attained the
 
15 age of nineteen of an employee-beneficiary enrolled in the
 
16 exchange's dental plan for children under this section.
 
17      (f)  Each subscriber shall pay to the exchange a monthly
 
18 premium for each retired public employee enrolled in the
 
19 exchange's group life insurance benefits plan under this section. 
 
20          -29  Contributions to be paid by public employee-
 
21 beneficiaries and retirees.(a)  Each employee-beneficiary shall
 
22 pay a contribution to their subscriber equal to the amount
 
23 established under chapter 89C, or other statute or rule, or
 

 
Page 15                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1 specified in the applicable public sector collective bargaining
 
 2 agreement, whichever applies, for their respective subscriber's
 
 3 health, long-term care, and life insurance plans.
 
 4      (b)  During the period that a health, long-term care, or
 
 5 life benefits plan selected by an employee-beneficiary is in
 
 6 effect, the employee-beneficiary shall authorize the employee-
 
 7 beneficiary's contribution to be withheld on a monthly or
 
 8 bimonthly basis, as required by the exchange, and transmitted to
 
 9 the exchange through the employee-beneficiary's subscriber, by
 
10 the comptroller or finance officer who disburses the employee-
 
11 beneficiary's compensation, pension, or retirement pay. 
 
12      (c)  If, however, the contribution of an employee-
 
13 beneficiary is not withheld and transmitted to the exchange
 
14 pursuant to subsection (b), the employee-beneficiary shall pay
 
15 the contribution to the finance officer who disburses the
 
16 employee-beneficiary's compensation, pension, or retirement pay,
 
17 for transmittal to the exchange through the employee-
 
18 beneficiary's subscriber by the first of each month, for monthly
 
19 contributions, and by the first and fifteenth day of each month
 
20 for bimonthly contributions. 
 
21          -30  Contributions to be paid by public employees;
 
22 long-term care benefits plan.(a)  During the period a long-term
 
23 care benefits plan is in effect, an employee-beneficiary shall
 

 
Page 16                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1 authorize, if otherwise allowed by law, the employee-
 
 2 beneficiary's premiums to be withheld on a monthly or bimonthly
 
 3 basis, as required by the exchange, and transmitted to the
 
 4 exchange through the employee-beneficiary's subscriber, by the
 
 5 comptroller or finance officer who disburses the employee-
 
 6 beneficiary's compensation, pension, or retirement pay.
 
 7      (b)  If, however, an employee-beneficiary's contribution to
 
 8 the fund is not withheld and transmitted to the exchange pursuant
 
 9 to subsection (a), the employee-beneficiary shall pay the
 
10 contribution to the comptroller or finance officer who disburses
 
11 the employee-beneficiary's compensation, pension, or retirement
 
12 pay, for transmittal to the exchange through the employee-
 
13 beneficiary's subscriber by the first day of each month for
 
14 monthly contributions, and the first and fifteenth day of each
 
15 month for bimonthly contributions.
 
16      (c)  A qualified-beneficiary shall pay contributions to the
 
17 comptroller or finance officer who disburses the employee-
 
18 beneficiary's compensation, pension, or retirement pay, for
 
19 transmittal to the exchange through the qualified-beneficiary's
 
20 subscriber by the first day of each month, for monthly
 
21 contributions, and the first and fifteenth day of each month, for
 
22 bimonthly contributions.
 

 
 
 
Page 17                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1          -31  Persons employees exempt from contribution
 
 2 requirement.(a)  Notwithstanding any law to the contrary, the
 
 3 following persons shall not be required to pay a premium:
 
 4      (1)  The beneficiary of a public employee who is killed in
 
 5           the performance of duty;
 
 6      (2)  A public employee who retired after June 30, 1984, due
 
 7           to a disability as defined in sections 88-79 and 88-
 
 8           285;
 
 9      (3)  A public employee who retired before July 1, 1984;
 
10      (4)  A public employee who:
 
11           (A)  Was hired before July 1, 1996;
 
12           (B)  Retired after June 30, 1984; and
 
13           (C)  Who had ten years or more of credited service,
 
14                excluding sick leave;
 
15      (5)  A public employee who was hired after June 30, 1996,
 
16           and who retired with twenty-five or more years of
 
17           credited service, excluding sick leave;
 
18      (6)  The beneficiary of a deceased employee-beneficiary,
 
19           including employee-beneficiaries who were public
 
20           employees who retired prior to the establishment of the
 
21           exchange; and
 
22      (7)  The beneficiary of any employee-beneficiary who is a
 
23           salaried and full-time member of a board, commission,
 

 
Page 18                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1           or agency appointed by the governor or the mayor of a
 
 2           county.
 
 3      (b)  The monthly premium of persons exempt from contribution
 
 4 under this section shall be financed by the person's subscriber.
 
 5          -32  Earnings from public employee-beneficiary and
 
 6 retirees contributions.(a)  The attorney-in-fact shall assign
 
 7 contributions and surplus contributions from actively employed
 
 8 and retired employee-beneficiaries to separate accounts,
 
 9 segregating contributions made by active employees, from
 
10 contributions of retired employees.
 
11      (b)  Any earnings, interest or investment income derived
 
12 from the accounts established by the attorney-in-fact, pursuant
 
13 to subsection (a),  shall be used to stabilize the health
 
14 benefits plans or long-term care benefits plan rates.
 
15          -33  No vested rights to premiums paid.  Premiums paid
 
16 by subscribers shall not be considered wages or salary of an
 
17 employee-beneficiary, and no employee-beneficiary shall have any
 
18 vested right in or be entitled to receive any part of any premium
 
19 paid to the exchange.
 
20                    PART III.  MINIMUM BENEFITS
 
21          -53  Plans and benefits; public employees generally.
 
22 (a)  The subscribers' committee shall establish health benefits
 
23 plans and eligibility requirements generally applicable to public
 
24 employees.  The health benefits plan or plans shall provide, pay
 

 
Page 19                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1 for, arrange for, or reimburse the cost of hospitalization,
 
 2 surgery, medical, dental treatment, and care, and may include
 
 3 prescribed drugs, medicines, prosthetic appliances, hospital in-
 
 4 patient and out-patient service benefits, vision treatment and
 
 5 care, medical, and dental benefits.
 
 6      (b)  The subscribers' committee shall establish a dental
 
 7 plan and eligibility requirements for dependent-beneficiaries who
 
 8 are children who have not attained the age of nineteen.  The plan
 
 9 shall be based upon a monthly or bimonthly employee-beneficiary
 
10 premium.
 
11      (c)  The subscribers' committee shall establish a group life
 
12 benefit program or group life insurance program and eligibility
 
13 requirements for employee-beneficiaries based upon the premium
 
14 paid by subscribers pursuant to section   -26.
 
15      (d)  The subscribers' committee shall establish a long-term
 
16 care benefits plan and eligibility requirements for employee
 
17 beneficiaries, their spouses or reciprocal beneficiaries, parents
 
18 and grandparents, in-law parents and grandparents, and other
 
19 qualified-beneficiaries.
 
20          -54  Health benefits for part-time, temporary,
 
21 seasonal, or casual employees.(a)  The health, life, and long-
 
22 term care plans shall be made available to part-time, temporary,
 
23 seasonal, or casual public employees consistent with the terms of
 
24 chapter 89C and at no cost to the subscribers.
 

 
Page 20                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1      (b)  Each part-time, temporary, seasonal, or casual public
 
 2 employee enrolled in the health benefits plan shall pay premiums
 
 3 directly to the exchange on a monthly or bimonthly basis to be
 
 4 determined by the exchange.
 
 5          -55  Plans supplementing federal medicare.(a)  Any
 
 6 health, life, or long-term care benefit plan provided by the
 
 7 exchange shall take into account benefits available to an
 
 8 employee-beneficiary and spouse under the federal medicare plan,
 
 9 subject to the following conditions:
 
10      (1)  The plan established by the exchange shall supplement
 
11           the federal medicare plan and shall not duplicate
 
12           benefits payable under federal medicare; and
 
13      (2)  The premium paid for voluntary medical insurance
 
14           coverage under federal medicare may be paid by the
 
15           exchange, in such manner as the subscribers' committee
 
16           shall specify.
 
17      (b)  Health, life, or long-term benefits plans provided by
 
18 the exchange that take into account benefits under federal
 
19 medicare shall, as nearly as is possible, provide the same
 
20 benefits as provided by other plans under section    -53.  If,
 
21 taking into account benefits provided under federal medicare, the
 
22 benefits available under an exchange plan falling within this
 
23 section substantially differ from benefits required under section
 

 
Page 21                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1 -53, the subscribers' committee shall revise the supplemental
 
 2 plan to provide substantial equality of benefits.
 
 3      (c)  Notwithstanding any other law to the contrary, public
 
 4 employees eligible for federal medicare part B medical insurance,
 
 5 shall enroll in the federal plan as a condition of their
 
 6 eligibility for enrollment in public employee benefit plans
 
 7 provided by the exchange.  This requirement shall apply to
 
 8 retired public employees, their spouses, and the surviving
 
 9 spouses of deceased retirees, and of employees who died in the
 
10 performance of duty.
 
11          -56  Determination of eligibility of employee,
 
12 dependent, or person.(a)  A retired member or dependent of a
 
13 retired member of the employees' retirement system, a county
 
14 pension system, or a police, firefighters, or bandsmen pension
 
15 system of the State or county shall be eligible for benefits
 
16 under this chapter regardless of whether the member was:
 
17      (1)  Actively employed by the State or county:
 
18           (A)  At the time of retirement; or
 
19           (B)  Before or after establishment of the exchange;
 
20           or
 
21      (2)  Retired before the establishment of the exchange.
 
22      (b)  Disputes regarding the eligibility of a person for
 
23 benefits under this chapter shall be arbitrated by the
 
24 commissioner pursuant to:
 

 
Page 22                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1      (1)  Chapter 89C or the applicable public sector collective
 
 2           bargaining agreement, whichever applies;
 
 3      (2)  This chapter and other applicable state or federal law;
 
 4           and
 
 5      (3)  Eligibility requirements adopted by the subscribers'
 
 6           committee pursuant to this section."
 
 7      SECTION 3.  The Hawaii Revised Statutes is amended by adding
 
 8 a new chapter to be appropriately designated and to read as
 
 9 follows:
 
10                           "CHAPTER  
 
11                   THE HAWAII INSURANCE EXCHANGE
 
12                  ARTICLE 1.  GENERAL PROVISIONS
 
13         :1-101  Establishment of the exchange.(a)  There shall
 
14 be a reciprocal insurer, established pursuant to article 19 of
 
15 chapter 431, to be known as the "Hawaii insurance exchange".
 
16      (b)  The exchange shall be funded by surplus contributions,
 
17 premiums, interest and investment income, refunds, rate credits,
 
18 and other returns, and shall consist of a subscribers' committee
 
19 and attorney-in-fact.
 
20      (c)  The exchange shall be under the control of the
 
21 subscribers' committee as provided in part II of article 2.
 
22       :1-102  Purposes.(a)  The primary purpose of the
 
23 exchange is to:
 

 
Page 23                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1      (1)  Provide its various subscribers with an effective means
 
 2           of financing and managing their current and potential
 
 3           future liabilities arising from contractual and or
 
 4           other obligations to provide health, group life, and
 
 5           other benefits to their respective employees; and
 
 6      (2)  Provide other insurance coverage and risk financing
 
 7           plans as may be determined by the subscribers'
 
 8           committee.
 
 9      (b)  The exchange may implement other plans or programs,
 
10 pursuant to article 19 of chapter 431, for the benefit of its
 
11 subscribers.
 
12       :1-103  Definitions.  For the purposes of this chapter:
 
13      "Advisor" means a member of the board of advisors.
 
14      "Attorney-in-fact" means an individual, partnership, or
 
15 corporation designated and appointed by the subscribers'
 
16 committee to act for and bind the subscribers in all transactions
 
17 relating to and arising from the operations of the exchange;
 
18 provided that the principal offices of the "attorney-in-fact"
 
19 shall be located in any state of the United States.
 
20      "Board of subscribers" means the board consisting of
 
21 representatives of employer subscribers and public employee
 
22 organization subscribers that are not represented on the
 

 
 
 
Page 24                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1 subscribers' committee, that makes recommendations to the
 
 2 subscribers' committee regarding the provision of benefits under
 
 3 the exchange.
 
 4      "Commissioner" means the state insurance commissioner.
 
 5      "Employee" or "public employee" has the same meaning as
 
 6 defined in section    -4.
 
 7      "Employee-beneficiary" has the same meaning as defined in
 
 8 section    -4.
 
 9      "Employer" has the same meaning as defined in section   -4.
 
10      "Exchange" means the Hawaii insurance exchange.
 
11      "Power of attorney" means the document executed by a
 
12 subscriber of the exchange, that designates, appoints, and spells
 
13 out the duties of the attorney-in-fact for the exchange.
 
14      "Public employee" has the same meaning as defined in section
 
15 -4.
 
16      "Subscriber" means any employer, public employee
 
17 organization, or association of employees who has become a member
 
18 of the exchange pursuant to part II of article 2.
 
19      "Subscribers' committee" means the governing body of the
 
20 exchange that oversees the activities of, and provides policy
 
21 guidance to the attorney-in-fact of the exchange.
 
22      "Subscriber's savings account" means an account established
 
23 within the exchange to which funds, assigned to an individual
 

 
Page 25                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1 subscriber by the attorney-in-fact, may be deposited or withdrawn
 
 2 by the subscriber.
 
 3      "Unassigned surplus account" means an account established
 
 4 within the exchange to which a portion of the net profits of the
 
 5 exchange may be deposited by the attorney-in-fact.
 
 6       :1-104  Conflicts with insurance code.  Where the
 
 7 provisions of this chapter and those of chapter 431 conflict,
 
 8 those provisions of chapter 431 shall be controlling.
 
 9       :1-105  Construction.(a)  The subscribers' committee
 
10 and the attorney-in-fact shall be exempt:
 
11      (1)  From chapters 37, 46, 76, 77, 78, and 92; and
 
12      (2)  From chapter 103D and any other requirement of law that
 
13           agreements or contracts for goods or services,
 
14           including lease and sublease agreements, be assigned
 
15           through competitive bidding.
 
16      (b)  The subscribers' committee shall prepare reports as
 
17 required by section 37-47, but shall be otherwise exempt from the
 
18 requirements of chapter 37.
 
19            ARTICLE 2.  ADMINISTRATION OF THE EXCHANGE
 
20         PART I.  ADMINISTRATION OF THE EXCHANGE GENERALLY
 
21       :2-101  Administration of the exchange.(a)  The
 
22 subscribers' committee shall govern the exchange pursuant to part
 
23 II.
 

 
Page 26                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1      (b)  The attorney-in-fact shall be be appointed by the
 
 2 subscribers' committee and shall administer the exchange pursuant
 
 3 to part IV and shall be appointed by the subscribers' committee.
 
 4       :2-102  Fiscal year.  The exchange's accounting shall be
 
 5 conducted on a fiscal year beginning July 1 of each year and
 
 6 ending the following June 30.
 
 7       :2-103  Reports to the legislature.  The subscribers'
 
 8 committee shall on an annual basis, prepare and submit reports to
 
 9 the legislature in accordance with section 37-47, but shall
 
10 otherwise be exempt from the requirements of chapter 37.
 
11               PART II.  THE SUBSCRIBERS' COMMITTEE
 
12       :2-201  Composition of the subscribers' committee.(a)
 
13 The subscribers' committee shall be composed of thirteen members
 
14 appointed by the subscribers, the mayors of the counties of
 
15 Honolulu, Hawaii, Maui, and Kauai, and the governor pursuant to
 
16 subsection (b) and section 26-34.
 
17      (b)  Initial representation of public employee organizations
 
18 on the subscribers' committee shall be based on amounts of funds
 
19 ported from the HPEHF to each public employee organization.  The
 
20 five public employee organizations having the largest amounts of
 
21 funds ported from the HPEHF shall each appoint one person to sit
 
22 on the subscribers' committee.
 

 
 
 
Page 27                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1      The governor shall appoint one person from among the public
 
 2 employee organization subscribers not represented on the
 
 3 subscribers' committee, to the subscribers' committee for a term
 
 4 of two years.  The governor's appointee may be removed by the
 
 5 governor for good cause.  A vacancy of the position appointed by
 
 6 the governor shall be filled by appointment of the governor,
 
 7 which appointment shall serve for the remainder of the term of
 
 8 the person's predecessor.  If the governor does not renew an
 
 9 appointment or appoint a successor to the position by the end of
 
10 the two-year term of the position, the incumbent appointee shall
 
11 serve until a successor is appointed.
 
12      The mayors of the counties of Honolulu, Hawaii, Maui, and
 
13 Kauai shall each appoint one person to sit on the subscribers'
 
14 committee.
 
15      (c)  All subscribers who do not have a representative on the
 
16 subscribers' committee by their respective appointment or by
 
17 appointment of the governor or mayors of the counties, shall each
 
18 appoint one person to the board of advisors provided for in part
 
19 III.
 
20       :2-202  Powers and duties of the subscribers' committee.
 
21 The subscribers' committee shall:
 
22      (1)  Establish a reciprocal insurer pursuant to article 19
 
23           of chapter 431 and the provisions of this chapter, to
 
24           administer and carry out the purposes of this chapter;
 

 
Page 28                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1      (2)  Appoint an attorney-in-fact to carry out the day-to-day
 
 2           administration of the exchange pursuant to part IV;
 
 3      (3)  Supervise the finances of the exchange;
 
 4      (4)  Supervise the exchange's operations to assure
 
 5           conformity with the insurance and reinsurance policies
 
 6           issued through the exchange and with the standards
 
 7           established by this chapter;
 
 8      (5)  Procure the audit of accounts and records of the
 
 9           exchange, at the exchange's expense;
 
10      (6)  Adopt rules as may be necessary for the purpose of this
 
11           chapter pursuant to chapter 91;
 
12      (7)  Approve the selection of the third party service
 
13           providers to which certain duties of the attorney-in-
 
14           fact may be delegated; and
 
15      (8)  Have such additional powers and functions as provided
 
16           by the power of attorney executed by the subscribers or
 
17           rules adopted by the exchange.
 
18       :2-203  Participation in subscribers' committee
 
19 compulsory.  The decisions of the subscribers' committee shall be
 
20 binding upon all of the subscribers except where applicable law
 
21 or rules adopted by the exchange require a vote of all the
 
22 subscribers.
 

 
 
 
Page 29                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1       :2-204  Chairperson and secretary.(a)  The members of
 
 2 the subscribers' committee shall select one of their members to
 
 3 serve as a chairperson and one to serve as secretary of the
 
 4 subscribers' committee.  The secretary shall keep minutes of the
 
 5 meetings of the subscribers' committee.
 
 6      (b)  The secretary, upon the approval of the subscribers'
 
 7 committee pursuant to section    :2-206, may delegate duties to
 
 8 an appropriate third-party professional services provider.
 
 9       :2-205  Compensation and expenses of the subscribers'
 
10 committee.  Each member of the subscribers' committee shall serve
 
11 without compensation, but may be reimbursed from the exchange for
 
12 any necessary and reasonable expenditures made in the execution
 
13 of the member's duties.
 
14       :2-206  Meetings.(a)  The subscribers' committee shall
 
15 meet on the fifteenth day of July, October, January, and April of
 
16 each year to further the purposes of this chapter.  If such date
 
17 should fall on a Saturday, Sunday, or state holiday recognized
 
18 under chapter 8, then the subscribers' committee shall meet on
 
19 the first subsequent Monday that is not a state holiday
 
20 recognized under chapter 8.
 
21      (b)  A majority of the members may call a meeting of the
 
22 subscribers' committee by giving at least ten days written notice
 
23 of the time and place of the meeting to all other members. 
 

 
Page 30                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1      (c)  All minutes and records relating to subscribers'
 
 2 committee meetings shall be made available to the board of
 
 3 advisors.  The subscribers' committee may upon a majority vote,
 
 4 and at its sole discretion, allow board of advisors members to
 
 5 participate in subscribers' committee meetings; provided that a
 
 6 person other than a member of the subscribers' committee shall
 
 7 not vote on issues properly before the committee.
 
 8      (d)  A majority of members present at a meeting shall
 
 9 constitute a quorum to transact business.  Each member of the
 
10 subscribers' committee shall have one vote.  Any action shall be
 
11 taken by a simple majority of the members present at a meeting.
 
12       :2-207  Admission of new subscribers to the exchange.
 
13 New subscribers may be admitted to the exchange once the
 
14 following requirements are met:
 
15      (1)  Two-thirds of existing subscribers vote in favor of the
 
16           admission of the new subscriber in a meeting called,
 
17           pursuant to section    :2-206; and
 
18      (2)  The new subscriber executes a power of attorney
 
19           granting authority to the attorney-in-fact to the same
 
20           extent as the existing subscribers.
 
21                 PART III.  THE BOARD OF ADVISORS
 
22          :2-301  Composition of board of advisors.  The board of
 
23 advisors shall consist of one representative from each employer
 

 
Page 31                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1 subscriber and public employee organization subscriber who does
 
 2 not have a representative appointed to the subscribers' committee
 
 3 pursuant to section    :2-201.
 
 4          :2-302  Powers and duties of the board of advisors.
 
 5 The board of advisors shall:
 
 6      (1)  Review all appropriate reports and records as may be
 
 7           necessary to determine the ability of the exchange to
 
 8           effectively provide required benefits to public
 
 9           employees; and
 
10      (2)  Make recommendations to the subscribers' committee
 
11           based on the review.
 
12          :2-303  Chairman and secretary-treasurer.  The advisors
 
13 shall select one of their members to serve as a chairperson and
 
14 one to serve as secretary-treasurer of the board of advisors.
 
15          :2-304  Compensation and expenses of the board of
 
16 advisors.  Each advisor shall serve without compensation.  An
 
17 advisor may be reimbursed from the exchange for any necessary and
 
18 reasonable expenditures made in the execution of the advisor's
 
19 duties.
 
20          :2-305  Meetings.  (a)  The board of advisors shall
 
21 meet on the fifteenth day of September, December, March, and June
 
22 of each year to further the purposes of this chapter.  If the
 
23 date should fall on a Saturday, Sunday, or state holiday
 

 
Page 32                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1 recognized under chapter 8, then the meeting shall be held on the
 
 2 first subsequent Monday that is not a state holiday recognized
 
 3 under chapter 8.
 
 4      (b)  A majority of advisors may call a special meeting of
 
 5 the board of advisors by giving at least ten days written notice
 
 6 of the time and place of the meeting to all other advisors.
 
 7      (c)  A majority of advisors shall constitute a quorum to
 
 8 transact business.  Each advisor shall have one vote.  Any action
 
 9 shall be taken by a simple majority of the advisors present at a
 
10 meeting.
 
11      (d)  Meetings and records of the board of advisors shall be
 
12 subject to chapters 92 and 92F.
 
13          :2-306  Legal advisor.  The attorney general shall
 
14 serve as legal advisor to the board of advisors.
 
15                  PART IV.  THE ATTORNEY-IN-FACT
 
16       :2-401  Powers and duties of attorney-in-fact.(a)  The
 
17 attorney-in-fact shall:
 
18      (1)  Exchange reciprocal insurance or reinsurance contracts
 
19           on behalf of the subscribers of the exchange;
 
20      (2)  Solicit, receive, and accept or reject applications for
 
21           insurance or reinsurance to be issued by the exchange;
 
22      (3)  Investigate and pass upon the desirability of risks
 
23           involved in the applications for insurance or
 
24           reinsurance;
 

 
Page 33                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1      (4)  Underwrite, classify, rate, and issue policies and
 
 2           binders of insurance or reinsurance for the exchange,
 
 3           that are actuarially sound and in accordance with
 
 4           prudent insurance practices, and modify or cancel the
 
 5           policies in accordance with the terms of those
 
 6           policies;
 
 7      (5)  Establish and maintain for the exchange and as the
 
 8           exchange's property, complete and accurate records of
 
 9           all policies written by the exchange;
 
10      (6)  Collect, receive, and account for all surplus
 
11           contributions and premiums paid for insurance issued or
 
12           reinsurance assumed, deposit all of said surplus and
 
13           premiums in a bank or banks to the account of the
 
14           exchange as soon as practicable, and pay therefrom the
 
15           expenses of the exchange;
 
16      (7)  Establish and maintain for the exchange and as the
 
17           property of the exchange, all records required by law
 
18           and prudent insurance and accounting practices, and
 
19           prepare all reports required by governmental and
 
20           nongovernmental regulatory and supervisory authorities,
 
21           including applicable income tax returns;
 
22      (8)  Obtain such reinsurance, or other appropriate risk
 
23           financing products as may be dictated by law, prudent
 

 
Page 34                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1           insurance, and business practices, and maintain
 
 2           necessary records for the exchange in connection
 
 3           therewith;
 
 4      (9)  Handle and reserve for insurance claims and losses for
 
 5           the exchange in accordance with reasonable standards
 
 6           approved by the subscribers' committee consistent with
 
 7           generally accepted insurance principles;
 
 8     (10)  Investigate and defend or settle all losses and claims
 
 9           under the policies of the exchange, appoint and engage
 
10           attorneys to defend against claims, and promptly
 
11           recover all reinsurance due on claims paid;
 
12     (11)  Provide for payment of all delinquent subscriber
 
13           premium installment payments due the exchange by
 
14           deducting the necessary amounts from any of the
 
15           subscriber's accounts, surplus contributions, or any
 
16           amounts due the subscriber from the exchange;
 
17     (12)  Arrange for payment from the exchange's accounts of all
 
18           expenses of the exchange operation, including, in
 
19           addition to losses, expenses relating to the
 
20           underwriting, claim management, and investment
 
21           activities of the exchange;
 
22     (13)  Make available to each employee-beneficiary under the
 
23           exchange, information that will help the employee-
 

 
Page 35                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1           beneficiary exercise an informed choice among approved
 
 2           health benefits plans;
 
 3     (14)  Establish conditions under which employee-beneficiaries
 
 4           may transfer enrollment from one health benefits plan
 
 5           to another;
 
 6     (15)  Prepare reports and provide information pursuant to
 
 7           section    -5, and perform duties set forth in this
 
 8           part; and
 
 9     (16)  Do any and all other things necessary to carry out the
 
10           attorney-in-fact's duties.
 
11      (b)  There shall be no capital or stock in the exchange.
 
12 The attorney-in-fact shall maintain separate, identifiable
 
13 accounts for each subscriber open to inspection during reasonable
 
14 business hours.  All funds shall be deposited or invested by the
 
15 attorney-in-fact, acting as trustee.  Deposits and investments
 
16 shall be within the sole discretion of the attorney-in-fact.
 
17      (c)  The attorney-in-fact shall pay out of a subscriber's
 
18 accounts in the exchange, the subscriber's proportionate share of
 
19 any outlay for the payment and adjustment of losses, attorney's
 
20 fees, costs and expenses of lawsuits, reinsurance and excess
 
21 insurance, taxes, insurance regulatory fees and expenses, and
 
22 fees of the attorney-in-fact or costs of reimbursing third
 
23 parties for performing duties delegated by the attorney-in-fact.
 

 
Page 36                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1      All disbursements under this section shall be subject to the
 
 2 approval of the subscribers' committee.
 
 3       :2-402  Delegation of duties.  Subject to any notice
 
 4 requirement or approval under the laws of the State, or to the
 
 5 extent applicable, of any other jurisdiction, the attorney-in-
 
 6 fact may delegate some or all of its duties to an appropriate
 
 7 third party, and may pay compensation and make reimbursement of
 
 8 cost to the third party for services rendered on behalf of the
 
 9 exchange.
 
10       :2-403  Payments to the attorney-in-fact.  The
 
11 compensation to be paid to the attorney-in-fact from time to time
 
12 shall be approved by the subscribers' committee.  Unless
 
13 otherwise determined by the subscribers' committee, the attorney-
 
14 in-fact shall be paid its actual costs, which may include costs
 
15 under section    :2-402. 
 
16       :2-404  Contributions of surplus.(a)  The attorney-in-
 
17 fact shall issue a certificate of membership to each subscriber
 
18 in receipt and as evidence of all paid-in surplus contributed to
 
19 the exchange.
 
20      (b)  The required paid-in contribution shall be determined
 
21 by the attorney-in-fact and paid by July 1 of each year.  The
 
22 attorney-in-fact shall provide notice of the required amount of
 
23 the paid-in contribution and of the payment deadline.
 

 
Page 37                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1       :2-405  Computation of net profits and losses.  On or
 
 2 before September 15 of each year, the attorney-in-fact shall have
 
 3 computed the net profit or loss from the underwriting and
 
 4 investment activities of the exchange during the fiscal year
 
 5 immediately preceding, and allocate any net profits or losses
 
 6 pursuant to section    :2-406.
 
 7       :2-406  Distribution of net profits or losses.(a)  The
 
 8 attorney-in-fact in its sole discretion may allocate all or a
 
 9 portion of net profits into an unassigned surplus account.  All
 
10 earnings in the unassigned surplus account shall accumulate
 
11 therein to the benefit of the exchange.
 
12      (b)  No subscriber shall have a vested right or interest in
 
13 any of the unassigned surplus account funds until they have been
 
14 transferred to a subscriber's savings account, pursuant to
 
15 subsection (c).
 
16      (c)  After having made the deductions, if any, provided for
 
17 in subsection (a), but in no case later than September 15
 
18 following the applicable fiscal year, the attorney-in-fact in its
 
19 sole discretion may also assign funds from the unassigned surplus
 
20 account to a subscriber's savings account.  Each subscriber's
 
21 savings account shall be of a subscriber who is a member of the
 
22 exchange during the fiscal year applicable to the assignment or
 
23 deduction of funds.  The amount to be allocated to or deducted
 

 
Page 38                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1 from each subscriber's savings account shall be determined
 
 2 according to allocation methodology adopted and amended from time
 
 3 to time by the subscribers' committee.
 
 4      (d)  The attorney-in-fact may designate whether any
 
 5 allocations to the subscriber's savings accounts relate to the
 
 6 year actually credited, or to the prior fiscal year.  In the
 
 7 absence of such designation, any allocations made from July 1 to
 
 8 September 15 shall be presumed to relate to the prior fiscal
 
 9 year.
 
10      (e)  On or before September 15 of the fiscal year subsequent
 
11 to the fiscal year to which the credits to the subscriber's
 
12 savings accounts relate, the attorney-in-fact shall mail to each
 
13 subscriber written notification of:
 
14      (1)  The amount credited to the subscriber's savings account
 
15           for the previous fiscal year;
 
16      (2)  The date on which the amount was credited; and
 
17      (3)  If the subscriber terminated its contract at the close
 
18           of the previous fiscal year, the date on which the
 
19           subscriber's right to the amounts would have become
 
20           fixed.
 
21       :2-407  Distribution of dividends.  The attorney-in-fact
 
22 in its sole discretion shall determine if and in what amount cash
 
23 dividends shall be paid upon each year's funds on hand in the
 

 
Page 39                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1 subscriber's savings accounts, subject to the requirements of
 
 2 article 19 of chapter 431.
 
 3       :2-408  Authorized agent for service of process.(a)
 
 4 The attorney-in-fact shall be an agent of the exchange, with
 
 5 authority to receive service of process upon the exchange. 
 
 6      (b)  The attorney-in-fact shall have the authority to
 
 7 appoint the commissioner an agent of the exchange, with authority
 
 8 to receive service of process upon the exchange.
 
 9       :2-409  Exemption from chapter 92 requirements.  Records
 
10 and meetings of the attorney-in-fact shall be exempt from the
 
11 requirements of chapter 92 and 92F.
 
12              ARTICLE 3.  CONTRIBUTIONS AND PREMIUMS
 
13           PART I.  CONTRIBUTIONS AND PREMIUMS GENERALLY
 
14       :3-101  Authority to require surplus contribution.(a)
 
15 The subscribers' committee in its sole discretion shall require
 
16 each subscriber to make a surplus contribution to the account of
 
17 the exchange.  The amount of the contribution shall be
 
18 established by the committee by a majority pursuant to section
 
19    :2-206.
 
20      (b)  Neither the attorney-in-fact nor any individual
 
21 subscriber shall have the authority to increase the subscriber's
 
22 liability for surplus contributions as set by the subscribers'
 
23 committee.
 

 
Page 40                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1       :3-102  Subscribers not jointly liable.  The attorney-
 
 2 in-fact shall have no authority to bind the subscribers jointly,
 
 3 but shall have the authority to bind each subscriber severally
 
 4 and alone on any one contract during any single year to the
 
 5 extent of the subject subscriber's:
 
 6      (1)  Paid-in surplus accounts as set forth in part IV of
 
 7           article 2;
 
 8      (2)  The subscribers accounts as set forth in part IV of
 
 9           article 2; and
 
10      (3)  The total amount of annual premium on the subject
 
11           subscriber's policies.
 
12       :3-103  Premiums paid from the exchange prohibited.
 
13 Notwithstanding any provision to the contrary, no funds of the
 
14 exchange's unassigned surplus account, established pursuant to
 
15 section    :2-406, shall be used to finance a subscriber's
 
16 premiums.
 
17       :3-104  Premium payments; deadline.  Each subscriber
 
18 shall advance premium payments to the exchange on or before the
 
19 first day of each month, or according to a payment schedule
 
20 adopted by the subscribers' committee.
 
21             ARTICLE 4.  INSURANCE PLANS AND BENEFITS
 
22          PART I.  INSURANCE PLANS AND BENEFITS GENERALLY
 
23       :4-101  Compliance with state insurance code.  All
 
24 insurance plans provided by the exchange shall comply with the
 
25 provisions of chapters 431 and 432E."
 

 
Page 41                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1      SECTION 4.  Section 41D-2, Hawaii Revised Statutes, is
 
 2 amended by amending subsection (a) to read as follows:
 
 3      "(a)  The comptroller, through the risk manager, shall:
 
 4      (1)  Have discretion to purchase casualty insurance for the
 
 5           State or state agencies, including those employees of
 
 6           the State who, in the comptroller's discretion, may be
 
 7           at risk and shall be responsible for the acquisition of
 
 8           all casualty insurance;
 
 9      (2)  Have discretion to purchase property insurance for the
 
10           State or state agencies and shall acquire all property
 
11           insurance;
 
12      (3)  Direct and manage all risk management and insurance
 
13           programs of the State, except for employee benefits
 
14           insurance and workers' compensation insurance programs
 
15           or as otherwise provided in chapters [87] 88, 383 to
 
16           386A, 392, [and] 393, and    ;
 
17      (4)  Consult with state agencies to determine what property,
 
18           casualty, and other insurance policies are presently in
 
19           force or are sought by the state agencies and to make
 
20           determinations about whether to continue subscribing to
 
21           insurance policies. In the event that the risk
 
22           manager's determination is not satisfactory to the
 
23           state agency, the state agency may have the risk
 

 
Page 42                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1           manager's decision reviewed by the comptroller. In this
 
 2           case, the comptroller's decision shall be final;
 
 3      (5)  Consolidate and combine state insurance coverages, and
 
 4           purchase excess insurance when, in the comptroller's
 
 5           discretion, it is appropriate to do so;
 
 6      (6)  Acquire risk management, investigative, claims
 
 7           adjustment, actuarial, and other services, except
 
 8           attorney's services, as may be required for the sound
 
 9           administration of this chapter;
 
10      (7)  Gather from all state agencies and maintain data
 
11           regarding the State's risks and casualty, property, and
 
12           fidelity losses;
 
13      (8)  In conjunction with the attorney general and as
 
14           otherwise provided by this chapter, compromise or
 
15           settle claims cognizable under chapter 662;
 
16      (9)  Provide technical services in risk management and
 
17           insurance to state agencies; and
 
18     (10)  Do all other things appropriate to the development of
 
19           sound risk management practices and policies for the
 
20           State."
 
21      SECTION 5.  Section 88-95, Hawaii Revised Statutes, is
 
22 amended to read as follows:
 

 
 
 
Page 43                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1      "88-95  Withholding of dues and insurance premiums.  (a)  A
 
 2 retired member, if the retired member requests in writing, may
 
 3 have withheld from the retired member's pension, annuity, or
 
 4 retirement allowance, payments to the Hawaii public employees
 
 5 health fund and employee organizations for dues and insurance
 
 6 premiums.
 
 7      (b)  A retired member, if the retired member requests in
 
 8 writing, may have withheld from the retired member's pension, the
 
 9 retired member's contributions to the retired member's subscriber
 
10 pursuant to section    -29, for benefits under the Hawaii
 
11 insurance exchange."
 
12      SECTION 6.  Section 88-103.5, Hawaii Revised Statutes, is
 
13 amended to read as follows:
 
14      "88-103.5  Disclosure of information.(a)  The employees'
 
15 retirement system shall:
 
16      (1)  Disclose to the [Hawaii public employees health fund]
 
17           subscribers' committee of the Hawaii insurance exchange
 
18           and employee organizations information related to the
 
19           administration of pension, annuity, or retirement
 
20           allowance deductions, as follows:  name, social
 
21           security number, amounts and dates of both voluntary
 
22           and mandatory deductions remitted to the recipient; and
 

 
 
 
Page 44                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1      (2)  Release the records of its retirants and beneficiaries
 
 2           to the [Hawaii public employees health fund]
 
 3           subscribers' committee of the Hawaii insurance exchange
 
 4           for the disbursement of payments authorized under
 
 5           [section 87-27.] chapter    .
 
 6      (b)  Any government agency, or the subscribers' committee or
 
 7 attorney-in-fact of the Hawaii insurance exchange, or employee
 
 8 organization receiving government records pursuant to this
 
 9 section shall be subject to the same restrictions on disclosure
 
10 of the records as the originating agency."
 
11      SECTION 7.  Section 89-2, Hawaii Revised Statutes, is
 
12 amended as follows:
 
13      1.  By amending the definitions of "collective bargaining"
 
14 and "cost items" to read:
 
15      ""Collective bargaining" means the performance of the mutual
 
16 obligations of the public employer and the exclusive
 
17 representative to meet at reasonable times, to confer and
 
18 negotiate in good faith, and to execute a written agreement with
 
19 respect to wages, hours, amounts of contributions by the State
 
20 and counties [to the Hawaii public employees health fund,] as
 
21 subscribers of the Hawaii insurance exchange for the direct
 
22 benefit of public employees pursuant to chapter   , and other
 

 
 
 
Page 45                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1 terms and conditions of employment, except that by any such
 
 2 obligation neither party shall be compelled to agree to a
 
 3 proposal, or be required to make a concession.
 
 4      "Cost items" includes wages, hours, amounts of contributions
 
 5 by the State and counties [to the Hawaii public employees health
 
 6 fund,] as subscribers of the Hawaii insurance exchange for the
 
 7 benefit of public employees pursuant to chapter   , and other
 
 8 terms and conditions of employment, the implementation of which
 
 9 requires an appropriation by a legislative body.
 
10      2.  By amending the definition of "employee organization" to
 
11 read:
 
12      "Employee organization" means any organization of any kind
 
13 in which public employees participate and which exists for the
 
14 primary purpose of dealing with public employers concerning
 
15 grievances, labor disputes, wages, hours, amounts of
 
16 contributions by the State and counties [to the Hawaii public
 
17 employees health fund,] as subscribers of the Hawaii insurance
 
18 exchange for the benefit of public employees pursuant to chapter
 
19 , and other terms and conditions of employment of public
 
20 employees.
 
21      3.  By amending the definitions of "mediation" and
 
22 "professional employee" to read:
 

 
 
 
Page 46                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1      "Mediation" means assistance by an impartial third party to
 
 2 reconcile an impasse between the public employer and the
 
 3 exclusive representative regarding wages, hours, amounts of
 
 4 contributions by the State and counties [to the Hawaii public
 
 5 employees health fund,] as subscribers of the Hawaii insurance
 
 6 exchange for the benefit of public employees pursuant to chapter
 
 7 , and other terms and conditions of employment through
 
 8 interpretation, suggestion, and advice to resolve the impasse.
 
 9      "Professional employee" includes [(A) any]:
 
10      (1)  Any employee engaged in work [(i) predominantly]:
 
11           (A)  Predominantly intellectual and varied in character
 
12                as opposed to routine mental, manual, mechanical,
 
13                or physical work[, (ii) involving];
 
14           (B)  Involving the consistent exercise of discretion
 
15                and judgment in its performance[, (iii) of];
 
16           (C)  Of such a character that the output produced or
 
17                the result accomplished cannot be standardized in
 
18                relation to a given period of time[, (iv)
 
19                requiring]; and
 
20           (D)  Requiring knowledge of an advanced type in a field
 
21                of science or learning customarily acquired by a
 
22                prolonged course of specialized intellectual
 
23                instruction and study in an institution of higher
 

 
Page 47                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1                learning or a hospital, as distinguished from a
 
 2                general academic education or from an
 
 3                apprenticeship or from training in the performance
 
 4                of routine mental, manual, or physical processes;
 
 5           or [(B) any]
 
 6      (2)  Any employee, who [(i) has]:
 
 7           (A)  Has completed the courses of specialized
 
 8                intellectual instruction and study described in
 
 9                [clause (A)(iv), and (ii) is] paragraph (1)(D);
 
10                and
 
11           (B)  Is performing related work under the supervision
 
12                of a professional employee as defined in [(A).]
 
13                paragraph (1)."
 
14      SECTION 8.  Section 89-9, Hawaii Revised Statutes, is
 
15 amended as follows:
 
16      1.  By amending subsection (a) to read:
 
17      "(a)  The employer and the exclusive representative shall
 
18 meet at reasonable times, including meetings in advance of the
 
19 employer's budget-making process, and shall negotiate in good
 
20 faith with respect to wages, hours, the number of incremental and
 
21 longevity steps and movement between steps within the salary
 
22 range, the amounts of contributions by the State and respective
 
23 counties [to the Hawaii public employees health fund,] as
 

 
Page 48                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1 subscribers of the Hawaii insurance exchange for the benefit of
 
 2 public employees pursuant to chapter     , to the extent allowed
 
 3 in subsection (e), and other terms and conditions of employment
 
 4 [which] that are subject to negotiations under this chapter and
 
 5 [which] that are to be embodied in a written agreement, or any
 
 6 question arising thereunder, but such obligation does not compel
 
 7 either party to agree to a proposal or make a concession;
 
 8 provided that the parties may not negotiate with respect to cost
 
 9 items as defined by section 89-2 for the biennium 1999 to 2001,
 
10 and the cost items of employees in bargaining units under section
 
11 89-6 in effect on June 30, 1999, shall remain in effect until
 
12 July 1, 2001."
 
13      2.  By amending subsections (d) and (e) to read:
 
14      (d)  Excluded from the subjects of negotiations are matters
 
15 of classification and reclassification, benefits [of but not
 
16 contributions to the Hawaii public employees health fund]
 
17 provided by, but not contributions to, subscribers or premiums
 
18 paid to the Hawaii insurance exchange for the benefit of public
 
19 employees pursuant to chapter     , retirement benefits except as
 
20 provided in section 88-8(h), and the salary ranges now provided
 
21 by law; provided that the number of incremental and longevity
 
22 steps, the amount of wages to be paid in each range and step, and
 
23 movement between steps within the salary range shall be
 

 
Page 49                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1 negotiable.  The employer and the exclusive representative shall
 
 2 not agree to any proposal which would be inconsistent with merit
 
 3 principles or the principle of equal pay for equal work pursuant
 
 4 to sections 76-1, 76-2, 77-31, and 77-33, or which would
 
 5 interfere with the rights of a public employer to:
 
 6      (1)  [direct] Direct employees;
 
 7      (2)  [determine] Determine qualification, standards for
 
 8           work, the nature and contents of examinations, hire,
 
 9           promote, transfer, assign, and retain employees in
 
10           positions and suspend, demote, discharge, or take other
 
11           disciplinary action against employees for proper cause;
 
12      (3)  [relieve] Relieve an employee from duties because of
 
13           lack of work or other legitimate reason;
 
14      (4)  [maintain] Maintain efficiency of government
 
15           operations;
 
16      (5)  [determine] Determine methods, means, and personnel by
 
17           which the employer's operations are to be conducted;
 
18           and [take]
 
19      (6)  Take such actions as may be necessary to carry out the
 
20           missions of the employer in cases of emergencies;
 
21 provided that the employer and the exclusive representative may
 
22 negotiate procedures governing the promotion and transfer of
 
23 employees to positions within a bargaining unit, procedures
 

 
Page 50                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1 governing the suspension, demotion, discharge or other
 
 2 disciplinary actions taken against employees, and procedures
 
 3 governing the layoff of employees; provided further that
 
 4 violations of the procedures so negotiated may be the subject of
 
 5 a grievance process agreed to by the employer and the exclusive
 
 6 representative.
 
 7      (e)  Negotiations relating to contributions [to the Hawaii
 
 8 public employees health fund] to subscribers and premiums paid to
 
 9 the Hawaii insurance exchange for the benefit of public employees
 
10 pursuant to chapter      shall be for the purpose of agreeing
 
11 upon the amounts which the State and counties shall contribute
 
12 [under section 87-4, toward the payment of the costs for a health
 
13 benefits plan, as defined in section 87-1(8), and group life
 
14 insurance benefits] toward premiums paid to the Hawaii insurance
 
15 exchange for the benefits of public employees pursuant to chapter
 
16 , and the parties shall not be bound by the amounts contributed
 
17 under prior agreements; provided that section 89-11 for the
 
18 resolution of disputes by way of fact-finding or arbitration
 
19 shall not be available to resolve impasses or disputes relating
 
20 to the amounts the State and counties shall contribute [to the
 
21 Hawaii public employees health fund.] toward premiums paid to the
 
22 Hawaii insurance exchange for the benefits of public employees
 
23 pursuant to chapter     ."
 

 
Page 51                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1      SECTION 9.  Section 89-11, Hawaii Revised Statutes, is
 
 2 amended by amending subsection (d) to read as follows:
 
 3      "(d)  If a dispute between a public employer and the
 
 4 exclusive representative of appropriate bargaining unit (2),
 
 5 supervisory employees in blue collar positions; appropriate
 
 6 bargaining unit (3), nonsupervisory employees in white collar
 
 7 positions; appropriate bargaining unit (4), supervisory employees
 
 8 in white collar positions; appropriate bargaining unit (6),
 
 9 educational officers and other personnel of the department of
 
10 education under the same salary schedule; appropriate bargaining
 
11 unit (8), personnel of the University of Hawaii and the community
 
12 college system, other than faculty; optional appropriate
 
13 bargaining unit (9), registered professional nurses; optional
 
14 appropriate bargaining unit (10), institutional, health, and
 
15 correctional workers; optional appropriate bargaining unit (11),
 
16 firefighters; optional appropriate bargaining unit (12), police
 
17 officers; or optional appropriate bargaining unit (13),
 
18 professional and scientific employees, other than registered
 
19 professional nurses, exists over the terms of an initial or
 
20 renewed agreement more than ninety working days after written
 
21 notification by either party to initiate negotiations, either
 
22 party may give written notice to the board that an impasse exists
 
23 and the board shall assist in the voluntary resolution of the
 

 
Page 52                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1 impasse by appointing a mediator within three days after the date
 
 2 of impasse.  If the dispute continues to exist fifteen working
 
 3 days after the date of impasse, the dispute shall be submitted to
 
 4 arbitration proceedings as provided herein.
 
 5      The board shall immediately determine whether the parties to
 
 6 the dispute have mutually agreed upon an arbitration procedure
 
 7 and whether the parties have agreed upon a person or persons whom
 
 8 the parties desire to be appointed as the arbitrator or as a
 
 9 panel of arbitrators, as the case may be.
 
10      If the board determines that an arbitration procedure
 
11 mutually agreed upon by the parties will result in a final and
 
12 binding decision, and that an arbitrator or arbitration panel has
 
13 been mutually agreed upon, it shall appoint such arbitrator or
 
14 arbitration panel and permit the parties to proceed with the
 
15 arbitration procedure mutually agreed upon.
 
16      If, after eighteen working days from the date of impasse,
 
17 the parties have not mutually agreed upon an arbitration
 
18 procedure and an arbitrator or arbitration panel, the board shall
 
19 immediately notify the employer and the exclusive representative
 
20 that the issues in dispute shall be submitted to a three-member
 
21 arbitration panel who shall follow the arbitration procedure
 
22 provided herein.
 

 
 
 
Page 53                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1      Within twenty-one working days from the date of impasse, two
 
 2 members of the arbitration panel shall be selected by the
 
 3 parties; one shall be selected by the employer and one shall be
 
 4 selected by the exclusive representative.  The impartial third
 
 5 member of the arbitration panel shall be selected by the two
 
 6 previously selected panel members and shall chair the arbitration
 
 7 panel.
 
 8      In the event that the two previously selected arbitration
 
 9 panel members fail to select an impartial third arbitrator within
 
10 twenty-four working days from the date of impasse, the board
 
11 shall request the American Arbitration Association, or its
 
12 successor in function, to furnish a list of five qualified
 
13 arbitrators from which the impartial arbitrator shall be
 
14 selected.  Within five calendar days after receipt of such list,
 
15 the parties shall alternately strike names therefrom until a
 
16 single name is left, who shall be immediately appointed by the
 
17 board as the impartial arbitrator and chairperson of the
 
18 arbitration panel.
 
19      Upon the selection and appointment of the arbitration panel,
 
20 each party shall submit to the panel, in writing, with copy to
 
21 the other party, a final offer which shall include all provisions
 
22 in any existing collective bargaining agreement not being
 
23 modified, all provisions already agreed to in negotiations, and
 

 
Page 54                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1 all further provisions other than those relating to
 
 2 [contributions by the State and respective counties to the Hawaii
 
 3 public employees health fund,] contributions to subscribers and
 
 4 premiums paid to the Hawaii insurance exchange for the benefit of
 
 5 public employees pursuant to chapter     , which each party is
 
 6 proposing for inclusion in the final agreement.
 
 7      Within twenty calendar days of its appointment, the
 
 8 arbitration panel shall commence a hearing at which time the
 
 9 parties may submit either in writing or through oral testimony,
 
10 all information or data supporting their respective final offers.
 
11 Nothing in this section shall be construed to prohibit the
 
12 parties from reaching a voluntary settlement on the unresolved
 
13 issues, with or without the assistance of a mediator, at any time
 
14 prior to the conclusion of the hearing conducted by the
 
15 arbitration panel.
 
16      Within thirty calendar days after the conclusion of the
 
17 hearing, a majority of the arbitration panel shall issue a final
 
18 and binding decision.
 
19      In reaching a decision, the arbitration panel shall give
 
20 weight to the factors listed below and shall include in a written
 
21 opinion an explanation of how the factors were taken into account
 
22 in reaching the decision:
 
23      (1)  The lawful authority of the employer[.];
 

 
Page 55                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1      (2)  Stipulations of the parties[.];
 
 2      (3)  The interests and welfare of the public[.];
 
 3      (4)  The financial ability of the employer to meet these
 
 4           costs[.];
 
 5      (5)  The present and future general economic condition of
 
 6           the counties and the State[.];
 
 7      (6)  Comparison of wages, hours, and conditions of
 
 8           employment of the employees involved in the arbitration
 
 9           proceeding with the wages, hours, and conditions of
 
10           employment of other persons performing similar
 
11           services, and of other state and county employees in
 
12           Hawaii[.];
 
13      (7)  The average consumer prices for goods or services,
 
14           commonly known as the cost of living[.];
 
15      (8)  The overall compensation presently received by the
 
16           employees, including direct wage compensation,
 
17           vacation, holidays and excused time, insurance and
 
18           pensions, medical and hospitalization benefits, the
 
19           continuity and stability of employment, and all other
 
20           benefits received[.];
 
21      (9)  Changes in any of the foregoing circumstances during
 
22           the pendency of the arbitration proceedings[.]; and
 

 
 
 
Page 56                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1     (10)  Such other factors, not confined to the foregoing,
 
 2           which are normally or traditionally taken into
 
 3           consideration in the determination of wages, hours, and
 
 4           conditions of employment through voluntary collective
 
 5           bargaining, mediation, fact-finding, arbitration, or
 
 6           otherwise between the parties, in the public service or
 
 7           in private employment.
 
 8      The decision of the arbitration panel shall be final and
 
 9 binding upon the parties on all provisions submitted to the
 
10 arbitration panel.  If the parties have reached agreement with
 
11 respect to the amounts of contributions by the State and counties
 
12 [to the Hawaii public employees health fund, as subscribers to
 
13 the Hawaii insurance exchange, for the benefit of public
 
14 employees pursuant to chapter     , by the tenth working day
 
15 after the arbitration panel issues its decision, the final and
 
16 binding agreement of the parties on all provisions shall consist
 
17 of the panel's decision and the amounts of contributions agreed
 
18 to by the parties.  If the parties have not reached agreement
 
19 with respect to the amounts of contributions [by the State and
 
20 counties to the Hawaii public employees health fund, to
 
21 subscribers and premiums paid to the Hawaii insurance exchange
 
22 for the benefit of public employees pursuant to chapter     , by
 
23 the close of business on the tenth working day after the
 

 
Page 57                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1 arbitration panel issues its decision, the parties shall have
 
 2 five days to submit their respective recommendations for such
 
 3 contributions and premiums to the legislature, if it is in
 
 4 session, and if the legislature is not in session, the parties
 
 5 shall submit their respective recommendations for such
 
 6 contributions to the legislature during the next session of the
 
 7 legislature.  In such event, the final and binding agreement of
 
 8 the parties on all provisions shall consist of the panel's
 
 9 decision and the amounts of contributions established by the
 
10 legislature by enactment, after the legislature has considered
 
11 the recommendations for such contributions by the parties.  It is
 
12 strictly understood that no member of a bargaining unit subject
 
13 to this subsection shall be allowed to participate in a strike on
 
14 the issue of the amounts of contributions [by the State and
 
15 counties to the Hawaii public employees health fund.] to
 
16 subscribers and premiums paid to the Hawaii insurance exchange
 
17 for the benefit of public employees pursuant to chapter     .
 
18 The parties shall take whatever action is necessary to carry out
 
19 and effectuate the final and binding agreement.  The parties may,
 
20 at any time and by mutual agreement, amend or modify the panel's
 
21 decision.
 
22      Agreements reached pursuant to the decision of an
 
23 arbitration panel and the amounts of contributions [by the State
 
24 and counties to the Hawaii public employees health fund] to
 

 
Page 58                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1 subscribers and premiums paid to the Hawaii insurance exchange
 
 2 for the benefit of public employees pursuant to chapter     , as
 
 3 provided herein, shall not be subject to ratification by the
 
 4 employees concerned.  All items requiring any moneys for
 
 5 implementation shall be subject to appropriations by the
 
 6 appropriate legislative bodies and the employer shall submit all
 
 7 such items within ten days after the date on which the agreement
 
 8 is entered into as provided herein, to the appropriate
 
 9 legislative bodies.
 
10      The costs for mediation shall be borne by the board.  All
 
11 other costs incurred by either party in complying with these
 
12 provisions, including the costs of its selected member on the
 
13 arbitration panel, shall be borne by the party incurring them,
 
14 except that all costs and expenses of the impartial arbitrator
 
15 shall be borne equally by the parties."
 
16      SECTION 10.  Section 89C-1, Hawaii Revised Statutes, is
 
17 amended to read as follows:
 
18      "89C-1 Purpose.  The legislature finds that existing
 
19 statutes do not permit the chief executives of the State and
 
20 counties, the board of education, the board of regents, the
 
21 auditor, the director of the legislative reference bureau, the
 
22 ombudsman, and the chief justice of the supreme court sufficient
 
23 flexibility to make appropriate and timely adjustments in the
 

 
Page 59                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1 compensation, hours, terms, and conditions of employment, amounts
 
 2 of contributions [by the State and respective counties to the
 
 3 Hawaii public employees health fund] to subscribers and premiums
 
 4 paid to the Hawaii insurance exchange for the benefit of public
 
 5 employees pursuant to chapter     , and other benefits for public
 
 6 officers and employees who are excluded from collective
 
 7 bargaining coverage under chapter 89.  To this end, the
 
 8 legislature grants to the respective chief executives, the board
 
 9 of education, the board of regents, the auditor, the director of
 
10 the legislative reference bureau, the ombudsman, and the chief
 
11 justice, the authority to make such adjustments for officers and
 
12 employees excluded from collective bargaining in conformance with
 
13 this chapter.
 
14      Nothing in this chapter shall be construed to interfere with
 
15 or diminish any authority already provided by statutes to the
 
16 chief executives, the board of education, the board of regents,
 
17 the auditor, the director of the legislative reference bureau,
 
18 the ombudsman, or the chief justice."
 
19      SECTION 11.  Section 89C-2, Hawaii Revised Statutes, is
 
20 amended to read as follows:
 
21      "89C-2 Adjustments authorized; limitations, restrictions.
 
22 Any provision of law to the contrary notwithstanding, the
 
23 compensation, hours, terms, and conditions of employment, amounts
 
24 of contributions [by the State and respective counties to the
 

 
Page 60                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1 Hawaii public employees health fund,] to subscribers and premiums
 
 2 paid to the Hawaii insurance exchange for the benefit of public
 
 3 employees pursuant to chapter     , and other benefits for public
 
 4 officers and employees who are excluded from collective
 
 5 bargaining shall be adjusted by the chief executives of the State
 
 6 or counties, the board of education, the board of regents, the
 
 7 auditor, the director of the legislative reference bureau, the
 
 8 ombudsman, or the chief justice, as applicable.  The chief
 
 9 executives, the board of education, the board of regents, the
 
10 auditor, the director of the legislative reference bureau, the
 
11 ombudsman, and the chief justice, or their designated
 
12 representatives, shall determine the adjustments to be made and
 
13 which excluded officers or employees are to be granted
 
14 adjustments under this chapter, in accordance with the following
 
15 guidelines and limitations:
 
16      (1)  For excluded officers and employees under the same
 
17           compensation plans as officers and employees within
 
18           collective bargaining units, such adjustments shall be
 
19           not less than those provided under collective
 
20           bargaining agreements for officers and employees hired
 
21           on a comparable basis[.];
 
22      (2)  For excluded officers and employees in the excluded
 
23           managerial compensation plan, such adjustments shall be
 
24           not less than those provided under collective
 

 
Page 61                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1           bargaining to officers and employees in the
 
 2           professional and scientific employees bargaining unit.
 
 3           Alternate adjustments may be granted to officers and
 
 4           employees whose work is related to that of officers and
 
 5           employees in the other optional bargaining units in
 
 6           order to maintain appropriate pay relationships with
 
 7           such officers and employees[.];
 
 8      (3)  No adjustment in compensation, hours, terms, and
 
 9           conditions of employment, amounts of contributions [by
 
10           the State and respective counties to the Hawaii public
 
11           employees health fund,] to subscribers and premiums
 
12           paid to the Hawaii insurance exchange for the benefit
 
13           of public employees pursuant to chapter     , or other
 
14           benefits shall be established which is in conflict with
 
15           the system of personnel administration based on merit
 
16           principles and scientific methods governing the
 
17           classification of positions and the employment conduct,
 
18           movement, and separation of public officers and
 
19           employees[.];
 
20      (4)  The compensation of officers or employees whose
 
21           salaries presently are limited or fixed by legislative
 
22           enactment shall not be adjusted under this chapter, but
 

 
 
 
Page 62                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1           shall continue to be adjusted by the appointing
 
 2           authority within limits established by law or by
 
 3           legislative enactment[.];
 
 4      (5)  The compensation of officers or employees, who are not
 
 5           covered under the same compensation plans as officers
 
 6           and employees within collective bargaining units and
 
 7           whose salaries presently are authorized to be fixed by
 
 8           the appointing authority, need not be adjusted under
 
 9           this chapter.  The appointing authority may continue to
 
10           make specific adjustments in the salaries of individual
 
11           officers or employees from available funds
 
12           appropriated[.]; and
 
13      (6)  Adjustments to the amounts of contributions [by the
 
14           State and respective counties to the Hawaii public
 
15           employees health fund] to subscribers and premiums paid
 
16           to the Hawaii insurance exchange pursuant to chapter
 
17           , on behalf of officers or employees who are not
 
18           covered by adjustments made under this chapter shall be
 
19           made by legislative enactment."
 
20      SECTION 12.  Section 431:2-201, Hawaii Revised Statutes, is
 
21 amended by amending subsection (c) to read as follows:
 
22      "(c)  The commissioner may:
 

 
 
 
Page 63                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1      (1)  Make reasonable rules for effectuating any provision of
 
 2           this code, except those relating to the commissioner's
 
 3           appointment, qualifications, or compensation.  The
 
 4           commissioner shall adopt rules to effectuate article
 
 5           10C of chapter 431, subject to the approval of the
 
 6           governor's office and the requirements of chapter
 
 7           91[.];
 
 8      (2)  Conduct examinations and investigations to determine
 
 9           whether any person has violated any provision of this
 
10           code or to secure information useful in the lawful
 
11           administration of any provision[.];
 
12      (3)  Require, upon reasonable notice, that insurers report
 
13           any claims information the commissioner may deem
 
14           necessary to protect the public interest[.]; or
 
15      (4)  Arbitrate claims disputes regarding the qualifications
 
16           for benefits of public employee beneficiaries pursuant
 
17           to chapter     ."
 
18      SECTION 13.  Section 431:19-102, Hawaii Revised Statutes, is
 
19 amended by amending subsection (h) to read as follows:
 
20      "(h)  A captive insurance company may engage in the business
 
21 of any of the following types of insurance:
 
22      (1)  All casualty insurance;
 
23      (2)  Marine and transportation insurance;
 

 
Page 64                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1      (3)  Marine protection and indemnity insurance, which
 
 2           includes insurance against, or against legal liability
 
 3           of the insured for loss, damage, or expense arising out
 
 4           of or incident to, the ownership, operation,
 
 5           chartering, maintenance, use, repair, or construction
 
 6           of a vessel, craft, or instrumentality in use in ocean
 
 7           or inland waterways, including liability of the insured
 
 8           for personal injury, illness, death, or for loss of or
 
 9           damage to the property of another person;
 
10      (4)  Wet marine and transportation insurance, which is that
 
11           part of marine and transportation insurance that
 
12           includes only:
 
13           (A)  Insurance upon vessels, crafts, hulls, and of
 
14                interests therein or with relation thereto;
 
15           (B)  Insurance of marine builder's risks, marine war
 
16                risks and contracts, or marine protection and
 
17                indemnity insurance;
 
18           (C)  Insurance of freights and disbursements pertaining
 
19                to a subject of insurance; and
 
20           (D)  Insurance of personal property and interests
 
21                therein, in the course of exportation from or
 
22                importation into any country, and in the course of
 
23                transportation coastwise or on inland waters,
 

 
Page 65                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1                including transportation by land, water, or air
 
 2                from point of origin to final destination, with
 
 3                respect to, appertaining to, or in connection with
 
 4                any and all risks or perils of navigation,
 
 5                transit, or transportation, and while being
 
 6                prepared for and while awaiting shipment, and
 
 7                during delays, storage, transshipment, or
 
 8                reshipment incident thereto;
 
 9      (5)  Property insurance;
 
10      (6)  Surety insurance;
 
11      (7)  Title insurance;
 
12      (8)  Credit life insurance and credit disability insurance
 
13           offered as part of, or relating directly to the
 
14           business or operations of its parent or affiliated
 
15           companies; [and]
 
16      (9)  Those lines of insurance provided by the Hawaii
 
17           insurance exchange pursuant to chapter 435; and
 
18     [(9)] (10)  Other lines of insurance that the commissioner
 
19           may allow."
 
20      SECTION 14.  Section 431:10D-207, Hawaii Revised Statutes,
 
21 is repealed.
 
22      ["431:10D-207  Public employee association groups.  The
 
23 lives of a group of individuals may be insured under a policy
 

 
Page 66                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1 issued to an association of public employees, which shall be
 
 2 deemed the policyholder, to insure members of the association for
 
 3 the benefit of persons other than the association or any of its
 
 4 officials, subject to the following requirements:
 
 5      (1)  The association must have been formed for purposes
 
 6           other than obtaining insurance and have when the policy
 
 7           is placed in force, a membership in the classes
 
 8           eligible for insurance of not less than seventy-five
 
 9           per cent of the number of employees eligible for
 
10           membership in such classes.
 
11      (2)  The members eligible for insurance under the policy
 
12           shall be all of the members of the association, or all
 
13           of any class or classes thereof.
 
14      (3)  The premium for the policy shall be paid either from
 
15           the association's own funds or from charges collected
 
16           from the insured members specifically for the
 
17           insurance, or from both.  Any charges collected from
 
18           the insured members specifically for the insurance, and
 
19           the dues of the association if they include the cost of
 
20           insurance, may be collected through deductions by the
 
21           employer from the salaries of the members.  The
 
22           deductions from salary may be paid by the employer to
 
23           the association or directly to the insurer.  No policy
 

 
Page 67                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1           may be placed in force unless and until at least
 
 2           seventy-five per cent of the then eligible members of
 
 3           the association, excluding any as to whom evidence of
 
 4           individual insurability is not satisfactory to the
 
 5           insurer, have elected to be covered and have authorized
 
 6           their employer to make the required deductions from
 
 7           salary, or have otherwise assigned pay or arranged for
 
 8           payment of their individual contributions to the
 
 9           association.  Except as provided in item (4), a policy
 
10           on which no part of the premium is to be derived from
 
11           funds contributed by the insured members specifically
 
12           for their insurance must insure all eligible members,
 
13           except those who reject such coverage in writing.
 
14      (4)  An insurer may exclude or limit the coverage on any
 
15           person as to whom evidence of individual insurability
 
16           is not satisfactory to the insurer.
 
17      (5)  Charges collected from the insured members specifically
 
18           for the insurance, and the dues of the association if
 
19           they include the cost of insurance, may be determined
 
20           according to each attained age or in not less than four
 
21           reasonably spaced attained age groups.  This provision,
 
22           however, shall not preclude an average rate for the
 

 
 
 
Page 68                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1           whole group with charges to the individual members
 
 2           based on a schedule of insurance graded by rank, salary
 
 3           bracket, or by length of service or seniority.
 
 4      (6)  The policy must cover at least twenty-five persons at
 
 5           date of issue.
 
 6      (7)  The amounts of insurance under the policy must be based
 
 7           upon some plan precluding individual selection either
 
 8           by the members or by the association.
 
 9      (8)  As used herein, public employees means employees of the
 
10           United States government, or of any state, or of any
 
11           political subdivision or instrumentality or department
 
12           or bureau or board or commission of any of them, or the
 
13           national guard as an association in nature under its
 
14           existing form."]
 
15      SECTION 15.  Chapter 87, Hawaii Revised Statutes, is
 
16 repealed.
 
17      SECTION 16.  To ensure continuity of benefits for public
 
18 employees, no insurer, service provider, or other third party who
 
19 has entered into a contract with the HPEHF shall cease providing
 
20 insurance coverage or services required under the contract except
 
21 under conditions provided for in the contract.  For the purposes
 
22 of this section, a contract with the HPEHF is legally binding on
 

 
 
 
Page 69                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1 all parties if the parties memorialized a final agreement,
 
 2 regardless of whether the final agreement has been properly
 
 3 executed by the HPEHF.
 
 4      SECTION 17.  (a)  The attorney general shall locate and take
 
 5 necessary measures to secure all property which may be properly
 
 6 assigned to the HPEHF, including bank accounts, reserves or all
 
 7 other funds which are in the possession of other persons,
 
 8 pursuant to legally binding agreements or otherwise.  During such
 
 9 investigation, the attorney general shall have access to all
 
10 documents pertaining or related to the fund that are in the
 
11 possession of the HPEHF, the board of trustees, or the trustees
 
12 individually.  Nothing in this Act shall be construed to restrict
 
13 any state agency from taking appropriate legal action upon any
 
14 facts discovered by the attorney general in its investigation.
 
15      (b)  The attorney general shall review all contracts with
 
16 the HPEHF and analyze such contracts to provide the governor with
 
17 recommendations on whether such contracts should be continued by
 
18 the exchange or terminated.  In making its recommendations, the
 
19 attorney general shall consider:
 
20      (1)  The costs or penalties that would be incurred in
 
21           terminating a contract; and
 
22      (2)  Whether the contract and ensuing obligations may
 
23           properly be transferred to the exchange.
 

 
Page 70                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1 In considering paragraph (2), the attorney general shall consult
 
 2 with the captive insurance administrator appointed pursuant to
 
 3 article 19 of chapter 431, Hawaii Revised Statutes.
 
 4      (c)  The attorney general, in the attorney general's sole
 
 5 discretion, may delegate the duties outlined in this section to
 
 6 appropriate third party service providers or enlist the support
 
 7 of appropriate government agencies in carrying out the purposes
 
 8 of this measure.
 
 9      (d)  The attorney general shall complete the duties outlined
 
10 in this section by July 1, 2001.
 
11      (e)  The attorney general shall submit a report to the
 
12 legislature twenty days prior to the convening of the regular
 
13 session of 2001 detailing:
 
14      (1)  The attorney general's progress toward performance of
 
15           the duties required by this section; and
 
16      (2)  Any other manners material to any actions taken
 
17           pursuant to subsection (a).
 
18      SECTION 18.  (a)  The assets and liabilities of the HPEHF
 
19 shall be identified by the department of the attorney general
 
20 with the assistance of the fund and the department of budget and
 
21 finance and shall transferred to the subscribers' savings
 
22 accounts within the exchange proportionate to each subscriber's
 
23 existing interest in the HPEHF before July 1, 2001.
 

 
Page 71                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1      (b)  Once appointed, the subscribers' committee shall assign
 
 2 net underwriting gains and stabilization reserves that are
 
 3 currently in the possession of insurance carriers pursuant to
 
 4 agreements with the hpehf, to the unassigned surplus account of
 
 5 the exchange established pursuant to section 2 of this Act.
 
 6      (c)  Surplus employee contributions to the HPEHF which have
 
 7 accrued as of July 1, 2000, shall be assigned to a separate
 
 8 account, designated the employees surplus account, and shall be
 
 9 used to stabilize future employee contributions made pursuant to
 
10 chapter     .
 
11      SECTION 19.  There is appropriated out of the general
 
12 revenues of the State of Hawaii the sum of $1 or so much thereof
 
13 as may be necessary to allow the department of budget and finance
 
14 to assist the attorney general and the HPEHF to identify and
 
15 transfer assets and liabilities of the public employees health
 
16 hpehf to the exchange as required under section 18 of this Act.
 
17      The sum appropriated shall be expended by the department of
 
18 budget and finance for the purposes of this Act.
 
19      SECTION 20.  There is appropriated out of the general
 
20 revenues of the State of Hawaii the sum of $1 or so much thereof
 
21 as may be necessary to allow the department of the attorney
 
22 general to to locate and secure property of the HPEHF, review
 
23 HPEHF contracts, and report to the legislature as required under
 
24 section 17 of this Act.
 

 
Page 72                                                    3009
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1      The sum appropriated shall be expended by the department of
 
 2 the attorney general for the purposes of this Act.
 
 3 9    SECTION 21.  Statutory material to be repealed is bracketed.
 
 4 New statutory material is underscored.
 
 5      SECTION 22.  This Act shall take effect July 1, 2001;
 
 6 provided that sections 16, 17, and 18 shall take effect upon
 
 7 approval of the Act.