STAND. COM. REP. NO. 261-00

                                 Honolulu, Hawaii
                                                   , 2000

                                 RE: H.B. No. 3009
                                     H.D. 1




Honorable Calvin K.Y. Say
Speaker, House of Representatives
Twentieth State Legislature
Regular Session of 2000
State of Hawaii

Sir:

     Your Committee on Consumer Protection and Commerce, to which
was referred H.B. No. 3009 entitled: 

     "A BILL FOR AN ACT RELATING TO THE HAWAII INSURANCE
     EXCHANGE,"

begs leave to report as follows:

     The purpose of this bill is to provide for improved, cost-
effective administration of current and future public employee
benefit obligations, by transferring administration of these
obligations from the Hawaii Public Employees Health Fund (HPEHF),
to a newly established captive insurance company to be known as
the Hawaii Insurance Exchange (Exchange).

     Your Committee received testimony commenting on this measure
from the Department of Commerce and Consumer Affairs, Department
of Budget and Finance, HPEHF, Hawaii State Teachers Association,
and the Office of Information Practices (OIP).  The OIP suggested
an amendment.

     Your Committee finds that under this measure, surplus
contributions of approximately $86,000,000 currently held by
various health insurers, and $13,000,000 held by HPEHF, would be
transferred to, and be controlled by the Exchange.  Under the
bill, the Exchange is organized as a reciprocal insurer subject
to regulation under the insurance laws.  The Exchange is governed
by a subscribers' committee composed of representatives of public
employers and employee organizations.  Day-to-day management of
the exchange would be delegated to a professional entity given
power of attorney by subscribers.

 
                                 STAND. COM. REP. NO. 261-00
                                 Page 2

 

     Your Committee finds that this measure, in part, addresses
concerns noted in the Auditor's 1999 report, "Financial Audit of
the Hawaii Public Employees Health Fund," regarding financial
accounting and internal control deficiencies of the HPEHF.  At
the same time, the bill addresses an estimated accrued state and
county liability of $4,500,000,000 in future retiree health
benefits.

     Your Committee finds that under this bill, the Exchange,
unlike the HPEHF, is a distinct legal entity that allows the
State and counties direct control over reserves as well as the
approximately $384,000,000 in premiums that are currently held by
or paid to third party health plans and insurers.  The interests
of insureds and potential claimants in these funds would be given
protection by the financial reporting, investment, loss
reserving, and other requirements of the insurance regulatory
laws.

     As an insurance entity, the Exchange would also have the
flexibility to negotiate and contract with specialists to provide
claims administration services, benefit plan administration,
accounting and financial reporting services, captive insurance
management, and reinsurance administration.  Further, the
Exchange could negotiate rates directly with health care
providers.  Your Committee heard testimony that this flexibility
would give the State and counties the ability to operate in a
professional and effective manner in today's changing economic
environment.

     Your Committee finds that bills similar to H.B. No. 3009,
also designed to address concerns with the HPEHF identified by
the Auditor, are making their way through the Legislature.  Your
Committee believes that a necessary first step toward resolution
of these concerns is further discussion and consideration of the
merits of all of these bills.

     Your Committee has made amendments to this bill to provide
more clarity regarding the membership of the Subscribers'
Committee.  As amended, members of the Subscribers' Committee
will be appointed as follows:

     (1)  The mayor of the counties of Honolulu, Hawaii, Maui,
          and Kauai shall each appoint one person to sit on the
          Subscribers' Committee;

     (2)  The five unions having the largest amounts of funds
          ported from the HPEHF to the union, shall each appoint

 
                                 STAND. COM. REP. NO. 261-00
                                 Page 3

 
          one person to sit on the newly formed Subscribers'
          Committee; and

     (3)  The governor shall appoint one person from among the
          public employee organization subscribers not
          represented on the Subscribers' Committee.

     Your Committee has also made numerous technical,
nonsubstantive amendments for purposes of clarity, consistency,
and style, and to allow reasonable implementation of the law,
including amendments allowing contributions and premium payments
to be made by employee-beneficiaries and subscribers on a monthly
or bimonthly basis.

     As affirmed by the record of votes of the members of your
Committee on Consumer Protection and Commerce that is attached to
this report, your Committee is in accord with the intent and
purpose of H.B. No. 3009, as amended herein, and recommends that
it pass Second Reading in the form attached hereto as H.B. No.
3009, H.D. 1, and be referred to the Committees on Labor and
Public Employment and Finance.

                                   Respectfully submitted on
                                   behalf of the members of the
                                   Committee on Consumer
                                   Protection and Commerce,



                                   ______________________________
                                   RON MENOR, Chair