The state agency that provides health care coverage to about 161,000 government employees, retirees and dependants in Hawai'i is losing money at a rate of more than $1 million a month on its preferred provider plans and is forecast to run out of cash this year.

The state Employer-Union Health Benefits Trust Fund was told by a consultant this week that its self-insured preferred provider operation was insolvent at the end of 2009. The fund was paying out more than it was taking in because of a rise in member medical use.

The fund still has some reserves to help it through coming months, but its trustees must take action — either raising premiums, cutting benefits or seeking legislative increases in its funding — or it won't be able to meet obligations.

"As of right now the consultant said we have enough money that we can possibly go through the middle of the year," said George Kahoohanohano, EUTF board of trustees chairman.

The board has been working to reduce losses at the fund by offering different types of plans, conducting an audit of dependents and installing a controversial pharmacy benefits plan. The plan is self-funded, meaning the EUTF collects money from members, the state and counties and pays it out to physicians and other medical providers for services they performed for members.

But between July 1, 2008, and Dec. 31, 2009, it burned through $72 million in unrestricted reserves as it used the money to fund losses. The reserve account at the end of 2009 was a minus $1.5 million.

Earlier this week, Aon Consulting told trustees about the insolvency of the reserve fund and recommended member PPO premiums be increased 26 percent starting in July. That would follow premium increases that PPO members had last year of 23 to 24 percent.

The prospect of the increase has union members on the board calling for the state to step up its contributions to the fund.

Randy Perreira, head of the Hawaii Government Employees Association and a new EUTF trustee, said the state hasn't been willing to increase its contribution in the past couple of years with workers and county employers having to shoulder the costs.

"This administration is bound and determined not to spend another dime to provide its employees with health coverage," Perreira said. "What they're looking to do is shift the burden of payment, 100 percent, to their employees."

He said it was unfair for the state to potentially ask employees to absorb 50 percent increases in health insurance over what amounts to a 13-month period.

"For us, it's really unconscionable and I think it would be irresponsible for us to push a plan with a cost that is unaffordable," he said.

"Because we already have some members who've dropped coverage or taken children off of coverage because they can't afford it."

The issue of what to do about the financial crisis will be on the agenda for the next trustee meeting that is to be held in the next couple of weeks.

Kahoohanohano also said he would like to see Lingle step up contributions.

"Everyone has to share that burden equally," he said, noting the state previously paid 60 percent of PPO premiums with employees paying the remainder. Recently that has moved to an almost 50-50 split, Kahoohanohano said.

Barbara Annis, deputy director of the state Budget and Finance Department and a trustee, said a solution for increased state funding would have to start with the Legislature and then go to the governor for approval.

She said she didn't think prospects of that occurring were good given tough budget decisions being made on teacher furloughs, delays in Medicaid payments and several other budget cuts being discussed this year.

"All of us are concerned about the cost to employees," she said. "It doesn't take a genius to figure this out — we've either got to change the plans (cut benefits) or raise the premiums."

Annis said the trustees don't have to accept Aon's recommendation on a 26 percent increase, and it may be that in coming months a trend in lower medical usage along with more cost savings being realized takes hold.

She said lowering benefits does not seem like a viable alternative because the board had looked at that over the past year and been unable to reach a concensus. There are other issues that might arise, including the possible merger in July of a separate health fund for public school teachers with the EUTF and a recent Hawai'i Supreme Court ruling on retirement benefits.

Annis said bringing in the teachers' Voluntary Employee Beneficiary Association Trust to the EUTF may have beneficial effects since their membership is younger and may not have as high medical usage. She said the Supreme Court decision was too complex and needed to get an interpretation from the state Attorney General's Office.

But some theorize the retiree benefit decision could add to the EUTF's costs. Perreira said the board hadn't discussed the ruling.

"It's a very difficult situation to say the least," Perreira said.

Still, "You've got to do something," Annis said.

"You can't just run out of money and not provide payments for medical services for your employees."