Two of Hawai'i's largest public employee unions and two insurance companies overbilled the state tens of millions of dollars for health and life insurance, the state attorney general's office charged.

In court papers filed Jan. 17, Deputy Attorney General John Dellera said that the 42,000-member Hawaii Government Employees Union, the 13,000-member United Public Workers union and two insurance companies failed to return about $46 million in overpayments made by the state between 1994 and 2003.

The state pays the unions for members' insurance. The unions in turn pay the insurance companies, in this case Royal State National Insurance Co. and the Voluntary Employees Benefit Association of Hawaii. When the insurance companies have a surplus — because premiums exceed claims — they are required by state law to give it back, Dellera said.

The attorney general's office says the state paid $105 million for coverage from the two insurers from 1994 to 2003 and only $59 million was paid in claims. The state wants the union or the insurers to return the $46 million difference.

"Such excessive payments should have been returned ... but they were not," Dellera said.

Union and insurance officials say there was no surplus as the money was used to administer the benefit programs.

The attorney general's office did not factor in administrative costs, reserve requirements and reasonable profit margins for the insurance companies, said Paul Schraff, attorney for Royal State National Insurance Co. Schraff called the state's allegations "slanderous and false."

Russell Okata, the HGEA's executive director, said the state's allegations were "groundless and unnecessary." Okata said records provided by the HGEA to the attorney general's office show that the union did not receive any fees or profits for providing insurance coverage for its members.

"In the 30 years that HGEA has coordinated the payment of premiums to cover government employee healthcare benefits, we have never been accused of wrongdoing," Okata said.

"In fact, the state of Hawai'i has benefited from our ability to negotiate the best prices for government employee benefits."

Dayton Nakanelua, the UPW's state director, could not be reached for immediate comment.

In its court papers, the attorney general's office said it relied on analysis provided by its forensic auditor, Santa Monica, Calif.-based Biggs & Co.

Royal and Voluntary Employees Benefit Association of Hawaii are mutual benefit associations that are owned by members, Schraff said. Neither the HGEA nor UPW have an ownership stake in the companies, although members of the unions have seats on the insurers' boards of directors, Schraff said.

He noted that union members are free to choose from a number of insurance providers, including Hawaii Medical Service Association, Kaiser and others for their health and life insurance needs.

About 15,000 union members and retirees are enrolled in Royal and Voluntary Employees Benefit Association of Hawaii programs, according to Dellera. The alleged surplus equals about $340 a year for each policyholder.

HGEA is the state's largest public-employee union and the UPW is the state's third-largest public-employee union behind the 13,500-member Hawaii State Teachers Association.

The state's allegations are the latest in a long-running legal battle between the attorney general's office and HGEA and UPW over the unions' insurance contracts.

In 2002, the state sued the unions and their insurance companies, seeking financial records for the public employee unions' health plans. Circuit Judge Eden Elizabeth Hifo later ordered the unions to turn over their insurance records to the state and those records provided the basis for the state's allegations of overbilling by the unions.

Reach Rick Daysog at rdaysog@honoluluadvertiser.com.