While employers in most states only need to provide health benefits if they have more than 50 full-time equivalent employees (FTEs) to satisfy the Affordable Care Act's (ACA) employer mandate, this isn't always the case. Hawaii has its own health coverage law that supersedes the ACA: the Hawaii Prepaid Health Care Act1 (PHCA).
As an employer, you need to know the laws this unique healthcare coverage act contains if you have or plan to hire employees in Hawaii.
In this article, we'll explain the Hawaii Prepaid Health Care Act, how it works, and which health benefits are compatible with the law.
What is the Hawaii Prepaid Health Care Act?
Initially passed in 1974 and reenacted in 1981, PHCA, also known as the Hawaii employer mandate, contains essential requirements regarding employer-sponsored health plans. Hawaii was the first state to set minimum health benefit standards for employers.
These rules affect all employers in Hawaii with at least one employee working an average of 20 hours per week for four consecutive weeks.
While there are exceptions for those employed by family members, agricultural workers, insurance and real estate agents who work commission-only, and seasonal workers, most employees who work 20 hours or more each week are guaranteed employer health coverage under the law.
However, employees can seek an exemption from these requirements if they are already covered.
You need to be aware of the PHCA regulations as they impose stricter rules for employers in Hawaii than the ACA, which was passed federally in 2010 and only applies to organizations with 50 or more FTEs.
While there are numerous pieces to the law, we've summarized the main points in the sections below.
PHCA is exempt from ERISA
Congress amended the Employee Retirement Income Security Act (ERISA) in 19832 to exclude the PHCA from ERISA preemption.
The PHCA is the only state plan exempt from ERISA's preemption.
This means that the PHCA in Hawaii can skirt ERISA rules and act as the state's main authority regarding employer health care.
Plans must be “Hawaii-approved” or otherwise eligible
Employers can provide acceptable coverage by selecting an approved health plan3 from a licensed insurance carrier, utilizing a self-insured health plan (Form HC-44, Form HC-615), or by purchasing a plan of their choice.
With the last option, the employer selects the healthcare contractor and the plan type.
Under the law, employer-sponsored health insurance must be equal to the plan with the most subscribers in Hawaii. Currently, the most popular plans are offered by the Hawaii Medical Service Association and Kaiser Permanente. This is known as a 7(a) plan.
Employers can also offer 7(b) plans that are more limited in their benefits or that have fewer benefits than a 7(a) plan. However, these plans will require a more significant employer contribution.
Employees working 20 or more hours per week must be offered coverage
The PHCA requires that employers provide health insurance coverage to employees who work an average of 20 hours or more per week in a four-week period, including some temporary or seasonal employees.
Under the ACA, you only need to provide health coverage to full-time employees who work 30 or more hours each week, meaning you'll need to provide coverage to more employees in Hawaii than you might in other states.
Failure to provide coverage to workers can result in $1 per worker per day fines in addition to any medical costs those workers incur.
Employees can’t pay more than 1.5% of their income
Under the PHCA, employers can't require an employee to pay more than 1.5% of their gross monthly wages for the cost of self-only coverage. Due to this rule, many employers cover the total cost of employee premiums.
For example, if your employee earns $5,000 per month and has a monthly insurance premium of $300, then your employee can't be required to contribute more than $75 per month since anything above $75 would exceed 1.5% of their monthly income.
Employers are required to cover half of premiums
Employers are required to either pay the entire monthly premium for their employees or to share the cost by covering at least half of the premium for employee-only coverage. In other words, an employee will never be responsible for more than half of their total health insurance premium for self-only coverage.
Premiums for dependent coverage
Employers generally require employees to cover 100% of the premium cost for dependents with a 7(a) plan. In some instances, the employer is required to cover up to half of one dependent's coverage. This is a requirement when the dependent's coverage falls in the 7(b) category under the law6.
Employees are required to enroll in coverage
The PHCA requires employees to enroll in their employer's plan unless an exemption applies. The most used exemption is for employees covered under their spouse's employer-sponsored plan. Employees with exemptions must provide Form HC-57 to the employer documenting the exemption.
What are the required benefits under PHCA?
While the ACA requires employers with 50 or more FTEs to provide plans that meet minimum essential coverage (MEC) and affordability, the PHCA has its own requirements.
All plans in Hawaii must include coverage for the following expenses:
- Hospital costs
- Surgical expenses
- Medical expenses
- Diagnostic expenses
- Maternity coverage
Plans aren't required to cover dental or vision expenses.
How do HRAs work with PHCA?
While the regulations can put organizations in a difficult position regarding cost and administrative responsibility, there are still alternative health benefits options available in Hawaii.
Three of the most popular types of HRAs available include:
- Qualified small employer HRA (QSEHRA)
- Individual coverage HRA (ICHRA)
- Group coverage HRA (GCHRA), also known as an integrated HRA.
Due to Hawaii's complex healthcare policies, employers may have difficulties providing their employees with a QSEHRA. This is because a QSEHRA has annual allowance caps that may not allow employers to cover 50% or more of certain insurance premiums.
That leaves integrated HRAs and ICHRAs as good options for employers in Hawaii.
An integrated HRA is used to supplement your existing group health plan, such as a high deductible health plan (HDHP). This can help you cover your employees' dental and vision care expenses and premiums, among other out-of-pocket costs.
While a GCHRA can be paired with any qualifying group plan, there are some limitations on the types of plans available in Hawaii.
The Hawaii Department of Labor and Industrial Relations limits cost-sharing for health plans, resulting in lower deductibles than plans in other states. However, an HDHP is less likely to get approval from the state. This leaves only state-approved group plans as options you can use with a GCHRA, limiting your flexibility with the benefit.
An ICHRA is likely the best option for most employers in Hawaii, as there are no limits on what monthly allowances can be set, helping to ensure you have a significant monthly contribution to remain compliant with the law no matter which individual plan your employees choose from the health insurance marketplace.
Organizations offering an ICHRA must make sure the health plans employees purchase are "Hawaii-approved," per Form HC-44, Form HC-615.
While the Hawaii Prepaid Health Care Act can make offering employee benefits more challenging for employers, there are still plenty of options available to help you provide coverage. Whether you choose a healthcare contractor or a self-funded benefit like an HRA, you can avoid fines as long as your plan meets the minimum requirements of the PHCA.
If you're ready to offer flexible health benefits to your employees, such as an ICHRA, PeopleKeep can help! Our HRA and employee stipend benefits administration software makes it easy to set up and manage your benefits in minutes per month.
This blog article was originally published on April 28, 2020. It was last updated on July 21, 2022.