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What you should know about Hawaii’s Prepaid Health Care Act

April 28, 2020
hawaii, prepaid health care act, employer mandate

Originally passed in 1974 and reenacted in 1981, Hawaii’s Prepaid Health Care Act (PHCA), or employer mandate, contains important requirements regarding employer-sponsored health plans. These rules affect all employers in Hawaii with at least 1 employee working an average of 20 hours per week in a 4 week period. It’s necessary to be aware of the PHCA regulations as they impose stricter rules for employers in Hawaii than the Affordable Care Act (ACA)'s employer mandate, which was passed federally in 2010.

While there are numerous pieces to the law, the main points to be aware of are listed below.

PHCA is exempt from ERISA

The Employee Retirement Income Security Act (ERISA) was amended in 1983 to exclude the PHCA from ERISA preemption. This means that the PHCA in Hawaii is able to skirt ERISA rules and act as the main authority regarding employer health care in the state.

Plans must be “Hawaii-approved” or otherwise eligible

Employers can provide acceptable coverage by selecting an approved health care plan from a licensed insurance carrier, utilizing a self-insured health care plan (Form HC-4, Form HC-61), or by purchasing a plan of their choice. With the last option, the employer selects the health care contractor and the plan type.

Employees working 20+ 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, including temporary or seasonal employees. This differs from the ACA which only requires employers to offer coverage to employees working 30 hours or more.

Employees can’t pay more than 1.5% of 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 full cost of premiums for employees.

Employers are required to cover half of premium

One of the most impactful rules states that employers are required to cover 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

In general, employers can require employees to cover 100% of the premium cost for dependents. In certain cases though, 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 “7b” category under the law.

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 who are covered under their spouse’s employer-sponsored plan. Employees with exemptions must provide Form HC-5 to the employer documenting the exemption.

While the regulations can put employers in a difficult position with cost and administrative tasks, some benefit options can alleviate the burden. Health reimbursement arrangements (HRAs) can meet Hawaii’s health insurance requirements and are a more affordable alternative to group health insurance. Utilizing an HRA in place of a group health plan allows employers to control cost while giving employees freedom of choice when it comes to purchasing an insurance plan. The individual coverage HRA (ICHRA) is the best option for most employers, as there are no limits on what allowances can be set, helping to ensure compliance with the law. Companies opting for an ICHRA should make sure the health plans employees purchase are "Hawaii-approved," per Form HC-4, Form HC-61. The QSEHRA (qualified small employer HRA) does not meet the PHC requirements.

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