Question: What are the main health plan-related issues for employers to be aware of when they hire employees in Hawaii?
Compliance Team Response:
Hawaii has a unique law called the Prepaid Health Care Act (PHCA). It imposes a number of strict requirements on employer-sponsored health plans for employees in Hawaii.
Here’s a summary of the main Hawaii PHCA rules to be aware of:
- Employer Must Pay At Least Half of the Premium
The first restriction is that the employer must in all cases pay at least half of the premium for employee-only coverage. This means that in no case would an employer be able to set the employee-share of the premium at an amount greater than 50% of the full premium.
- Employee Cannot Be Required to Pay More than 1.5% of Monthly Gross Income
The employer also cannot charge an employee more than 1.5% of the employee’s monthly gross wages for the cost of employee-only coverage. This creates a number of practical/administrative difficulties that often results in employers in Hawaii simply offering employee-only coverage for free or some nominal amount that will clearly be within the 1.5% limit (e.g., $5).
- Employee-Share of Premium for Dependent Coverage Depends on Plan Option Offered
The general rule is that the employer can charge any amount for the employee-share of the premium for dependent coverage. However, if the plan option is “Type 7b,” the employer is required to contribute at least one-half of the dependent premium cost. See the far righthand column here for which plans fall into the “7b” category: http://labor.hawaii.gov/dcd/files/2013/10/Approved-Health-Care-Plans.pdf
- Coverage Must be Offered at 20+ Hours Per Week
Unlike the ACA employer mandate pay or play standard of 30 hours per week, the PHCA requires that employers offer coverage to employees who work 20 hours or more per week.
- Employee Generally Must Enroll in Coverage
Also unlike the ACA employer mandate pay or play rules, the PHCA requires employees to enroll in the employer’s Hawaii-approved plan unless an exception applies. The main exemption would be if the employee is covered under a spouse’s employer-sponsored plan that is also approved in Hawaii. If that is the case, the employee would need to provide a completed Form HC-5 to the employer documenting the exemption. The 2018 Form HC-5 is available here: https://labor.hawaii.gov/dcd/files/2012/11/HC5-2018.pdf
- ERISA Preemption Exemption
Congress amended ERISA in 1983 to specifically exclude the PHCA from ERISA preemption. It is the only state law relating to employee benefits that is specifically excluded from ERISA preemption. Under ERISA in its current form, no other state could impose requirements similar to the PHCA.
- Summary Guidance from the State of Hawaii
Hawaii’s Department of Labor and Industrial Relations provides three good resources:
Below are a few relevant FAQs and cites for reference.
FAQs and Cites:
Who is eligible for PHC benefits?
If you work twenty hours or more per week for four consecutive weeks and earn a monthly wage of at least 86.67 times the current Hawaii minimum hourly wage (as of January 1, 2017 $9.25 x 86.67 = $802), you are deemed eligible. You must be provided with health insurance at the earliest enrollment date of your employer’s health care contractor.
Who is excluded from PHC coverage?
Some workers are excluded from health care coverage (refer to Section 393-5 of the law for exclusions) such as:
- individuals who work less than twenty hours per week;
- Federal, State, and County employees;
- agricultural seasonal workers;
- insurance or real estate salespersons paid solely by commission;
- individuals working for son, daughter, or spouse; and
- children under age 21 working for father or mother.
How much can my employer charge for my health insurance?
Your employer may elect to pay the entire premium amount or share the cost with you. For single coverage, your employer must pay at least one-half the premium cost; however, your contribution cannot exceed 1.5% of your monthly gross wages. In the event your allowable share constitutes less than one-half of the premiums, your employer is liable for the entire remaining portion. Your employer is permitted to withhold your contribution from your wages each pay period. You cannot agree to pay a greater share from wages except for the purpose of paying for the added cost of providing prepaid health care benefits for your dependents under the same plan.
If I already have health coverage elsewhere, do I have to be covered again by my employer’s plan?
You can elect to be exempt from coverage under your employer’s health care plan if:
- You are covered by a federally established health insurance or prepaid health care plan, such as Medicare, Medicaid or medical care benefits provided for military dependents and military retirees and their dependents;
– You are covered as a dependent under a qualified health care plan;
– You are a recipient of public assistance or covered by a State-Legislated health care plan governing medical assistance; or
– You are a follower of a religious group that depends upon prayer or other spiritual means for healing.
To claim an exemption, you must complete and submit the Employee Notification to Employer
(Form HC-5) to your employer. The exemption notification is binding for one year and must be renewed
every December 31.
Hawaii Revised Statutes §393-7(b):
(a) A prepaid health care plan shall qualify as a plan providing the mandatory health care benefits required under this chapter if it provides for health care benefits equal to, or medically reasonably substitutable for, the benefits provided by prepaid health plans of the same type, as specified in section 393-12(a)(1) or (2), which have the largest numbers of subscribers in the State. This applies to the types and quantity of benefits as well as to limitations on reimbursability, including deductibles, and to required amounts of co-insurance.
The director, after advice by the prepaid health care advisory council, shall determine whether benefits provided in a plan, other than the plan of the respective type having the largest numbers of subscribers in the State, comply with the standards specified in this subsection.
(b) A prepaid group health care plan shall also qualify for the mandatory health care benefits required under this chapter if it is demonstrated by the health care plan contractor offering such coverage to the satisfaction of the director after advice by the prepaid health care advisory council that the plan provides for sound basic hospital, surgical, medical, and other health care benefits at a premium commensurate with the benefits included taking proper account of the limitations, co-insurance features, and deductibles specified in such plan. Coverage under a plan which provides aggregate benefits that are more limited than those provided by plans qualifying under subsection (a) shall be in compliance with section 393-11 only if the employer contributes at least half of the cost of the coverage of dependents under such plan.
(A) Except as provided in subparagraph (B), subsection (a) shall not apply to the Hawaii Prepaid Health Care Act (Haw. Rev. Stat. §§393-1 through 393-51).
(B) Nothing in subparagraph (A) shall be construed to exempt from subsection (a)—
(i) any State tax law relating to employee benefit plans, or
(ii) any amendment of the Hawaii Prepaid Health Care Act enacted after September 2, 1974, to the extent it provides for more than the effective administration of such Act as in effect on such date.
(C) Notwithstanding subparagraph (A), parts 1 and 4 of this subtitle [29 USC §§1021 et seq., 1101 et seq.], and the preceding sections of this part [29 USC §§1131 et seq.] to the extent they govern matters which are governed by the provisions of such parts 1 and 4 [29 USC §§1021 et seq., 1101 et seq.], shall supersede the Hawaii Prepaid Health Care Act (as in effect on or after the date of the enactment of this paragraph [enacted Jan. 14, 1983]), but the Secretary may enter into cooperative arrangements under this paragraph and section 506 [29 USC §1136] with officials of the State of Hawaii to assist them in effectuating the policies of provisions of such Act which are superseded by such parts 1 and 4 [29 USC §§1021 et seq., 1101 et seq.] and the preceding sections of this part.
Disclaimer: The intent of this analysis is to provide the recipient with general information regarding the status of, and/or potential concerns related to, the recipient’s current employee benefits issues. This analysis does not necessarily fully address the recipient’s specific issue, and it should not be construed as, nor is it intended to provide, legal advice. Furthermore, this message does not establish an attorney-client relationship. Questions regarding specific issues should be addressed to the person(s) who provide legal advice to the recipient regarding employee benefits issues (e.g., the recipient’s general counsel or an attorney hired by the recipient who specializes in employee benefits law).