By: HUB’s EB Compliance Team

Sandy beaches, sunsets, pineapples and volcanos typically come to mind when people think of Hawaii. Employers with employees in Hawaii have a different thought as it relates to their benefit plans…namely, the Hawaii Prepaid Health Care Act of 1974 (“PHC”).

Plan Offerings

Hawaii requires that plans covering individuals in the state be approved for issue in the state. This sounds easy enough, however this is the first hurdle employers with employees in Hawaii must overcome. Most fully-insured plans issued in the continental US are not approved for issue in Hawaii. Likewise, Hawaii does allow self-insured plans to cover employees in the state, however before it can, the state must authorize the plan to cover individuals in Hawaii. Frequently employers choose the path of least resistance here and implement a fully-insured policy specifically authorized for issue in Hawaii to cover their employees there. 

Plan Eligibility

The Affordable Care Act (“ACA”) generally defines a full-time employee as one that works 30 hours per week and limits the maximum waiting period before full-time employees become eligible for health coverage to 90 days. The ACA applies in Hawaii, but the PHC also has a say in benefits eligibility. In the continental US employers regularly have waiting periods such as first of the month following 30 or 60 days of employment to meet the 90-day requirement. However, this plan eligibility wouldn’t comply with the PHC. It requires most employees who earn a monthly wage of at least 86.67 times the Hawaii minimum hourly wage (currently $10.10/hour) to be offered health coverage after four consecutive weeks of working 20 or more hours per week.

Affordability & Contributions

The ACA’s employer mandate, requires applicable large employers to offer at least one health plan that provides affordable, minimum value coverage to its full-time employees (and minimum essential coverage to their dependents) to avoid penalties. ACA affordability started out as 9.5% of household income and is adjusted annually. In 2020 the percentage is 9.78% and this increases to 9.83% in 2021.

Hawaii takes this two steps further. First, it uses a lower affordability percentage than the ACA. Second, it bases affordability on the employee’s monthly wages rather than household income. The PHC requires that employee-only coverage cannot cost the employee more than 1.5% of the employee’s monthly wages. This means employers with employees in Hawaii must contribute a significantly greater percentage towards the cost of coverage.

Things get even more complex when accounting for the fact that the PHC also requires employers to contribute at least 50% towards the cost of coverage. For employers, this effectively caps what they can charge employees for coverage, even if the employee could pay a higher amount and still comply with the affordability requirement. For example, if the full premium is $500 per month, the employer must contribute at least $250, even if 1.5% of the employee’s wages is greater than $250.

Key Considerations

Employers with employees in Hawaii today, or who may have employees in Hawaii in the future, need to understand their obligations under the PHC. The following are key considerations for employers:

  • Determine if the goal is to have a self-insured plan that covers employees in the continental US approved for issue in Hawaii, or to offer a Hawaii specific plan to those employees. Employers looking to have their self-insured plans approved should understand the time it takes to have plans approved.
  • Understand that employees in Hawaii may need to be subject to different eligibility terms than employees in the continental US. This is especially important when offering a self-insured plan as Hawaii specific eligibility terms will need to be written into the plan and the stop-loss carrier made aware.
  • Evaluate if employees will be charged the same rates for employee only coverage based on the lowest paid employee, or if employees will pay individual rates based on their own income. There are tradeoffs with both approaches as a single rate is more costly (especially if employee pay varies significantly), but involves less administrative work; while individual rates may result in cost savings at the expense of additional administrative work.
  • In making these decisions, employers should remember that varying contribution rates and eligibility rules could create nondiscrimination concerns in self-funded plans. For that reason, it may be easier to purchase an approved insured plan for Hawaii employees.
  • Recognize that if individual rates are being charged, the minimum employer contribution effectively caps how much employees can be charged for coverage.

If you have any questions, please contact your HUB Advisor. You can also view more compliance articles in our Compliance Directory.

 

NOTICE OF DISCLAIMER

The information herein is intended to be educational only and is based on information that is generally available. HUB International makes no representation or warranty as to its accuracy and is not obligated to update the information should it change in the future. The information is not intended to be legal or tax advice. Consult your attorney and/or professional advisor as to your organization’s specific circumstances and legal, tax or other requirements.