From the January 4, 2002 print edition
Prepaid health under fire
Kristen Sawada

Critics of Hawaii's Prepaid Health Care Act will push to amend or eliminate the 1974 law -- which dictates how employers provide health insurance for employees -- at the legislative session starting Jan. 16.

Hawaii is the only state that mandates health insurance for employees who work 20 or more hours a week. And the law limits employees' share of insurance premium expenses to no more than 1.5 percent of their wages.

"The idea was equal sharing between employers and employees. Now after 20 some odd years, it's no longer that," said Christine Camp, owner of Avalon Development and Consulting LLC and chairwoman of the Chamber of Commerce of Hawaii's Small Business Council.

"Due to inflation," she said, "obviously employers have taken the entire burden."

In 1974, 1.5 percent of minimum Hawaii wages would cover about 30 percent of insurance premiums, which totaled approximately $16 per month, according to the Hawaii Medical Service Association. In 2001, monthly premiums reached $183 -- with 1.5 percent of minimum wages covering only 7 percent of the premium, leaving employers responsible for the other 93 percent.

Rep. Bertha Kawakami, D-Koloa-Waimea-Niihau, Finance Committee vice chairwoman, will propose a bill to split premiums more fairly between employers and employees. Kawakami is looking to a plan similar to the state's, which pays 60 percent of the premium for public employees who pay the other 40 percent. However, the proposal does not yet have a fixed percentage.

"As a result of Hawaii's continuing weak economy, exacerbated by the Sept. 11 terrorist attacks, I wanted to specifically target our smaller businesses that seem to benefit the least from most economic stimulus initiatives," Kawakami said. "Allowing employers the flexibility to contribute less than the currently mandated percentage of their employees' premiums would provide immediate financial relief."

Hawaii's exemption from the federal ERISA law, which regulates employees' health benefits, prevents the state from amending the Prepaid Health Care Act. The ERISA law pre-empts all other state laws regarding health insurance benefits. Kawakami's bill is not, however, seeking to amend the act but add language to part of the insurance code.

Sen. David Matsuura, D-S. Hilo-Puna, chairman of the Health & Human Services Committee, will propose coverage for employees who work 32 or more hours instead of 20 hours a week, saying it would allow employees to make more money.

"A lot of the big guys are just running 20 hour shifts," he said. "My theory is if you can get them working for 32 hours, employers would pick them up full time."

A measure needs to be passed to help Hawaii's struggling small businesses, which generate a majority of the state's revenue, advocates said.

"If they want revenues to keep coming in to the state they are going to have to stop killing small businesses because small businesses are the job creators," said Bette Tatum, state director of the National Federation of Independent Business, made up of thousands of local small and independent business owners. "It's just amazing to me how they keep socking small businesses
when small businesses are the ones that bring in the revenue."

"Sept. 11 has created such a cash flow problem for employers and they're screaming for help because health-care costs, next to rent and payroll, is our biggest expense," said Bev Harbin of the Kakaako Improvement Association, who also serves as smallbusiness advocate for the Chamber of Commerce of Hawaii.

Other legislators said the prepaid health-care law is unnecessary and will introduce a bill to completely abolish it.

"Prior to 1974, we had approximately 90 percent of all workers covered voluntarily by insurance," said Sen. Sam Slom, RWaialae Iki-Hawaii Kai. "Now it's down below 85 percent and declining rapidly."

Without the law, companies will have the flexibility to provide suitable health plans for individual employees, he said.

"Right now the Prepaid Health Care Act determines exactly what kind of coverage employees have; it's one size fits all," Slom said. "Not everybody needs or wants the same kinds of coverage. And it's far from the original concept, which was to provide basic medical coverage for the vast majority of people in the state."

Other legislators agree the law may be in need of changes, but emphasize proposals need to be carefully evaluated to ensure Hawaii residents have affordable health insurance.

"One concern I would have is to ensure that the enactment of such proposals will not place undue financial hardships on residents," said Sen. Ron Menor, D-Mililani-Crestview-Waipahu, chairman of the Senate Commerce, Consumer Protection and Housing Committee, which has jurisdiction over health insurance legislation.

Menor also is opposed to eliminating the act altogether, citing that it has been beneficial in providing coverage to a majority of the population.

A state Insurance Division task force, convened earlier this year to evaluate a process for mandating health care benefits, also will ask the Legislature to establish a new task force to examine the efficacy of Hawaii's prepaid health-care law.

In addition to these initiatives, however, lawmakers must find a solution to rising health insurance costs, Camp said.

"We have to find the root to what is causing cost increases and what can we do to better control competition," she said. "Right now, of a three-legged stool, we're only addressing one aspect of that -- and we can't stand on just that."

Reach Kristen Sawada at ksawada@bizjournals.com or 955-8036.

Pacific Business News (Honolulu) - January 7, 2002
http://pacific.bizjournals.com/pacific/stories/2002/01/07/story3.html

© 2002 American City Business Journals Inc.