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A Community Forum to Create Common Understanding


Prepaid Health Care Act

Hawaii’s Prepaid Health Care Act of 1974 is the only act of its kind in U.S. history. Since Jan. 1, 1975, this law has required nearly all employers to provide health insurance to their employees who worked 20 hours or more a week for four consecutive weeks. Employees must maintain the minimum of at least 20 hours a week to remain eligible.

ERISA and the Prepaid Health Care Act
Hawaii’s Prepaid Health Care Act passed the same year as the federal Employee Retirement Income Security Act (ERISA), which superceded all state laws related to employee benefits. When Standard Oil sought to invalidate employer-mandated health coverage in Hawaii, it sued and won. Hawaii’s congressional delegation stepped in and won an exemption from ERISA. However, this Congressional action stipulated that no substantive changes could be made to the Prepaid Health Care Act as it was passed in 1974.

Coverage Ensured by the Prepaid Health Care Act
The act also set the standard for benefits provided by employer-based health plans. Coverage benefits must be equal to those provide by the plan with the largest number of subscribers in the state

If an employee is disabled and unable to work, the employer must continue to pay its share (98.5 %) of the employee’s health insurance premium cost for three months following the month when the employee became disabled. The employee also continues to pay his or her portion (1.5 %) of the premium.

Prepaid Health Care Act & Hawaii’s Uninsured
In the 1980s, Hawaii’s uninsured population was estimated at 5 percent. The state was credited as having the lowest uninsured rate in America, according to by the U.S. Census Bureau’s Current Population Survey. Employer-mandated health insurance was given much of the credit for this.

However, by 1996-97, the uninsured rate had increased to 8.1 percent. According to the latest Current Population Survey (2001), about 10 percent of Hawaii’s population (approximately 120,000) is currently uninsured.

Formula for Premium Payment
Hawaii employers may cover the full cost of the health insurance premium, or share the cost with their employees. Based on a fixed formula, the law requires employers to contribute 50 percent of the premium cost for single coverage, and the employee must contribute the balance, provided the employee’s share does not exceed 1.5 percent of his or her wages.

A Complex Calculation for Business
A person who works 40 hours per week at a salary of $10 per hour would earn $1,733 per month. If the cost of insurance (single coverage) is $150 per month, half that amount is $75, and 1.5 percent of the worker’s salary is $26. As stipulated by the Act, the worker would pay the lesser of the two
amounts ($26) and the employer would pay the rest ($124).

Prepaid Health Care Act Exclusions
These categories of employment are excluded from coverage.

  • government services
  • seasonal employment approved by the State Department of Labor &
    Industrial Relations
  • insurance agents and real estate salespersons paid solely by
  • sole proprietors with no employees

Administration & Regulation of the Act
The Department of Labor & Industrial Relations, Disability Compensation Division, administers the Prepaid Health Care Act. Under the advisement of the Prepaid Health Care Advisory Council, the department’s director approves all employer-based health care plans and ensures that the plans meet certain standards. The Department of Commerce & Consumer Affairs, Insurance division regulates health insurers, including health maintenance organizations and mutual benefit societies. The Insurance Division also receives inquiries and
complaints on health insurance, and administers reviews of health plans’ decisions under Hawaii’s Patient Bill of Rights & Responsibilities Act.

Prepaid Health Care Act & Hawaii’s Uninsured
When Hawaii blazed the trail in health coverage reform by establishing the Prepaid Health Care Act in 1974, the only employer mandate of its kind, the nation didn’t follow. With an uninsured rate of 30 percent in the early 1970s, the percentage dropped to about 5 percent after the mandate became law. Hawaii once held the honor of having the fewest uninsured residents of any state, but now it has tumbled down the national ranks (ranked 8th) with more than 120,000 of its people not covered — that’s 10 percent of the state’s population.

The Hawai’i Uninsured Project has assembled a committee of community leaders to assess the impact of the Prepaid Health Care Act of 1974 on consumers, providers, insurers and businesses in Hawaii. While other work groups are generating solutions for target areas in which health coverage access can be improved or expanded, this committee serves as a community and research resource and forum for the exchange of viewpoints. Its objective is to ensure that community discussions and debates of the Prepaid Health Care Act are accurately informed.

The Hawai‘i Uninsured Project has assembled a committee of community leaders to assess the impact of the Prepaid Health Care Act of 1974 on consumers, providers, insurers and businesses in Hawaii.