Prepaid Health Care Act(s) Out
Most full-time workers take health insurance benefits for granted. However, new research confirms that Hawaii's mandated health-insurance law has led to fewer work hours for part-timers.
The 20-hour spike is real. Thirty years after the passage of the Prepaid Health Care Act (PHCA), University of Hawaii professor Gerard Russo says he has evidence that the act has encouraged employers to hold down part-time work hours compared to the rest of the nation (see chart on page 46). Russo says, "We have a lot of anecdotal stories about employers not hiring people full-time, because they have to provide health insurance. It's not completely changing the economy, but the data seems to indicate that there is an effect." By requiring employers to provide benefits to employee who work 20 hours a week, he says the PHCA has, in practice, changed the definition of full-time work in Hawaii to 20 hours, while traditional economic, labor market definitions of part-time remain between 31 to 35 hours.
Chris Pablo, Kaiser Permanente's director of public affairs, blames the 20-hour spike on Hawaii's economy: "A great percentage of our employees are in service industries, so I think the nature of our marketplace dictates why part-time employment is a necessary mode of hiring." State insurance commissioner J.P. Schmitt disagrees. "If you look at other states that have a very strong tourism-based economy, such as Nevada, they don't have near the number of part-time workers," Schmitt says. Indeed, Russo's research shows that Nevada follows the rest of the nation (see chart to left).
Russo also found that, the more hours employees worked, the more likely they were to be insured in Hawaii. In contrast, employees who worked less than 20 hours per week were less likely to be insured by employers in Hawaii than in other states. Surprisingly, he found that these part-timers were also able to find alternatives to employer-based insurance (see chart to left). One theory: Hawaii's higher cost of living means that, compared to other states, those with higher incomes qualify for public assistance, such as Medicaid.
FROZEN IN TIME
Thirty years after the PHCA was passed, Hawaii remains the only state in the nation to mandate employer-based insurance. The principle of the law, however, has become a business standard nationwide. The U.S. Census Bureau reports that 175.3 million workers and their dependents now receive health coverage through the workplace. Some companies, such as UPS, have been lauded nationwide for providing health-insurance benefits to part-time workers who have worked for 30 days, regardless of the number of hours. The law itself, though, is stuck in the '70s, thanks to the federal Employee Retirement Income Security Act (ERISA).
ERISA was designed to prevent private pension plan abuses, but a preemption clause bans states from requiring employers to offer or dictate the terms of health-plan coverage. In 1982, Hawaii's congressional delegation obtained a waiver from this clause, meaning that Hawaii kept its mandate as long as there were no substantial changes to the act.
Bette Tatum, Hawaii state director of the National Federation of Independent Businesses, says the PHCA needs to be changed, since the state Legislature can add mandated benefits, such as in vitro fertilization. Tatum says, "Personally, I believe that small businesses would continue with some sort of health insurance [even if it was not mandated], but why a one size fits all?" She says that the law keeps employers from providing cafeteria-type plans, in which employees select plans with benefits that are appropriate to them. Jim Tollefson, CEO of the Hawaii Chamber of Commerce, says his organization continues to fight additional mandates, because, once a particular benefit becomes part of insurance law, "It's hard to do a takeaway."
Schmitt sees parallels in auto-insurance reforms. He explains, "In the mid-'90s they removed the mandated coverage and said, listen, you need to have at least this basic coverage, and then the other coverage can be optional. That was very successful in lowering automobile insurance premiums." He says that, from 1995 to 2001, Hawaii's premiums went from fourth highest in the nation to the 21st. Such reform would mean eliminating Hawaii's ERISA exemption, a congressional battle that most stakeholders would rather not wage.
While mandated benefits have grown, an employee's share of premium payments has not. Although the law says that employers have to pay "at least" 50 percent, the law caps an employee's contribution at 1.5 percent of gross wages. With premium cost increases outpacing wage growth, employers are more likely to pay 100 percent, according to a 2002 survey by the Hawaii Employers' Council. "It was contemplated that that [1.5 percent] would be amended from time to time," says Pablo, but the ERISA waiver has prevented that, as well.
MARKET SHARE MATTERS
Some have blamed the PHCA's "prevailing plan" provision for protecting HMSA and Kaiser from competition. The provision requires benefits to be based on the plan with the state's largest number of subscribers. Schmitt explains, "HMSA has the most members, so that is HMSA's plan. So the law requires that everybody essentially have the same product to sell. The only way you can compete is on price." Christine Camp Friedman, managing director of Avalon Development Co., adds, "HMSA and Kaiser have prevented others from coming into the marketplace by raising the bar. That makes it very expensive for new insurance companies, and it protects HMSA and Kaiser's market area."
Predictably, the big insurers see it differently. HMSA senior vice president Cliff Cisco says, "Quite to the contrary, I think the act has created a level playing field. Everybody has to provide the same product, and anyone is welcome to come into the marketplace." Kaiser's Pablo says previous commercial insurers, such as Prudential and Aetna, failed in Hawaii partly due to their reliance on insurance brokers to sell their products. Because HMSA and Kaiser had their own internal sales structures, Pablo explains, "You didn't really have a robust [insurance] broker community to sell the product."
HMSA and Kaiser's nonprofit status also exempts them from the 4 percent premium tax that for-profit insurers have to pay. Camp Friedman adds, "Just because they're nonprofit doesn't necessarily mean they're here to reduce premiums. All they do is pass it on to the companies."
To increase plan options, Schmitt and Department of Labor and Industrial Relations Director Nelson Befitel have advised the council that approves the state's health plans to more broadly interpret the prevailing plan provision. "You can take something out in one place, but you add something more in another place, so the plan is different [from the prevailing one], but when you look at the overall plan, you can say it's reasonably medically equivalent. That provides people with different options, different choices," says Schmitt.
If nothing changes in Hawaii, Tatum says, employers will continue to provide health insurance to their employees, but fewer will cover employees' dependents. Camp Friedman says employees need to be part of the discussion. "We talk about how everything is so expensive, but we've been kind of spoiled. Oftentimes we demand services beyond what's called for," she says, "What we're doing as a small business is we're now starting to educate people about the cost. That it's not just the $20 that they pay for when they request special tests. There's this huge impact to the rest of the company, the community, and the cost of insurance overall."
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