Hawaii’s thriving tourism and hospitality industries create numerous job opportunities in various sectors. In addition to salary, employees may be eligible for a comprehensive compensation package that includes health care and retirement benefits.
The state’s worker’s comp and temporary disability (TDI) mandates differ from federal rules, which can pose challenges for plan sponsors. Navigating these differences is critical for ensuring compliance and maintaining employee satisfaction.
ERISA Preemption
As one of the only states in the country that requires employers to provide health benefits for their employees, Hawaii has specific regulations that impact how organizations should offer employee healthcare. In particular, the state has a law prohibiting high-deductible health plans with allowance caps limiting the amount an employee can reimburse for their health insurance premium. While a qualified small employer HRA (QSEHRA) can still be used in the state, employers must explore alternatives like an integrated health reimbursement arrangement (ICHRA), which allows employees to cover 100% of their insurance premiums.
The Employee Retirement Income Security Act of 1974 (ERISA) broadly preempts state laws relating to a private-sector employee benefit plan. Historically, courts have applied a literal interpretation of the preemption provision. However, in the New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Insurance Company, the Supreme Court rejected this uncritical literalism and adopted a more nuanced approach. To be preempted, a state law must directly affect ERISA-governed plans or have a direct economic effect on them.
State-Mandated Benefits
Employee benefits are a crucial component of attracting and retaining talent. Many employers offer employees a competitive compensation package with various benefits, such as paid vacation time, health insurance, life insurance, retirement savings plans, and tuition reimbursement programs.
State-mandated benefits, such as temporary disability insurance (TDI), are another consideration. While many state legislatures impose these requirements without intending to raise premiums or reduce coverage rates, unintended consequences often arise.
For example, a state’s choice of a benchmark plan may limit a health plan’s ability to offer a cost-reduction strategy. A benefit mandate might sometimes require a health plan to limit employee contributions, expand cost-sharing provisions, or restrict benefits to comply with the state’s requirements. A well-versed in Hawaii employee benefits laws and can assist you in finding a compliant solution that meets your business needs. They also has a national team that works with large and small employers headquartered outside of Hawaii to ensure they comply with the state’s requirements.
High-Deductible Health Plans
A high-deductible health plan (HDHP) is a type of consumer-driven health plan that offers lower monthly premiums in exchange for a higher out-of-pocket spending threshold before the insurance company starts to pay. HDHPs may also offer additional benefits such as a defined list of preventive care services that are covered pre-deductible, as well as a range of coinsurance percentages up to a cap.
While higher deductibles increase the potential cost of healthcare out-of-pocket expenses, HDHPs typically allow workers to establish Health Savings Accounts (HSA), which provide long-term, tax-advantaged savings for qualified medical expenses. With healthcare costs continuing to climb, employees need to weigh the financial implications of a high-deductible plan against the potential of lowering monthly insurance premiums. As a result, it’s often helpful to have a healthcare expert assist in comparing the various options available.
Self-Insured Plans
Employers must choose one of three options for providing Hawaii-compliant coverage: offer an ERISA-exempt self-insured plan, use a state-approved group insurance provider, or provide employees with an integrated health reimbursement arrangement (ICHRA) that can be paired with any compliant individual plans available through the marketplace. The ICHRA option allows employers to set allowances that are used for paying employee costs for out-of-pocket expenses such as coinsurance and copayments.
Whether or not a company decides to use a self-insured plan, the DLIR must determine that an employer is financially solvent and can pay for required medical benefits. The agency recommends specific guidelines, including an independent certified public accountant’s unqualified opinion of the employer’s financial statement, quarterly reports detailing wages and contributions, monthly deposits into the account that fund the benefits, cash on hand, and, in almost all cases, stop-loss coverage. In addition, an employer must make a conspicuous disclosure to employees that the company is self-insuring. Moreover, if the DLIR finds that an employer has failed to comply with these requirements, it may immediately terminate coverage for all current and future employees.
Employee Contribution Limits
Employees in Hawaii are also allowed to contribute to a Simplified Employer Pension (SEP) IRA. These are higher limits than other states.
While a Hawaii-only version of the 401(k) plan offers a flexible contribution structure, employers must still comply with local tax rules and restrictions. For example, 401(k) contributions can only come from employees’ salaries, not bonuses or other compensation.
The state’s employer mandate law passed in 1974, requires private-sector employers to provide insurance coverage for workers who work more than 20 hours per week. However, exemptions exist for certain low-hour employees and employees on commission. The law also contains strict guidelines for cost-sharing limits that differ from federal requirements. As a result, it isn’t easy to offer high-deductible health plans in the state. Fortunately, alternative options can be paired with HDHPs to help employees reimburse out-of-pocket costs, such as coinsurance and copayments.
