Honorable Calvin K.Y. Say

Speaker, House of Representatives

Twenty-First State Legislature

Regular Session of 2002

State of Hawaii

Sir:

Your Committee on Consumer Protection and Commerce, to which was referred H.C.R. No. 29, H.D. 1, entitled:

begs leave to report as follows:

The purpose of this concurrent resolution is to convene a task force to examine the effectiveness of the Prepaid Healthcare Act (PHCA).

The Hawaii Business League and The Chamber of Commerce of Hawaii testified in support of this measure. The Department of Labor and Industrial Relations, the Hawaii Nurses' Association, and the Hawaii Uninsured Project supported the intent of this measure. The Department of Commerce and Consumer Affairs provided comments.

Your Committee finds that when PHCA was enacted in 1974, Hawaii became the only state in the nation to require that workers be offered comprehensive private sector-based medical coverage for off-the-job injuries and illnesses. PHCA closed a gap in medical coverage for injuries and illnesses that were not covered under workers' compensation or temporary disability insurance laws.

Three months after enactment of PHCA, Congress enacted the Employee Retirement Income Security Act of 1974 (ERISA) which raised the issue of whether this federal law preempted PHCA. The issue was litigated in Standard Oil v. Agsalud and the federal courts eventually ruled that ERISA preempted PHCA. As a result, Hawaii sought and successfully obtained an exemption from ERISA preemption. The exemption, however, expressly prohibited any amendment of PHCA except amendments providing for the effective administration of the Act. The prohibition, in effect, froze PHCA in the form in which it was passed in 1974.

Your Committee recognizes that changes in the economy have made it difficult for some employers and small businesses to keep up with the rising cost of health insurance premiums. Your Committee further recognizes that the frozen status of PHCA may prevent it from evolving with the times.

Your Committee finds, however, that the complexity of our State health care system and potential consequences that may ensue if PHCA is amended, merit an in-depth examination and review of State health insurance coverage issues.

Your Committee has amended this measure by:

As affirmed by the record of votes of the members of your Committee on Consumer Protection and Commerce that is attached to this report, your Committee concurs with the intent and purpose of H.C.R. No. 29, H.D. 1, as amended herein, and recommends its adoption in the form attached hereto as H.C.R. No. 29, H.D. 2.