Honorable Robert Bunda

President of the Senate

Twenty-First State Legislature

Regular Session of 2002

State of Hawaii

Sir:

Your Committee on Labor, to which was referred S.C.R. No. 29 entitled:

begs leave to report as follows:

The purpose of this measure is to request that the Insurance Commissioner convene a task force to review and examine the effectiveness of the Prepaid Health Care Act (PHCA).

Testimony in support of the measure was received from the Department of Labor and Industrial Relations, the Chamber of Commerce of Hawaii, the Hawaii Business League, the National Federation of Independent Business, Kaiser Permanente, the Hawaii Medical Association, the Hawaii Uninsured Project, and the Healthcare Association of Hawaii.

The measure also requests that the PHCA Task Force examine the feasibility of:

Your Committee finds that the PHCA was enacted by the Legislature in 1974, in an effort to ensure that the working people of Hawaii had access to adequate health care (Act 210, Session Laws of Hawaii 1974). The PHCA mandates employers to provide adequate prepaid health care coverage to employees working at least twenty hours per week.

Since its enactment, the PHCA has accomplished a great deal in terms of providing adequate health care coverage for the working people of Hawaii, defining a basic health care coverage benefits package long before the idea became a standard, and enfranchising thousands of people.

Notwithstanding its accomplishments, the history of the PHCA has not always been filled with universal enthusiastic support. Only three months after the enactment of the PHCA, mandatory employee health care coverage in Hawaii soon found itself on a collision course with federal law as the U.S. Congress enacted the Employee Retirement Income Security Act of 1974 (ERISA). In 1977, Standard Oil Company of California, a self-insured employer with workers in Hawaii, filed suit in federal court, essentially questioning whether self-insured employers were subject to state regulation of employee benefits. The court found in favor of Standard Oil and held that ERISA preempted the PHCA.

Hawaii sought and successfully obtained a waiver exempting the PHCA from ERISA preemption when President Ronald Reagan signed a bill into law that approved the exemption in 1983. Although the waiver exempted the PHCA from ERISA, it also specifically prohibited any changes to the Act after September 2, 1974, other than those changes that might improve "effective administration". This exemption essentially froze the PHCA in the form it was passed in 1974.

The frozen status of the PHCA has generated controversy to the extent that some argue that the federal exemption does not allow the PHCA to evolve with the times.

Your Committee believes that this important issue that has such a broad impact on the State should be revisited through the convening of a task force of concerned parties.

Your Committee has amended the measure by:

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