Hawaii’s Health Insurance Premiums on the Rise, Burden to Employers

Hawaii’s health insurance premiums for small businesses have risen an average of seven percent annually since 2003. That’s according to “The Challenges Facing Hawaii 40 Years After the Prepaid Health Care Act (PHCA),” a study conducted by Hawaii Health Information Corporation, the state’s premier healthcare data collector and analyzer.

Healthcare dataPassed in 1974, the State’s PHCA has contributed to one of the lowest uninsured rates as well as the lowest and slowest growing health insurance premiums in the nation. Still, the cost of health care—physician, hospital and insurance services, prescription drugs, equipment and supplies—is steadily increasing.

ACA is Impacting Rising Costs
On top of increasing health care costs, premiums are expected to rise further as a result of various Affordable Care Act-related fees. For example, HMSA’s fees in 2014 totaled $65.4 million, and as was done across the country, fees were passed directly on to consumers. Four out of nine percent of HMSA’s premium increases for small business was attributed to ACA-related fees in that same year.

The most significant ACA-related fee is the insurance provider fee, imposed on all insurers to subsidize health insurance for eligible individuals who purchase a plan on a health exchange. In implementation year 2014, $8 billion was collected nationwide. Nearly 60 percent of HMSA’s 2014 ACA-related fees—$39 million—represented the insurance provider fee. The insurance provider fee is permanent and expected to increase two to three percent per year to cover the subsidies for health care premiums. The fee is projected to reach $14.3 billion in 2018.

The second fee helps finance the Patient-Centered Outcomes Research Institute. Initially set at $1 per insured person during FY 2013, the fee increased to $2 per insured person on all plans during FY 2014. Going forward, the fee will be adjusted based on the U.S. average rate of health care inflation, which was nearly three percent per year from 2010 to 2013.

Since the ACA prohibits denying individuals health insurance based on pre-existing conditions, the third fee involves subsidizing high-risk enrollees through the transitional reinsurance and risk-adjustment programs. Scheduled to last only three years, the transitional reinsurance program collected and distributed $10 billion in 2014 (translates to a $63 fee per covered life); $6 billion is anticipated in 2015 and $4 billion in 2016. The risk adjustment program is permanent; insurers with lower-risk enrollees will pay insurers with higher risk enrollees within the same state.

The final fee is a sustainability fee to finance health insurance exchanges since federal funds have been exhausted. By the end of 2014, Hawaii imposed a two percent sustainability fee on premiums purchased that year on the then state-run exchange. Since Hawaii no longer has a state-based exchange, sustainability fees collected will go to funding the federal marketplace, HealthCare.gov.

The employee-employer cost share structure laid out in the PHCA, rising health care costs and in recent years, these ACA-related fees, has led to employers in Hawaii paying an increase of more than 3,000 percent to cover their portion of employer-based healthcare coverage since 1974.

“The Affordable Care Act, while a real advance for the rest of the country, is placing a special burden upon Hawaii, which has already achieved much of what the ACA has set as health goals for the nation,” said Peter Sybinsky, CEO of HHIC. “These burdens—payment reductions, high insurance taxes, additional health benefits—all make it more difficult to maintain the historical commitment to universal coverage that has made Hawaii a leader in health reform.  As a community, we need to work together to respond appropriately to this major challenge.”

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