Posted on: Sunday, February 1, 2004

State seeks more health-plan options

By Deborah Adamson
Advertiser Staff Writer

Joyce Edwards remembers being unable to immediately pay a $100 doctor's bill following the birth of her first child 40 years ago.

She and her husband, both college students at the time, didn't have insurance. So she paid by installment.

Today, she's a small-business owner in Kalihi who employs 14 and understands what it's like to be without coverage. But she also sees how businesses struggle to pay rising healthcare costs.

"The business owner has a lot of expenses," said Edwards, the co-founder of The Systemcenter, a designer and facilitator of workspaces and warehouses. "That $50 or $100 a month sometimes can be the difference between 'should I or shouldn't I (hire another person)?' "

Small businesses like Edwards' may soon have the option of choosing a lower-cost plan with fewer benefits.

The state Insurance Division and Department of Labor and Industrial Relations are working behind the scenes to change Hawai'i's Prepaid Health Care Act and make it easier for competing health plans to be approved. The goal is to boost competition among insurers, give businesses more choices and reduce employers' healthcare costs.

"We want to open the door to competition," said Nelson Befitel, state labor director.

The Lingle administration's strategy is to expand the definition of "medically equivalent" plans. The act only allows new plans that are thought to be on par with existing plans.

But the administration's efforts also raise the possibility that workers could end up with much higher out-of-pocket costs and a decrease in the benefits they've used frequently.

The act requires businesses to offer health insurance to nonunion employees working at least 20 hours a week for at least four consecutive weeks. Health benefits offered cannot be less than what's in the most popular plans in the market.

Alternative-plan risks

Currently, the most popular among preferred provider organization plans is Hawaii Medical Service Association's plan that requires a 10 percent co-payment for medical services. The most popular health maintenance organization plan is offered by Kaiser Permanente.

State Insurance Commissioner J.P. Schmidt is working with Labor Director Nelson Befitel to modify the process by which alternative health plans could be approved and still conform to the act.

There is a risk: If a lower-cost, higher-co-payment plan is approved and becomes the most popular, the minimum standard for healthcare will change for workers and not necessarily for the better. Befitel acknowledged that possibility, but he said the market should dictate the minimum standards.

The administrative changes to the act would not require approval of the Legislature, which might see any changes as watering down the act.

State Rep. Dennis Arakaki, head of the House Health Committee, said he thinks any changes would be subject to challenge. "I don't think they can do it without providing some legislation. I think people aren't willing to take that risk," he said.

Schmidt and Befitel said they don't want to change the act itself. If they did, the state might lose an exemption from the federal Employee Retirement Income Security Act.

Weeks after the Hawai'i act was adopted in 1974, ERISA was passed by the Congress. ERISA, which regulates worker benefits, does not require companies to provide healthcare benefits, but Hawai'i was granted an exemption.

Assessing new plans

At present, the Prepaid Health Care Advisory Council either recommends or disapproves health plans to the labor director. Technically, the director makes the final decision to adopt or reject a plan, but historically he or she has followed the council's lead.

In recent years, Schmidt and Befitel said, the council has rejected plans if they are not nearly identical to the prevailing health plans. Thus, it has been tough to get lower-cost plans approved.

But the two say that it's better to have actuaries assess whether new plans can medically substitute for other coverage. Thus, if a plan with a higher co-payment sufficiently boosts other benefits, it wouldn't necessarily be rejected out of hand.

Befitel said that the advisory council could also benefit from third-party advice when they examine a new plan.

"The council has expressed being a little bit uncomfortable when looking at the plan as a whole rather than line by line, because they may be comparing apples to oranges," he said.

HMSA recently presented a preferred provider plan that would lower the premiums for businesses by about 5.7 percent but double co-payments to

20 percent for in-network provider services. In-network services are those offered by providers participating a health plan.

HMSA said it believed this plan was equivalent to the most popular health plan since it also boosted benefits for mental health and substance-abuse treatment. It would also cover preventive healthcare such as mammograms by 100 percent and raise the medical costs maximum per person to $5 million from $1 million.

The Prepaid Health Care Advisory Council rejected the plan after finding it fell short of coverage already available.

Shifting financial burden

Small businesses are supporting the administration's sought-after changes because they want to lower their healthcare costs. A plan that shifts a little more of the financial burden to employees is seen by employers as a positive step because it would discourage unreasonable use of medical services, which drives up healthcare costs.

A higher co-pay "increases accountability," said Dr. Virginia Pressler, health issues committee chairwoman at the Chamber of Commerce of Hawaii.

At least that's the theory, said HMSA spokesman Cliff Cisco. Unless healthcare costs start to decline, he said HMSA predicts continuing increases in premiums for the foreseeable future.

Joanne Kealoha, a social worker at ILWU Local 142, which represents 22,000 workers statewide, said higher out-of-pocket costs would be tough on working families already struggling to make a living.

She said even if businesses received a discount on premiums initially, there's no guarantee they'll continue to see savings in the long run, she said.

While the act excludes union workers, Kealoha said it sets a standard in the market for unionized companies to follow.

Nationally, employee benefits fall under the Employee Retirement Income Security Act, but Hawai'i obtained an exemption to implement its own medical insurance coverage requirements.