With Hawai'i's unemployment rate hovering at the highest level in three decades, Gov. Linda Lingle will offer $10 million to help businesses hire new workers by covering half of the workers' health care premiums for one year.

Businesses can get the state subsidy for full-time workers hired since January who had previously been drawing unemployment insurance benefits. Businesses would have to commit to keeping the new hires for up to a year after the subsidy expires or pay a penalty.

The program, known as Hawai'i Premium Plus, is capped at 6,450 new workers at companies of 50 employees or fewer, which covers most businesses in the Islands.

Hawai'i businesses have had to factor in the cost of health care for workers for a generation.

The state's Prepaid Health Care Act of 1974 requires businesses to provide health coverage for employees who work at least 20 hours a week. Businesses must pay at least half of workers' health care premium costs, and workers' premium costs cannot exceed 1.5 percent of their salaries.

Hawai'i Premium Plus will pay for half of the businesses' share of health care premiums as an incentive to create jobs.

Tim Lyons, president of the Hawai'i Business League, which represents small businesses, said Lingle's idea has yet to really catch fire.

"It's going to depend on the bureaucratic red tape behind it," he said.

Hawai'i's unemployment rate was 6.9 percent in January, with 43,450 people out of work, the highest since the late 1970s. A broader measurement by the federal Bureau of Labor Statistics found that 15.5 percent were unemployed or underemployed in 2009, a figure that reflects workers who work part time because they were unable to find full-time work.

Lingle signed a bill into law last week that softens the expected spike in the unemployment insurance tax on businesses due to the increase in unemployment claims and the depletion of the unemployment insurance trust fund during the recession. The average tax per employee will now jump from $90 to $630 this year, not to $1,070 as had been expected.

State lawmakers have so far rejected the governor's proposal for an income tax credit for businesses equal to the wages withheld for new workers hired off unemployment.

Hawai'i Premium Plus does not require new legislation, so the administration is launching the $10 million program on its own in May. The state Department of Labor and Industrial Relations has also started a volunteer internship program that allows people on unemployment to gain experience by training for up to 32 hours a week at businesses while still getting unemployment benefits.

'A WIN-WIN'

Under Hawai'i Premium Plus, the state would cover 50 percent of a new worker's health care premium for one year. Workers must earn no more than 450 percent of the federal poverty level in Hawai'i, or $56,070 for a single worker and $114,120 for a worker in a family of four.

The state estimates the subsidy will be about $1,625 per worker.

After the state subsidy expires, businesses would have to retain the workers for up to one year, or repay the state the difference.

The state estimates it will save $123 million in unemployment insurance payments if the program covers 6,450 workers.

"We would benefit, because having a person back to work — we're not paying unemployment, they are paying taxes — and it's a win-win for the community," Lingle said on Friday.

The state Department of Human Services has asked the Obama administration to authorize the use of federal Medicaid money for the program, which, if approved, would reduce the state's costs to around $4 million to $5 million.

If the Obama administration rejects the proposal, the state would have to make up the difference with state general-fund money.

Lingle personally raised the issue with President Obama at a gathering in February during a National Governors Association meeting in Washington, D.C.

LAWMAKER CAUTIOUS

State Rep. Isaac Choy, D-24th (Mānoa), the vice chairman of the House Economic Revitalization, Business and Military Affairs Committee, said the governor should not use state general-fund money for the program given the state's $1.2 billion budget deficit through June 2011.

"If we're using general funds, I don't believe we can afford something like that," said Choy, an accountant. "I do not believe now is the time to be looking at new programs that are going to cost the general fund."