Health Premiums in Hawai’i on the Rise

In 1974, Hawai’i’s Prepaid Health Care Act contributed to one of the lowest uninsured rates and the lowest and slowest growing health insurance premiums in the nation. Today, however, the cost of health care has increased, with a seven percent increase for small businesses since 2003.

A recent study, “The Challenges Facing Hawai’i 40 Years After the Prepaid Health Care Act (PHCA),” conducted by the Hawai’i Health Information Corporation shows that these costs are only increasing.

Outside of just overall health care costs, premiums are also expected to rise further as a result of various Affordable Care Act-related fees. According to the Hawai’i Health Information Corporation, HMSA’s fees were $65.4 million in 2014, and four out of nine percent of HMSA’s premium increases for small business were attributed to ACA-related fees during the same year. These fees were passed down to customers.

The study suggests that the most significant ACA-related fee is the insurance provider fee, which is imposed on all insurers to subsidize health insurance for eligible individuals who purchase a plan on a health exchange.

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

In 2014, the year the ACA was implemented, $8 billion was collected nationwide in fees. Nearly 60 percent of HMSA’s 2014 ACA-related fees—$39 million—represented the insurance provider fee. In order to cover the subsidies for health care premiums, the insurance provider fee, which is permanent, is expected to increase two to three percent each year, up to $14.3 billion in 2018.

The second fee helps the Patient-Centered Outcomes Research Institute, which was initially set at $1 per insured person during the 2013 fiscal year but increased during the 2014 fiscal year to $2 per person on all plans. These plans, going forward, will be adjusted based on the United States average rate of health care inflation, nearly three percent per year from 2010 to 2013.

Individuals with pre-existing conditions cannot be denied under the ACA, so the third fee pertains to subsidizing high-risk enrollees through transitional reinsurance and risk-adjustment programs. The transitional reinsurance and risk-adjustment programs are scheduled to last only three years, with $10 billion collected and distributed in 2014, $6 billion 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, Hawai’i imposed a two percent sustainability fee on premiums purchased that year on the then state-run exchange.

Since Hawai’i no longer has a state-based exchange, sustainability fees collected will go to funding the federal marketplace, HealthCare.gov.

“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.”