Hawaii Prepaid Health Care Act (HPHCA)

The Hawaii Prepaid Health Care Act (HPHCA), originally passed in 1974 and reenacted in 1981, sets forth the minimum standards for healthcare benefits for Hawaiian employees. These rules affect all employers with at least 1 Hawaii resident employee working an average of 20 hours per week in a 4 week period. The HPHCA is exempted from ERISA.

Given that HPHCA regulations impose stricter rules for employers than the Affordable Care Act employer mandate and most other states, it’s important to be aware of the regulations and make a best effort to comply.

Employer requirements

If you employ any Hawaiian residents who work 20+ hours a week (Hawaii resident employees) your company must comply with the following HPHCA requirements or face potential penalties.

Offer mandate: if you employ any Hawaiian residents who work 20+ hours a week, you must offer them medical benefits.
- This is stricter than the ACA, which only mandates that employers with 50+ full-time employees offer health insurance.
Plan standards: the plan you offer to Hawaiian resident employees must be approved by the Hawaii Department of Labor and Industrial Relation (DLIR).
- Hawaii’s DLIR only approves plans that meet their minimum standards. In the small group, fully insured market, the carrier must get this approval. If a plan is self-funded, the plan sponsor has to seek and receive the approval (Gusto only brokers full-insured plans at this time).
Employee eligibility: Hawaiian resident employees working 20+ hours a week must be eligible for medical benefits.
- This is also a stricter requirement than the ACA, where an employee isn’t considered full-time until they work 30+ hours a week.
Waiting period: the waiting period cannot be longer than 4 weeks for Hawaii residents.
- If an employee works 20+ hours per week for at least 4 weeks, with specific exceptions, then the employee is eligible and must be offered insurance within the 4-week waiting period.
- This is stricter than the ACA, which allows a waiting period of up to 90 days from hire, allows different measurement periods to determine if someone is a full-time employee, and exempts all seasonal or temporary employers from being full-time.
Contribution requirements: Hawaii resident employees cannot pay more than 1.5% of their monthly wages towards their employee-only medical premium. The employer must also cover at least 50% of the employee-only premium contribution.
- Example: if an employee’s monthly wages are $4,000, they can only be required to contribute up to $60 to their employee-only premium. If their plan’s monthly employee-only premium is $100, then the employer must pay $50 (50%) and the employee pays the other $50. If their plan’s monthly employee-only premium is $500, the employee can still only be $60 and the employer must cover the rest.
- In contrast, the ACA requires that employees pay less than 9.86% of their monthly wages (in 2021) towards the employee-only premium.
Valid waiver reasons: the following categories of employees can waive coverage.
- Employees covered by a federally established health insurance or prepaid health care plan, such as Medicare, Medicaid or medical care benefits provided for military dependents and military retirees and their dependents.
- Employees covered as dependents under a qualified health care plan.
- Employees who are recipients of public assistance or covered by a state-legislated health care plan governing medical assistance.
- Employees who are followers of religious groups who depend upon prayer or other spiritual means for healing.
Waiver form requirements: Hawaiian residents who waive coverage must fill out Form HC-5.
- Employers must keep the form for 2 years and return a copy to employees for their records.
- If the employee selects waiver reason #4 or on request by the Director, employers must file the form with the Hawaii DLIR and send it to the address listed at the top of the form. The exemption/waiver notification is binding for one year and must be renewed every December 31.

What if an employer (plan sponsor) doesn’t comply with HPHCA requirements?

The Hawaii DLIR may apply the following penalties if HPHCA requirements aren’t met:

For every day the failure to comply continues, the employer may be fined $1 per employee or $25 per day, whichever is greater. If the default to comply extends for 30 days or greater, the employer’s business may be closed or not allowed to do services in Hawaii for as long as the default continues.
In addition to a daily penalty, any employer, healthcare contractor, or employee that willfully fails to comply may be fined $200 per violation. This may include employees who refuse to sign up for the approved Hawaii plan or provide false information in the waiver.
The employer can be liable to pay for all health costs incurred by an eligible employee during the period in which the employer fails to provide the right coverage.
Any person (employer or employee, depending on the violation), who, after 21 days of receiving written notice of failure to comply and after being heard by the director of the state department, is found to have violated provisions in this law, will be fined up to $250 per offense.

Next steps

If you employ Hawaii residents, you may need to start offering them compliant benefits as soon as possible. If you don’t yet employ Hawaii residents, you’ll still want to consider the HPHCA to determine which plans you’d need to offer and budget for the stricter contribution requirements.

What if I don’t offer benefits yet?

If you have or may hire employees who reside in Hawaii, evaluate the HPHCA requirements.
Connect with your HR professional or legal counsel to determine what steps you need to take to comply. You may need to start offering benefits to those employees as soon as possible.
Contact Gusto if you’d like our licensed advisors to set up compliant plans for your team.

Are my current plans compliant?

If you offer health benefits through Gusto, our licensed advisors are here to help. If you offer health benefits through another broker, contact your broker directly to determine next steps.

If you have or may hire employees who reside in Hawaii, evaluate the HPHCA requirements.
If you want to double-check that your current Gusto-brokered plans are compliant, reach out to us. One of our licensed advisors will assess your current plans and recommend next steps.
- Broker of record changes: if you transfer your benefits to Gusto, our advisors will assess your compliance as part of the broker change process. If changes are needed, we’ll notify you and recommend compliant plans and updates.
- Renewals: our advisors will assess your compliance as part of the annual renewal process. If changes are needed, we’ll notify you and recommend compliant plans and updates.
- Mid-year changes: if you hire a Hawaii employee, you should reach out to our advisors. Once contacted, our advisors will assess your compliance as part of the annual renewal process. If changes are needed, we’ll notify you and recommend compliant plans and updates.

What do I need to do during a Gusto open enrollment?

After our licensed advisors help you choose compliant plans and company contributions, here’s what to expect during open enrollment.

When open enrollment begins, let your Hawaii resident employees know which plan is compliant with the HPHCA.
Employees can either enroll in or waive coverage from their Gusto account.
If a Hawaii employee waives coverage, we’ll send you Form HC-5 and you must have them fill it out.
- Learn more about Form HC-5 employer requirements below.
- If the employee waives coverage due to “other coverage” (reason #4 on Form HC-5), you’re responsible for filing the form with the state.
- You’ll need to keep a copy of the form for 2 years—you can either store it manually or upload it to Gusto.

Form HC-5 requirements for employers

In compliance with Hawaii’s Prepaid Health Care Act (PHCA), Gusto is committed to helping you understand the requirements and responsibilities for handling Form HC-5. This article will guide you through what Form HC-5 is, when it needs to be used, and how to complete it.

For more information on Hawaii’s Prepaid Health Care Act (PHCA) and your responsibilities as an employer, please visit the following resources:

Hawaii Department of Labor and Industrial Relations (DLIR) Website

What is Form HC-5?

Form HC-5, also known as the “Employee Notification to Employer” form, is used by employees to notify their employer of their intent to either:

Elect Coverage under the employer’s health care plan, or
Decline Coverage due to being covered by another health plan or any of the other exemption categories listed below.

When is Form HC-5 required?

Employees must submit Form HC-5 to their employers under the following circumstances:

Annually: If the employee opts to decline coverage, the form must be resubmitted each year by December 31st.
Within 30 Days: If an employee initially elects coverage but later decides to decline due to acquiring other health coverage, the form must be submitted within 30 days of the change.
New Hires: New employees must complete Form HC-5 at the time of hire if they choose to decline coverage due to any of the exemption categories listed below.

Exemptions from coverage

Certain categories of employees can claim an exemption from coverage under the PHCA:

Federally Established Health Insurance: Employees covered by Medicare, Medicaid, or medical care benefits for military dependents and retirees.
Dependent Coverage: Employees covered as dependents under a qualified health care plan.
Public Assistance: Employees who are recipients of public assistance or covered by a State-legislated health care plan for medical assistance.
Religious Groups: Employees who are followers of religious groups that rely on prayer or other spiritual means for healing.

Employer responsibilities

To claim an exemption or individual waiver, employees must complete and submit Form HC-5 to their employer. Employers have specific responsibilities in this process:

Distributing Form HC-5: Provide the form to all eligible employees during their onboarding process, and annually for those who choose to decline coverage.
Collecting Completed Forms: Ensure all employees who decline coverage return the completed form to you.
Maintaining Records: Retain the completed forms for two years. Provide a copy to the employee upon request. These may be requested by the Hawaii Department of Labor and Industrial Relations (DLIR) for compliance verification.
Providing Assistance: Help employees understand their options and how to complete the form correctly.
Submitting to DLIR: Send a copy of Form HC-5 to the Department of Labor and Industrial Relations (DLIR) only when the employee selects exemption #4 (religious groups) or upon request.
Annual Renewal: Ensure that employees renew their exemption/waiver notification every year, by December 31st.

How to complete Form HC-5

To assist your employees, follow these steps:

Provide the Form: Download Form HC-5 and provide a copy of this form to your employees.
Fill Out Personal Information: The employee should fill in their name, social security number, and address.
Indicate Coverage Election: The employee needs to indicate whether they are electing or declining coverage.
Electing Coverage: Check the box and provide the date.
Declining Coverage: Provide the name of the insurance company, policy number, and policyholder name.
Provide Proof of Alternate Coverage: If declining, the employee must provide proof of alternate health coverage (e.g., a copy of an insurance card).
Sign and Date: The employee must sign and date the form.
Submit the Form: The employee should return the completed form to you.