Insurance Law Journal

2011 Legislative Roundup of New Insurance Laws

By J.P. Schmidt

The Hawaii State Legislature adjourned on May 5, 2011 after passage of a number of bills affecting insurance laws, all of which have been signed into law by Governor Neil Abercrombie. Several of the new laws concern health insurance as a consequence of the federal Affordable Care Act (ACA).

HB1134 Health Insurance – Act 228

This Act deletes a section of the Hawaii Prepaid Health Care Act (PHCA) which required the automatic termination of PHCA upon the effective date of federal legislation that provides voluntary prepaid health care that is at least as favorable as the health care provided by PHCA, or provides mandatory prepaid health care for the people of Hawaii. This section of the law had been enacted in 1994 in anticipation of the adoption of the Clinton health reforms.

Hawaii is the only state that requires employers to provide health insurance to their full time employees under an express exemption from ERISA. 29 U.S.C. 1144(b)(5). The ACA contains an express statement that the ACA would not affect Hawaii’s ERISA exemption. (Some mistakenly thought that Hawaii was entirely exempted from ACA, which is not the case.) Some were concerned that the passage of ACA would trigger the termination of PHCA. Deleting this section removes that concern.

However, others were concerned that the act of amending the PHCA would result in the loss of the ERISA exemption which forbids amendment of the PHCA. 29 U.S.C. 1144(b)(5)(B)ii.

Unless court challenges invalidate ACA, or PHCA or Act 228, the federal health reform law, ACA, and the Hawaii law, PHCA will have to be read together as applying in Hawaii.

SB27 Long-Term Care Insurance – Act 012

This Act removed long-term care insurance from Article 10A of the Insurance Code, HRS 431, since Article 10H governs long-term care insurance. The Act also deletes reference to the insurance fraud statute.
SB1273 Health Insurance, Compliance with Federal Law – Act 015

This Act clarifies in state law that the Insurance Commissioner can enforce compliance with consumer protections and market reforms in the Federal Affordable Care Act as contemplated by the federal Act.
SB1274 Health Insurance, External Review – Act 230

This Act adds new sections to HRS Chapter 432E, the Patients’ Bill of Rights and Responsibilities Act, based on the National Association of Insurance Commissioners’ Uniform Health Carrier External Review Model Act, to comply with the Federal Affordable Care Act. When a health insurer denies coverage, the insured can request an external review. The commissioner will then assign an independent review organization (IRO) from a list of qualified organizations to review the claim considering principles of medical necessity and appropriate practice guidelines. The IRO may uphold or reverse the denial of claim. The law also provides for an expedited review procedure and review of denials based on a determination that the procedure was investigational or experimental.

There were a number of testimonies submitted opposing this bill and arguing for retention of the existing external review procedure in Chapter 432E which allowed for representation of the insured by counsel. However, in 2004 the Hawaii Supreme Court held that ERISA preempted the 432E process for employer plans (HMAA v. Insurance Com’r 106 H. 21, 100 P.3d 952, 2004) and the Attorney General in 2008 determined that the process did not apply to government plans provided by EUTF. Therefore, there were very few plans left where the 432E process applied. In addition, if the uniform Model Act process were not adopted, the federal government would have taken over the external review process in accordance with the Affordable Care Act.

SB1348 Hawaii Health Insurance Exchange- Act 205

This Act establishes a Hawaii health insurance exchange to be known as the Hawaii health connector. It sets up an interim board of directors to recommend policies and procedures to implement the governance of the Hawaii health connector, and appropriates federal funds to support the operations of the interim board. The connector will be a nonprofit corporation governed by HRS 414D, and not a governmental agency. The connector will facilitate the purchase and sale of qualified plans, provide information for informed health choices, and enable the purchase of plans electronically. The governing board of the connector will have 15 members selected by the Governor with the advice and consent of the Senate.

Under the Affordable Care Act, ACA, a state must show its ability to set up an exchange by 2013, or the federal government will set up and run the exchange. There are a few states that have refused to set up an exchange maintaining that the ACA is unconstitutional. Some states have proceeded to set up an exchange, even though their elected officials oppose the ACA, because they do not want to risk the potential consequence of federal government setting up and running the exchange in their state. In Hawaii, the operation of the exchange, or connector, will present the most complex problems for the interplay between the Prepaid Health Care Act and the ACA.

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