Hawaii employers may soon be allowed to offer workers what critics say are financially risky health insurance plans that can result in families paying thousands of dollars out of pocket in any given year for medical care.

On Wednesday, members of the Commerce, Consumer Protection and Health Committee, led by Sen. Roz Baker (D, West Maui-South Maui), advanced House Bill 407, which would allow employers to offer employees a high-deductible health insurance plan that’s paired with a health savings account.

“This is something new. We want to see if it works; we want to see what the impact is,” said Baker in noting that she would put a five-year sunset date in the bill.

High-deductible plans, which have attracted controversy on the mainland, haven’t been allowed in Hawaii’s insurance market, which has historically been more tightly regulated under the state’s Prepaid Health Care Act.

The measure, which has passed second reading in the Senate, was introduced on behalf of University Health Alliance, one of the state’s main health insurance companies, after state regulators rejected the company’s attempt to introduce a high-deductible plan into the market a couple of years ago.

“We think it can be approved currently, but rather than trying to dispute that, we thought if we have a law it is clear,” said UHA CEO Howard Lee.

The bill is expected to go to conference committee where a few members of the House and Senate will review it — a final step before it can gain final passage in the Legislature.

Low premiums, high risk

High-deductible plans, with their lower monthly premiums, can be attractive for employers seeking to save money on the health care costs of their workers, as well as employees who want to pay less in premiums, are healthy and don’t expect to need medical care.

But the costs for those covered by the plans can quickly mount in the case of an accident or unexpected medical needs. Critics also say that the plans can drain regular group insurance plans of healthy members, driving up costs for those with higher health care needs who are left in the risk pools.

Individuals covered under high-deductible plans would have to pay at least $1,300 in medical costs annually before coverage kicks in. They could also be on the hook for thousands of dollars in health care costs in the form of copayments and coinsurance.

In total, they could have to pay as much as $6,550 in out-of-pocket expenses annually — a cap set by the federal Affordable Care Act.

For employees who are also covering a spouse or children under a family plan, they would have to pay at least $2,600 in medical expenses annually before coverage begins. The annual out-of-pocket medical costs can be as high as $13,100.

The high-deductible plans are paired with a tax-free health savings account that employees and employers can contribute money to, similar to a 401(k) retirement plan.

The health savings account is expected to cover the deductible and any other medical costs throughout the year.

Lee suggested that the plans could help bring down health care costs by making people more aware of how much medical care and drugs cost, and motivating them to stay healthy to save money.

“The employers who are interested are those that really want to help their employees lead healthier lives, because this becomes employees’ money and it is portable,” said Lee. “Hopefully, there is more interest in employees to engage in wellness programs, to engage in staying healthy, to engage in knowing how much things cost.”

There is nothing in the bill that would stipulate that employers contribute to the health savings accounts, but Lee said that UHA hopes to put forward plans by which employers provide substantial contributions.

“What we are proposing here is not like the mainland high deductible. What we are proposing is focusing more on a savings mechanism — that the employer puts in money for the employee so that they could continue to build reserves for security, peace of mind,” he said.

Employers would also be required to offer employees a typical insurance plan that doesn’t include a high deductible.

Shifting costs

High-deductible plans and health savings accounts began to take off on the mainland about a decade ago. Wendell Potter, a former Cigna insurance executive, said he left his job in part because he didn’t want to be an advocate for the plans. He said insurance companies had hoped to eventually switch all their plans to high deductibles.

Potter said the plans are a way of enabling employers and insurers to shift more of the health care costs to individuals and families. “It doesn’t control costs,” he said.

He said that health savings accounts can act as good tax shelters for the wealthy but that most workers, many of whom are living paycheck to paycheck, rarely have money to put into the accounts.

“I left my job in the industry because I was expected to be a cheerleader for them as my job as head of corporate communications for Cigna,” he said. “But I did my own research, and I saw the people who were low- and middle-income earners just simply don’t fare well. They often can’t meet the deductibles to get the care that they need, so they forgo the care.

“It is just ridiculous, in my point of view, that we just allow this type of insurance to exist,” he added.

Final approvals

House Bill 407 still has to make it out of conference committee, which is expected to comprise Baker, Rep. Roy Takumi (D, Pearl City-Waipio-Pearl Harbor) and possibly others. If it is passed by the Legislature and is signed by the governor, any high-deductible plans would also need to be approved by regulators within the Hawaii Department of Labor and Industrial Relations.

Baker recently inserted language into the bill that would require insurers to provide any educational and marketing material about the plans to the insurance commissioner as an added consumer protection.

“I think for some employees this may be a very beneficial opportunity. For others it is going to be a disaster, and the chair cares very much about consumer protection and people not being misled and put into something that is not going to be useful to them or helpful for them,” Baker said Wednesday as she passed the bill out of her committee.

Rep. Angus McKelvey introduced the bill and passed it out of the House Consumer Protection and Commerce Committee earlier this year, when he was chairman. McKelvey has since been removed as chairman and replaced by Takumi, who would have to agree to the bill in conference committee.

Takumi expressed concerns about the measure, while saying he hadn’t decided whether he would support it. He said he was particularly concerned that employees could buy into the plans not fully understanding the risks, because health insurance is so complicated.

“If people really can’t understand it, I don’t think as a state you should say, ‘Well, the fact that you didn’t understand it, too bad for you,’” he said.

The bill is being opposed by local unions, including ILWU 142 and the AFL-CIO. Local employers Alexander & Baldwin and JTB Hawaii submitted testimony in support of the measure.