Hawaii is asking the Centers for Medicare & Medicaid Services (CMS) for permission to get out of the Affordable Care Act small-group health insurance exchange program because it thinks the coverage standards for that program are too weak.

The Patient Protection and Affordable Care Act of 2010 is one of the two statutes that make up the ACA package.

Hawaii has used PPACA Section 1332, the State Innovation Waiver provision, to try to change how the ACA Small Business Health Options Program exchange system provisions work in Hawaii.

The state says the group health coverage standards it set in the Hawaii Prepaid Health Care Act of 1974 are tougher than the ACA SHOP plan standards.

The ACA now requires large employers to provide coverage for employees who work for them at least 30 or more hours per week. The coverage must pay at least about 60 percent of the actuarial value of an official ACA essential health benefits package.

The U.S. Department of Health and Human Services, the parent of CMS, and other federal agencies have ruled that the government would classify coverage as affordable if employee-only coverage costs less than 9.5 percent of the employee’s income.

The Hawaii Prepaid Health Care Act requires employers with even a single permanent employee to provide coverage that pays for at least 80 percent of the actuarial value of necessary care, and the cost of the employee’s share of the premiums cannot exceed 1.5 percent of the employee’s wages, according to a copy of the proposal posted on the CMS Section 1332 program website.

Hawaii tried to start its own, state-based, state-run ACA exchange. If the state were still running its own exchange, with an active SHOP division, it could apply its own coverage rules, but it had to switch to using the federal HealthCare.gov system because of technical glitches and budget problems, Hawaii officials say.

HealthCare.gov managers will not let Hawaii apply local small-group coverage standards to HealthCare.gov SHOP plans, and setting up a reliable, state-run SHOP exchange division would be too complicated and too expensive for Hawaii, officials say.

The ACA provides a tax credit for some small employers that use SHOP plans.

“In lieu of the ACA’s small business employer tax credit … Hawaii proposes that during [a] five-year waiver period funds be paid to the state,” the state says in its proposal. 

The state would use the federal cash to hold down premium costs for very small employers, officials say.

The Section 1332 proposal from Hawaii is the first CMS has posted on the Web.

Members of the public can comment on the proposal. Comments are due Oct. 26.

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