Hawai'i's Prepaid Health Care Act, a landmark 1974 state law that has given the Islands among the highest rates of health care coverage in the nation, would be preserved under the federal health care reform bill before the U.S. House today.

The state law, which requires businesses to provide health insurance to employees who work at least 20 hours a week, has helped Hawai'i cover 92 percent of residents, second only to Massachusetts.

But 8 percent — or about 98,000 people — remain uninsured and could have greater access to coverage under the federal health care reform bill.

U.S. Rep. Mazie Hirono, D-Hawai'i, said the bill could be as historically significant as the creation of Medicare and Medicaid, the nation's health care safety net for the elderly and the poor.

"It's not a perfect bill, but it's going in the right direction in making insurance more affordable and accessible," Hirono said.

The U.S. House is scheduled to vote today beginning at 7 a.m. Hawai'i time.

Most people who are now uninsured would be required to obtain coverage by 2014 or face a penalty, with tax credits available to low- and middle-income residents and small businesses to help purchase coverage through new insurance exchanges.

The bill would also expand the income eligibility threshold in Medicaid — Quest in Hawai'i — so thousands more people here may qualify for the federal and state health plan for the poor.

Insurance companies would no longer be able to place lifetime caps on coverage. Insurers would also be unable to deny coverage because of pre-existing medical conditions, starting with children this year and adults in 2014.

Higher-income residents would have to pay an increased Medicare tax on wages and investment income. An excise tax would be imposed on higher-end insurance plans starting in 2018,.

Hirono and the state's congressional delegation sought the exemption for the Prepaid Health Care Act because they did not want the unique state law swept aside by national reform. Critics have said the state law drives up business costs and has led some companies to hire more part-time workers to avoid the mandate, but many see it as a model.

"It's been a law that has been working in Hawai'i to keep our people healthy," Hirono said.

MORE MONEY FOR ISLES

Nationally, about 60 percent of people get health insurance through their employer. Under the bill, larger businesses on the Mainland would not be required to offer health insurance but would be fined if the government has to subsidize worker health care.

The exemption for the Prepaid Health Care Act could be the most significant part of the bill for Hawai'i, but other provisions in the bill and a budget-related companion could have effects here.

Hawai'i and Tennessee could each receive about $100 million in Medicaid payments to help hospitals that treat a disproportionate share of poor and uninsured patients. Until the past few years, the two states had not regularly received extra federal payments because the states have waivers from the traditional Medicaid program — for Quest in Hawai'i and Tenn-Care in Tennessee.

Hawai'i and 10 other states would share in $8.5 billion in extra Medicaid money over a decade for already providing expanded Medicaid coverage, such as benefits for adults who have no children. The bill would require all states to expand Medicaid coverage and federal lawmakers do not want to penalize states that took early action.

Hawai'i may receive an additional $58 million in Medicaid money because the state was declared a major disaster area by President George W. Bush after the Big Island earthquake in 2006. The provision was written into the bill to help prevent a drop-off in Medicaid money for the poor in Louisiana because of the jump in per-capita income from recovery aid after Hurricane Katrina.

But, as the New Orleans Times-Picayune first reported, Hawai'i may not get the extra Medicaid money. Kalawao County — the state's often overlooked fifth county governed by the state Department of Health for Hansen's disease patients on Moloka'i — was not specifically named in the disaster, so there is a question about whether the declaration was truly statewide.

Hawai'i would benefit from a provision to close Medicare's so-called "doughnut hole," where seniors who exceed annual prescription drug coverage limits but have not reached a catastrophic level have to pay the full costs of drugs.

The AARP Hawai'i has estimated that 36 percent of Hawai'i seniors on Medicare fell into the gap in 2007, higher than the national average. Seniors in the gap would get a $250 drug rebate this year and discounts until the hole is closed in 2020.

LINGLE'S OPPOSITION

Despite these potential sweeteners, Gov. Linda Lingle and Lillian Koller, the director of the state Department of Human Services, believe the health care reform bill could be devastating to Hawai'i.

Koller, an advocate for expanding Medicaid coverage, said a conservative estimate suggests the bill could impose a $300 million unfunded mandate on the state, primarily by opening Medicaid to thousands of more people by expanding the income eligibility threshold.

Lingle and Koller told state senators last week that the state is unable to sustain existing Medicaid spending and is looking to reduce the benefit package in Quest.

"If this national health care passes, which, of course, I hope it does not, the impact on the state is going to be immense," Lingle said. "It's going to just explode our Medicaid obligation."

Koller said in an interview that it is curious why the extra payments in the bill would be seen as a plus. She said it contradicts the central promise of reform — covering the uninsured — because it presumes hospitals will still be burdened by charity care for the poor and uninsured.

Koller said it shows that Congress has a "lack of confidence in the effectiveness of their national health care reform."

The state's dominant health insurers, the Hawai'i Medical Service Association and Kaiser Permanente, also have some concerns about the bill.

Jennifer Diesman, vice president of government relations at HMSA, said there could be potential conflicts between the Prepaid Health Care Act and provisions of the bill. She asked, for example, whether small businesses would qualify for subsidies to purchase coverage for workers through the insurance exchanges if the health plans have lower benefit packages than required by state law.

"The impact on Hawai'i is a fair bit unknown," she said.

Diesman said HMSA would have to pay a new insurer fee in 2014 while Kaiser would get a break, which could lead to higher premiums in HMSA and an uneven playing field between the competitors.

Frank Richardson, the vice president and regional counsel at Kaiser, said Kaiser's preference has been that the insurer fee be applied to all insurers but proportionate to market share. He said Kaiser would get a partial discount.

"However, we sense that the time to fix this issue in the current legislation has passed. Assuming the bill does pass, the inequity of the insurer tax will need to be revisited in a comprehensive manner," he said in an e-mail. "We welcome HMSA's partnership in this effort."

House Democrats narrowly passed their version of health care reform in November, with Hirono and former congressman Neil Abercrombie in support. The U.S. Senate passed its version in December, with U.S. Sen. Daniel K. Inouye and U.S. Sen. Daniel Akaka — Hawai'i Democrats — in support.

Abercrombie's decision to resign in February to concentrate on his campaign for governor leaves House Democrats with one less vote. But House Democrats appeared confident yesterday that they would have the votes to pass the bill.

"We have what we have," Hirono said.