The Obama administration has agreed to finance Hawai'i Premium Plus, a unique $10.8 million incentive by Gov. Linda Lingle to encourage businesses to hire new workers by helping cover the cost of health insurance.

The state will pay about half of the health care costs for new workers hired off unemployment rolls. The subsidies will last for up to a year, but businesses must keep the new hires on for a year after the incentive ends or pay a penalty.

Hawai'i Premium Plus is aimed at businesses with 50 or fewer employees and is capped at 6,450 workers with household incomes of up to 450 percent of the federal poverty level. A worker in a family of four, for example, could qualify with a household income as high as $114,156.

Businesses can apply for the subsidy for new workers hired between May and the end of April 2011.

Depending on enrollment, the program may expand to all businesses in July.

The federal Centers for Medicare and Medicaid Services approved the use of state Medicaid money for the program.

The federal government will cover 65 percent of the cost.

Ozzy and Shontaz Naweli, who own Ozzy's Construction in Waimānalo, said they intend to take advantage of the program to hire new workers and expand their small business.

Shontaz Naweli said that affording health care for new hires can be so daunting that "we don't even want to look at it. But this program is going to help."

Lingle announced Hawai'i Premium Plus during her State of the State address in January. But by March, when The Advertiser first wrote about the program in detail, many in the business community were still lukewarm.

Carol Pregill, president of the Retail Merchants of Hawai'i, said she believes businesses will make use of the incentive.

"It's an interesting program, maybe to just kick-start anybody who may be having a little bit of hesitation because the economy is still not strong yet," she said.

Lingle, at a news conference at the state Capitol, said she hopes Hawai'i Premium Plus will reduce the state's unemployment rate by 1 percentage point. Hawai'i's unemployment rate is 6.9 percent, the highest since the late 1970s.

The state would cover up to $1,680 in health care costs for each worker in the program for up to a year, or about $140 a month. The total estimated cost of the program is $10.8 million.

The state would not penalize businesses if workers in the program leave voluntarily or are let go for cause.

Lingle asked President Obama to support the program at a meeting with the president and other governors in Washington, D.C., in February.

"It is so simple, so clear, so innovative. It ties together job creation and getting health insurance for people, and that's why they liked it so much," the governor said. "It will be a model in the country."