Can Employers Reimburse Employees for Health Insurance in Hawaii?

Many Hawaii employers ask whether they can simply reimburse employees for their own health insurance instead of offering a traditional group plan.

Options like ICHRA (Individual Coverage HRA) and QSEHRA are popular on the mainland—but Hawaii has unique rules under the Prepaid Health Care Act (PHC Act) that change how these strategies work.

If you are considering reimbursement instead of a group plan, it is critical to understand what is allowed—and what is not.

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Can Employers Reimburse Health Insurance in Hawaii?

Short answer: Not as a replacement for required employer coverage.

Under Hawaii law, most employers must provide health insurance that meets the requirements of the Hawaii Prepaid Health Care Act.

This means reimbursement models like ICHRA and QSEHRA generally cannot replace a compliant group health plan for eligible employees.

What Is the Hawaii Prepaid Health Care Act?

The Hawaii Prepaid Health Care Act requires employers to provide health insurance to employees who:

• Work 20 or more hours per week
• Earn wages for 4 consecutive weeks

Employers must also:

• Pay at least 50% of the premium
• Ensure the employee contribution does not exceed 1.5% of monthly wages for the base plan

Learn more about the rules here: Hawaii Prepaid Health Care Act Guide

What Is an ICHRA?

An ICHRA (Individual Coverage Health Reimbursement Arrangement) allows employers to reimburse employees tax-free for individual health insurance premiums.

This model is widely used on the mainland because it allows employers to avoid sponsoring a group plan.

In Hawaii, however, ICHRA does not satisfy PHC Act requirements for eligible employees.

What Is a QSEHRA?

A QSEHRA (Qualified Small Employer HRA) is designed for small businesses with fewer than 50 employees.

It allows employers to reimburse employees for individual health insurance and medical expenses.

But like ICHRA, QSEHRA does not replace required employer coverage under Hawaii law.

When Can Reimbursement Strategies Be Used in Hawaii?

While ICHRA and QSEHRA cannot replace required coverage, they may still be used in limited situations:

• For employees working less than 20 hours per week
• For employees not eligible under PHC Act rules
• As a supplement to a compliant group health plan

These situations require careful structuring to avoid compliance issues.

What Is the Best Option for Hawaii Employers?

For most businesses in Hawaii, the best approach is:

• Offer a compliant group health plan (HMSA, Kaiser, UHA, or HMAA)
• Supplement benefits strategically if needed
• Stay fully compliant with PHC Act requirements

If you are unsure, the safest path is to compare your options with a local expert who understands Hawaii-specific rules.

Get Help Structuring the Right Plan

Health insurance in Hawaii is very different from the mainland, and reimbursement strategies can create compliance risks if used incorrectly.

We help Hawaii employers:

• Stay compliant with the Prepaid Health Care Act
• Compare all major carriers (HMSA, Kaiser, UHA, HMAA)
• Build cost-effective benefit strategies

Request a free Hawaii group health insurance quote