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HAWAII EMPLOYERS CLAIM PARTNER LAW EXTENDS BENEFIT OBLIGATIONS TOO FAR

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HONOLULU, Hawaii-A group of employers is challenging a state law that forces them to provide health care benefits to anyone an employee deems a "reciprocal beneficiary," regardless of whether the employee has a connection with the beneficiary.

The new law, say employers who are suing to stop its implementation on grounds that it is pre-empted by federal law, will significantly drive up their costs by opening up coverage in their health care plans to individuals unrelated to their employees.

The first-of-its-kind law resulted from a legislative compromise last spring aimed at limiting the impact of an awaited state Supreme Court ruling on whether gay couples have the right to marry in Hawaii. But the resulting law, which took effect earlier this month, is a legal, financial and administrative nightmare for employers, said the plaintiffs, which include some of the state's largest employers.

The law creates a much broader category of eligible beneficiaries than has resulted from other legislative efforts by public entities to provide benefits to same-sex domestic partners.

Under the Hawaii law, to qualify as a "reciprocal beneficiary," a party need only be an adult and be legally prohibited from marrying.

To qualify for such a reciprocal relationship the parties must register with the state. But registrants do not have to be in a financially or emotionally committed relationship, related to each other, live together, nor even be residents of Hawaii.

Under the law, an employee can designate a reciprocal beneficiary living in another state as a gesture of friendship or as a favor, said John J. D'Amato, of the Honolulu firm of D'Amato & Maloney, who represents the employers seeking to block the law.

"The concern is that Hawaiian employers are going to end up being the insurer for people all over the United States," said Mr. D'Amato.

His firm filed suit July 11 in federal court in Honolulu on behalf of Hawaiian Electric Industries Inc., Hawaiian Electric Co. Inc, Hawaii Electric Light Co. Inc., Maui Electric Co. Ltd., American Savings Bank, Hawaiian Tug & Barge Corp., Outrigger Hotels and Resorts, Young Brothers Ltd., Bank of Hawaii, Theo H. Davies & Co. and C. Brewer & Co. Ltd.

They are seeking to enjoin the state from enforcing the portion of the law that requires an employer to extend dependent health and welfare benefits to reciprocal beneficiaries. A court hearing is set for Sept. 22.

Employers in Hawaii have a choice of providing rich benefits, without dependent coverage, or lesser benefits but the employers must pay for at least half of the premium for dependent coverage.

In addition to access to employer-sponsored health plans, the law gives those in a reciprocal relationship numerous other rights, such as those relating to inheritance, property and hospital visitation. The employers' lawsuit does not address those issues.

Under the law, employers cannot regulate who becomes a beneficiary under their health plans, said Duane D. Feekin, executive vp of human resources for the Bank of Hawaii in Honolulu.

Mr. Feekin said he fears that unrestricted access could allow an insured employee to sell an extension of their benefits to someone in another state who is uninsured and ill.

"I don't believe there is anything in the bill to forbid someone from coming in here and trying to broker (their benefits) or saying, 'Let me help match single people in Hawaii with people who have the need, " he said.

The Bank of Hawaii is one of largest private employers in the state, with about 5,500 employees worldwide and 3,600 in Hawaii. It now spends about $10 million annually on health care benefits and has estimated that implementing reciprocal benefits could cost it another $4 million annually, Mr. Feekin said.

In their lawsuit, the employers charge that the Hawaii law runs afoul of the federal Employee Retirement Income Security Act of 1974, which bars state laws that relate to employee benefit plans. They argue that the state's law imposes a duty to extend coverage under their group health care plans.

The employers also charge that the reciprocal beneficiary provisions burdens their ability to implement Hawaii's Prepaid Health Care Act. The PHCA requires employers to provide health coverage to all employees who work more than 20 hours per week. An exemption for PHCA is written into ERISA, though amending the PHCA is also pre-empted under the federal law, according to Mr. D'Amato.

Nor is the reciprocal beneficiary provision saved from ERISA pre-emption under an "insurance savings clause" because the reciprocal law is not directed at, or limited to, the insurance industry, the plaintiffs state in their suit.

That assertion is important because Hawaii's legislators drafted the law as an amendment to the state's insurance code in attempts to avoid pre-emption under ERISA's insurance savings clause, critics contend.

"We have this disingenuous back door approach to doing something indirectly that cannot be done directly," Chip Kerby, a principal for William M. Mercer Inc. in Washington, said of the Hawaii law.

Mr. Kerby has been studying the law in order to advise clients in Hawaii. But he noted that the law is so vague that even the Hawaii Insurance Division is experiencing difficulties understanding how it is to be implemented and has asked for the state attorney general's guidance.

For now, Mr. Kerby said he is suggesting that employers wait and not spend their time or money attempting to comply with the law.

"I think employers have to really dig their heels in and hold their ground on this because I think once this gets litigated the courts are going to hold that ERISA pre-empts," Mr. Kerby said.

The plaintiffs in the lawsuit are also delaying compliance until their court date, Mr. D'Amato said.

The plaintiffs did not fight the law when it was still in legislators' hands because the proposal was first aimed at public employers, not private companies, explained Patty Foley, corporate director of human resources for Outrigger Hotels & Resorts in Honolulu.

It wasn't until final passage of the legislation that it was broadened to apply to private employers, she said.

Employers fighting the reciprocal law are facing criticism that they are anti-gay and anti-lesbian.

An Outrigger salesman who specializes in marketing the hotel to gay clientele has had to study the issue to be able to correct that notion, Ms. Foley said.

"If it were a domestic partnership issue there wouldn't be as much controversy," said Tim Ho, president of the Hawaii Employers Council, which manages labor and human resources issues for employers. "We think the law is flawed in the way it's constructed. There is no clarity in knowing how we are going to apply this and it's overly broad."

The plaintiffs did not file the lawsuit for moral reasons nor are they suing only to stop the entire law, just the portion impacting their health plans, Mr. Feekin pointed out.

"This is not an easy thing to do," he said. "Some people are saying this suit was precedent setting in our community. Well, it certainly is, but that also helps explain the importance that we have placed on it."