Hawaii ACA Requirements: What Employers Need to Know

If you operate a business in Hawaii, you’re dealing with the most layered health insurance compliance picture in the country. Most mainland employers only worry about the ACA. Hawaii employers have to handle a second, older, and in many ways stricter law (the Prepaid Health Care Act) on top of federal requirements. This guide explains both laws, how they interact, and exactly what you need to do to stay compliant.

Why Hawaii Is Different: The PHCA/ACA Dual Layer

In 1974, nearly four decades before the Affordable Care Act became law, Hawaii enacted the Prepaid Health Care Act (PHCA), making it the first state in the nation to require employers to provide health insurance to their workers. When the ACA took effect in 2010, Hawaii already had a more complete employer health insurance mandate in place.

Rather than replacing the PHCA, the ACA was layered on top of it. Hawaii received a federal Section 1332 waiver allowing the PHCA to continue operating alongside the ACA. The result: Hawaii employers must comply with both sets of rules, and when the two laws overlap, you follow whichever is stricter (which is usually the PHCA).

Federal ACA Employer Mandate

The Affordable Care Act’s employer mandate (formally called the Employer Shared Responsibility Provision) applies nationwide, including in Hawaii. Here’s what you need to know.

Who It Applies To: Applicable Large Employers (ALEs)

The ACA employer mandate only applies to Applicable Large Employers (ALEs): businesses with 50 or more full-time equivalent (FTE) employees. Full-time under the ACA means an average of 30 or more hours per week. Part-time employee hours are combined to calculate FTE equivalents.

If your business has fewer than 50 FTEs, the federal ACA employer mandate does not apply to you — but the Hawaii PHCA still does (more on that below).

What ALEs Must Do

ALEs must offer minimum essential coverage (MEC) that is both affordable and provides minimum value to at least 95% of their full-time employees (and their dependents). If they don’t, they face penalties.

ACA Penalties (2026 Amounts)

• Part A Penalty (4980H(a)): If you don’t offer coverage to at least 95% of full-time employees and at least one employee gets a premium tax credit on the marketplace, you owe $3,340 per full-time employee (minus the first 30). (2026 per IRS Rev. Proc. 2025-26)
• Part B Penalty (4980H(b)): If you do offer coverage but it’s not affordable or doesn’t meet minimum value, and an employee gets a marketplace subsidy, you owe $5,010 per affected employee. (2026 amount)

ACA Affordability Threshold

For coverage to be considered “affordable” under the ACA, the employee’s share of the premium for self-only coverage cannot exceed 9.96% of their household income for 2026 (per IRS Rev. Proc. 2025-25 — this percentage is adjusted annually; it was 9.02% for 2025 and 9.12% for 2023). Employers typically use one of three safe harbors (W-2, rate of pay, or federal poverty level) to determine affordability since they don’t know employees’ household income.

1095-C Reporting

ALEs must file Form 1095-C for every full-time employee each year and furnish copies to employees. This form reports what coverage was offered, who was eligible, and employee premium costs. Forms are due to the IRS by February 28 (paper) or March 31 (electronic), and to employees by March 2 (though deadlines have been extended in recent years — always verify the current year’s deadline).

Small Employer Tax Credits (SHOP)

Mainland guides often mention the federal Small Business Health Care Tax Credit for employers with fewer than 25 FTEs. It is not available in Hawaii. Under Hawaii’s Section 1332 waiver, the IRS states that employers in Hawaii can’t participate in the SHOP Marketplace or claim the credit for health plan years beginning after 2016. Small Hawaii employers buy PHCA-compliant group coverage directly from carriers instead.

Hawaii Prepaid Health Care Act (PHCA)

The PHCA is what makes Hawaii truly unique. It’s stricter than the ACA in almost every way that matters to small and mid-size employers.

Who It Applies To

The PHCA applies to all employers with one or more employees. There is no 50-employee threshold like the ACA. If you have even one eligible employee, you must provide health insurance.

When Coverage Is Required

An employee becomes eligible for PHCA coverage when they work 20 or more hours per week for 4 consecutive weeks. Compare this to the ACA’s 30-hour threshold. The PHCA covers far more workers, including many part-time employees who would not be considered full-time under the ACA. For the full picture on Hawaii’s employer tax and benefit obligations, see our complete Hawaii payroll taxes guide.

Employee Premium Cap: 1.5% of Wages

Under the PHCA, employees cannot be required to pay more than 1.5% of their gross wages toward their health insurance premium. The employer must cover the remainder. This is dramatically different from the ACA’s affordability threshold (9.96% of household income for 2026). For most employees, the PHCA cap results in the employer paying the vast majority of the premium.

Minimum Benefit Requirements

Health plans must meet minimum benefit standards set by the Hawaii Department of Labor and Industrial Relations (DLIR). These standards cover hospital care, surgical and medical care, and other specified benefits. The DLIR publishes the current minimum benefit requirements, and your insurance carrier should confirm that your plan meets them.

PHCA Exemptions

• Collective bargaining agreements: Employees covered under a qualifying CBA that provides equivalent or better health benefits may be exempt from PHCA requirements.
• Certain government employees: Employees already covered under government health plans may qualify for exemption.
• Federal contractors: Employees of federal contractors with equivalent health plans may be exempt.
• Employees who don’t meet the threshold: Workers under 20 hours per week or who haven’t completed 4 consecutive qualifying weeks are not yet eligible.

PHCA Waiver Process

Employees who are already covered under a spouse’s or parent’s health plan may request a PHCA waiver from their employer. The employee claims the waiver on Form HC-5, Employee Notification to Employer, and the employer keeps it on file. Without a valid waiver on file, you’re still required to offer and enroll the employee in coverage. It’s good practice to collect waivers at the time of hire and keep them on file for DLIR audits.

How ACA and PHCA Interact

This is where it gets complicated, and where many Hawaii employers get confused. Here’s how the two laws work together.

Hawaii’s Section 1332 Waiver

When the ACA was enacted, Hawaii applied for and received a Section 1332 State Innovation Waiver. This waiver allows the PHCA to continue operating alongside the ACA without conflict. The waiver in practice acknowledges that Hawaii’s pre-existing employer mandate meets or exceeds ACA standards.

PHCA Generally Satisfies ACA Minimum Essential Coverage

Employers who comply with the PHCA by offering a qualifying health plan generally meet the ACA’s requirement to provide minimum essential coverage. In practice, this means that if your plan meets PHCA standards, you’re very likely meeting the ACA’s coverage requirements as well.

ACA Reporting Is Still Required

Even though PHCA compliance typically satisfies ACA coverage requirements, ALEs must still file 1095-C forms with the IRS. PHCA compliance does not exempt you from ACA reporting obligations. Small employers (under 50 FTEs) who are not ALEs do not need to file 1095-C forms, even though they must comply with PHCA.

SHOP Marketplace

The SHOP Marketplace is not available in Hawaii. Hawaii’s Section 1332 waiver replaced it, and the federal small employer health care tax credit cannot be claimed for Hawaii coverage for plan years beginning after 2016. Small Hawaii businesses get PHCA-compliant plans directly from carriers or through a broker.

Where the Two Laws Differ

• Employee threshold: ACA applies at 50+ FTEs; PHCA applies at 1+ employees.
• Hours threshold: ACA defines full-time as 30+ hours/week; PHCA triggers at 20+ hours/week for 4 consecutive weeks.
• Affordability: ACA caps employee share at 9.96% of household income (2026); PHCA caps it at 1.5% of wages.
• Reporting: ACA requires 1095-C filings for ALEs; PHCA has its own DLIR filing and audit requirements.

Penalties for Non-Compliance

Failing to comply with either law can result in significant financial consequences. And because the two laws are enforced by different agencies, you could face penalties from both.

ACA Penalties (Federal — IRS)

• 4980H(a) penalty: $3,340 per full-time employee (minus the first 30) for 2026 if you fail to offer coverage to at least 95% of full-time employees and at least one gets a marketplace subsidy.
• 4980H(b) penalty: $5,010 per employee (2026) who receives a marketplace subsidy because your coverage was unaffordable or didn’t meet minimum value.
• Reporting penalties: Failure to file 1095-C forms can result in penalties of up to $340 per form (returns due in 2026), with higher amounts for intentional disregard.

PHCA Penalties (State — Hawaii DLIR)

• The Hawaii DLIR enforces PHCA compliance through audits and investigations.
• Employers who fail to provide required health insurance coverage can be ordered to provide retroactive coverage and reimburse employees for out-of-pocket medical expenses.
• Criminal penalties are possible for willful non-compliance, including fines and potential imprisonment.
• The DLIR can issue cease and desist orders and require corrective action plans.

Practical Steps for Hawaii Employers

Here’s a compliance checklist to keep you on the right side of both laws.

1. Audit Your Workforce

Determine how many employees you have and how many hours each one works. This tells you whether you’re an ALE (50+ FTEs for ACA purposes) and which employees are eligible for PHCA coverage (20+ hours/week for 4 consecutive weeks). See our guide on employee vs. contractor classification to confirm you're correctly classifying everyone.

2. Confirm Your PHCA Carrier and Plan

Make sure your health plan meets the DLIR’s minimum benefit requirements. Contact your carrier or broker and ask them to confirm PHCA compliance. If you don’t have a plan in place, get one immediately. Every employer with eligible employees needs one.

3. Review ALE Status Annually

Your ALE status can change year to year as your headcount fluctuates. Each January, calculate your prior-year FTE count to determine whether you’ll be an ALE for the current year. If you cross the 50-FTE threshold, you’ll have ACA reporting obligations.

4. Collect PHCA Waivers

For employees who decline coverage because they’re covered elsewhere, collect Form HC-5 from each one and keep it on file (DLIR asks employers to keep HC-5 forms for two years). Keep these on hand in case of a DLIR audit.

5. Handle 1095-C Reporting (If You’re an ALE)

If you have 50+ FTEs, file 1095-C forms for every full-time employee each year. Your payroll provider — such as Gusto or Paychex — or benefits administrator can typically handle this for you.

6. Track Hours Carefully

Because the PHCA threshold is just 20 hours per week, you need accurate time tracking to know exactly when employees become eligible. A reliable payroll system will flag employees as they approach the 4-consecutive-week threshold. For more on setting up payroll systems, see how to do payroll in Hawaii.

7. Budget for Employer Premium Costs

With the PHCA’s 1.5% employee premium cap, employers bear the vast majority of health insurance costs. Factor this into your labor costs and budget planning. It’s one of the most significant operating expenses for Hawaii businesses.

Why Most Hawaii Businesses Use a Broker or Payroll Service

Managing dual-layer health insurance compliance is difficult. The PHCA has its own eligibility rules, waiver processes, minimum benefit standards, and DLIR reporting requirements. The ACA adds federal reporting (1095-C), penalty calculations, affordability testing, and FTE tracking on top of that.

Most Hawaii employers work with a combination of:

• A health insurance broker who specializes in Hawaii plans and can find PHCA-compliant coverage at competitive rates, including workers' compensation insurance
• A payroll and HR service that tracks employee hours, flags PHCA eligibility triggers, manages 1095-C reporting, and keeps you aware of changing rules

Trying to manage all of this in-house, especially as your business grows, is a recipe for missed deadlines, uncovered employees, and expensive penalties.

ACA tracking (who’s full-time, who’s offered coverage, and when the offer was made) requires month-by-month data that most employers don’t track until it’s too late. We’ve seen this catch many employers off guard. Hawaii payroll experts who do this daily are the right resource.

Frequently Asked Questions

How does Hawaii's Prepaid Health Care Act interact with ACA employer requirements?

Hawaii employers face a dual-layer system. The Prepaid Health Care Act (PHCA) requires employers to offer qualifying health coverage to employees working 20+ hours per week. The federal ACA adds employer shared responsibility requirements for Applicable Large Employers (ALEs) with 50 or more full-time equivalent employees. Hawaii’s federal Section 1332 waiver replaced the ACA’s SHOP marketplace so it would not conflict with the PHCA, but ACA reporting (Forms 1094-C and 1095-C) still applies to ALEs.

What is an Applicable Large Employer (ALE) under the ACA?

An ALE is any employer with 50 or more full-time equivalent employees during the prior calendar year. Full-time is defined as 30 or more hours per week. Part-time employees are converted to full-time equivalents by adding their monthly hours and dividing by 120. ALEs must offer minimum essential coverage or face potential penalties.

What are the ACA penalties for Hawaii employers in 2026?

For 2026, the Employer Shared Responsibility penalty (4980H(a)) for failing to offer coverage to at least 95% of full-time employees is $3,340 per full-time employee annually (minus the first 30), per IRS Rev. Proc. 2025-26. The 4980H(b) penalty for offering coverage that is not affordable or minimum value is $5,010 per affected employee annually.

Are small Hawaii employers (under 50 employees) subject to ACA employer mandates?

No. The ACA employer mandate (shared responsibility payment) only applies to ALEs with 50 or more full-time equivalent employees. However, small employers in Hawaii are still subject to the PHCA for employees working 20+ hours per week — which goes further than federal law for small businesses.