Hawaii residents are being urged to scrutinize their medical bills for potential overcharges related to the state’s general excise tax (GET), a tax that can be complex to calculate and is sometimes misapplied. Medical experts are warning that errors in these calculations are a systemic problem, leading to frustration for patients and providers alike. The issue centers around whether the tax is applied to the original, listed price of a medical service or the discounted rate actually paid by insurance companies.
The core of the problem lies in Hawaii law, which stipulates that the excise tax should be calculated on the amount the provider is actually paid – a combination of what insurance covers and the patient’s co-pay or deductible – not the initial charge. However, providers often apply the 4 percent or 4.5 percent GET (depending on the island) to the full billed amount, resulting in inflated tax charges. This practice is particularly confusing because Hawaii is unique in applying the GET to healthcare services, a situation unfamiliar to patients and even some providers.
Dr. Kelley Withy, a medical school professor who advises doctors on Hawaii’s excise tax, recommends patients delay full payment until after insurance processing. “I always tell whoever’s trying to charge me the full amount, I say, ‘I’m going to see how much my insurance pays first, because that’s the number that I’m going to have to pay of what’s left,’” Withy said, according to HawaiiNewsNow. This approach allows patients to ensure the tax is calculated on the correct, discounted amount.
A Real-World Example of Overcharging
HawaiiNewsNow recently investigated a case where a patient was overcharged following an emergency room visit and an electrocardiogram. The provider initially billed $1,400, applying a 4.71 percent tax – encompassing the 4.5 percent Oahu excise tax plus a small amount to cover tax on the tax – resulting in a $67.47 tax charge. However, the insurance company only paid $400 for the services. The correct tax calculation, based on the $400 payment, should have been $19.92, leaving the patient overcharged by more than $47. Resolving the discrepancy took three months of back-and-forth between the patient and the doctor’s office.
This isn’t an isolated incident. Dr. Scott Miscovich, owner of Premier Medical Group, an independent provider, acknowledged that the miscalculation is a “systemic problem.” The complexity of navigating Hawaii’s tax laws, combined with the intricacies of insurance billing, creates opportunities for errors.
Understanding the ‘Eligible Charge’
The issue is further complicated by the concept of the “eligible charge,” as explained in a recent article in Aloha State Daily. Insurance companies negotiate reduced rates with medical providers, known as eligible charges, which are lower than the billed amount. While providers agree to accept these eligible charges as payment, the GET is sometimes incorrectly calculated on the higher billed amount rather than the actual payment received.
For example, a provider might bill $100 plus 4.712% tax, expecting the patient to cover the $4.71 tax. However, if the insurance company pays an eligible charge of $75, the provider’s gross income is $79.71 ($75 + $4.71). The correct GET calculation should be based on this $79.71, resulting in a tax of $3.59, a $1.12 difference that the provider is effectively retaining.
Tax Department Guidance
The Hawaii Department of Taxation has addressed this issue in Tax Facts No. 98-1, stating that calculating the GET on an amount greater than gross income – such as the billed charge instead of the eligible charge – results in an overpayment of taxes.
The Aloha State Daily article highlights that some health insurance programs do not cover the general excise tax, explicitly stating that patients are responsible for paying any applicable tax in addition to their co-insurance and co-payment. However, the key takeaway is that the tax should be calculated on the eligible charge, not the billed charge.
What Patients Can Do
To avoid overcharges, patients in Hawaii should:
- Review their medical bills carefully, paying close attention to the tax calculation.
- Wait for insurance to process the claim before paying the bill.
- Verify that the tax is calculated on the amount actually paid by insurance and the patient, not the original billed amount.
- Contact the provider’s office to dispute any discrepancies.
Resources for Further Information
Patients seeking more information can consult the following resources:
- HawaiiNewsNow: Hawaii medical bills may overcharge for taxes
- Aloha State Daily: Community Voices: Healthcare providers might be overcharging on Hawaii taxes
The Hawaii Department of Taxation also provides guidance on general excise tax laws, although specific information regarding medical billing may require further inquiry.
As healthcare costs continue to rise, vigilance and understanding of billing practices are crucial for patients. This issue of potential tax overcharges underscores the need for transparency and accuracy in medical billing in Hawaii. The state Department of Taxation has not announced any new enforcement actions related to these overcharges as of March 4, 2026, but the situation remains under scrutiny by patient advocates and medical experts.
Have you experienced overcharges on your Hawaii medical bills? Share your story in the comments below and please share this article with anyone who might find it helpful.
