Hawaii Seeking More Money for Health Plan

Published January 1, 2009

A 9 percent jump in enrollment is forcing Hawaii’s state government to consider ways to increase funding for its taxpayer-funded health coverage program.

Officials from Hawaii’s Department of Human Services say the enrollment spike in Med-Quest, the state’s Medicaid managed care program, took place over a 14-month period. They expect enrollment to continue to climb as the state’s unemployment rate, now 4.2 percent, is at its highest level in more than six years and shows no signs of falling.

Product of Economic Downturn

“Considering the current economic downturn, including many large bankruptcies and layoffs announced over the past several months in Hawaii, I’m not surprised to see a surge in participation,” said Jamie Story, president of the Honolulu-based Grassroot Institute of Hawaii. “We just witnessed an abrupt end to the seven-month-old universal children’s health insurance program in Hawaii, made necessary by higher-than-expected participation, so it is no surprise to see Med-Quest participation increase as a result.”

“We’ve suffered some dislocations in our employment base,” said Lowell Kalapa, president of the Tax Foundation of Hawaii. “For example, a major local airline went out of business—a branch on a neighboring island went out of business. Several restaurants are closing down, so I’m sure a lot of people went to the public health system.”

Hawaii spent close to $600 million in taxpayer funds on the Med-Quest program in 2007 alone. While that amount was supplemented by $339 million from federal taxpayers last year, as of October 1, 2008 the federal government has decreased its contribution to the program by 9 percent, from 56.5 to 55.11 cents per dollar spent by Hawaii.

Med-Quest officials say the reduction means the state will have to spend an additional $18 million of Hawaiians’ tax money on the program.

Experts Say Reform Needed

Experts say the Med-Quest program will continue to drain the state’s resources if there is no reform.

“Hawaii was the first U.S. state to mandate ‘universal’ coverage, which it did in 1974,” said John R. Graham, director of health care studies at the San Francisco-based Pacific Research Institute. “Despite significant changes, it still hasn’t achieved it, and people who fall through the cracks of employer-sponsored health care become dependent on the state. Unfortunately, this merely shifts the costs of health care to taxpayers, so it amplifies the consequences of recession and unemployment.

“Expanded government dependency is not the solution,” Graham said. “The solution is health insurance that people can buy when they are employed and healthy, which they can keep when they fall ill and lose their jobs. They must [also] have the ability to save so that they can pay the premiums, which will be transparent and foreseeable. This requires reform of the federal and state tax codes.”

Crowding Out Private Coverage

One of the main concerns about increased participation in the state program is that people who could get private coverage, including through COBRA, will opt out of it to get free insurance paid for by other taxpayers.

“The cost overruns faced in Hawaii illustrate the futility of trying to expand public programs to cover the uninsured,” said Devon Herrick, Ph.D., a senior fellow at the National Center for Policy Analysis. “Because 50 to 75 percent of every new dollar spent goes to people who dropped private coverage, it is theoretically possible to spend infinite amounts of money expanding public programs without reducing the ranks of the uninsured.”

Despite budget woes and a state-mandated enrollment cap of 125,000, Med-Quest and the state’s Department of Human Services are still encouraging Hawaiians to consider taking advantage of the program if they meet eligibility standards for taxpayer-funded health coverage. Those requirements include an income no greater than 100 percent of the federal poverty level (with the exception of pregnant women and children under the age of six) and an asset limit of $2,000 for a household of one, $3,000 for a household of two, and $250 for each additional person.

Worse Problems Predicted

Story says the surplus Hawaii’s state budget enjoyed just two years ago has morphed into a $230 million deficit. She says the deficit will only get worse if programs like Med-Quest continue to expand.

Med-Quest administrators “seem surprised that people who could already afford health insurance were switching over to the ‘free’ government program,” Story said. “But once again, we shouldn’t be surprised. Any time the price of something is reduced—in this case, to zero—demand increases.

“That is a fundamental problem with ‘universal government health care’—there is no limit to the demand for a ‘free’ service. But without market-determined price levels, supply does not meet demand, and shortages and inferior care are the results,” Story said.

Aricka Flowers ([email protected]) writes from Illinois.