Critical Condition

Hawaii’s Compulsory Health-Care System Is No Model

Some writers have been criticizing Rush Limbaugh for his remarks about health care after he was released from the hospital on Jan. 1, 2009. Limbaugh said, “Based on what happened to me here, I don’t think there’s one thing wrong with the American health-care system. It’s working just fine, just dandy.”

In response, a post on the Service Employees International Union blog describes Hawaii as “a shining example of progressive health care reform.” And Anthony Wright over on The New Republic website touts Hawaii’s health-care mandates as a success, and claims that Limbaugh is endorsing the state’s Prepaid Health Care Act.

I can give you a personal perspective on Hawaii’s Prepaid Health Care Act (PHCA), since I have been familiar with and opposed to it since before it became law in 1974. When the PHCA was first proposed, I was the economist at Bank of Hawaii; I analyzed the legislation at the time and found that it would have a negative impact on Hawaii’s small-business community and our state’s overall business climate. Over the three and a half decades since then, I have been in a position — as both a legislator and an employer — to witness the PHCA’s effects.

Limbaugh was treated at Queen’s Medical Center in Honolulu, the state’s leading cardiac-care hospital. It is private, and performed Hawaii’s first transplant a few years after the first-ever transplant. The staff is known for its expertise, professionalism, and care. Limbaugh was quite right to praising the medical care he received at our best private facility.

But Limbaugh was very specific. His praise did not extend beyond the health care he received; he did not endorse Hawaii’s unusual system of health mandates. His experience was a confirmation of the excellence of private health care in America, a standard of care that will be harmed by the legislation now before Congress.

The critics who pounced on Limbaugh’s story have suggested that he may have benefited from the PHCA. But the PHCA has nothing to do with medicine or health care: It is a government financing mechanism that mandates that employers pay for every employee who works more than 19 hours per week. That mandate applies to every employer, regardless of the number of employees; it’s a one-size-attempts-to-fit-all arrangement. Needless to say, Limbaugh was not covered or subsidized as an employee under the PHCA.

In praising the PHCA, Anthony Wright neglects to mention that in 1972, prior to its enactment, under a totally voluntary system, nearly 90 percent of Hawaii’s working population was already covered by medical insurance. It is true that over the first decade of the law, coverage did increase to more than 95 percent, but it has since declined. It is also true that the victims here are the small-business owner-employers who must provide ever-costlier medical premium care to their employees while finding in many cases they cannot adequately have enough left to pay for themselves and their own families.

Hawaii’s unions and other original proponents of the PHCA said at the outset that their ultimate goal was “universal single payer” government insurance. That has not occurred. Instead, the state has seen the creation of a crazy quilt of changes and amendments.

The PHCA’s original backers also boasted that Hawaii was in the forefront of medical reform and that soon, nearly every state would follow our lead. That hasn’t happened: It remains one of a kind in the United States. No state has seen fit to follow Hawaii’s lead since 1974.

And the PHCA’s original supporters argued that it would establish a system of fair and equitable “sharing” of medical premium costs by employer and employee — 50–50 — in order to keep medical costs down. But since the beginning, there never was a 50–50 cost sharing; it was 70–30 at best. Employers could charge employees for a very small portion of the premium cost (one-half of 1 percent of their gross wages) but few did in the 1970s when premiums were relatively low, and they still don’t now that premiums are much higher. It is part of the cost of doing business in Hawaii.

In 1994, when it was found that large numbers of state government employees were not covered by health insurance — and that the state government got out of following its own law by hiring “emergency,” “temporary,” or “casual” workers to avoid paying the PHCA — the Hawaii state legislature, in order to protect government workers, passed a bill forcing the government to cover all employees. The Democratic governor at the time, John Waihee, vetoed the bill saying that it was too costly for the state.

Further, there was no choice by workers or consumers as to what kind of plan and what benefits they actually wanted to pay for. Opponents of the PHCA (myself included) argued if there must be a mandate (I oppose that), then it should only be for a “cafeteria” style approach so that basic medical coverage would be provided, but extra and extraordinary benefits could be purchased separately. That has never been the case.

Each major health-care provider offers its own version of its benefits package, with no substitutions. A health panel was set up to establish rules as to who could even enter the market and provide competition. Who controlled that panel? Until recently, it was run by the state’s largest provider, Hawaii Medical Services Association (HMSA), and the second-largest, Kaiser Permanente. Several potential competitors were not allowed in the market. Changes in benefits were disallowed. Medical Savings Accounts were discouraged. Premiums continue to escalate unabated. Annual and semi-annual premium increases are double-digit, with smaller employers paying more of an increase than larger employers. Competition was throttled. HMSA and Kaiser enjoy nonprofit tax exemption from the state’s General Excise Tax (GET — a kind of gross income tax that Hawaii has instead of a sales tax). The newest provider, Summerlin Insurance, must pay the GET.

Since 1974, the state legislature — as provided in the law — may add additional mandates, but cannot change the financial arrangement between employer and employee or reduce any benefits. There have been dozens of additional costly benefits added and the employer must simply swallow the added costs. Mental health parity, numerous medical procedures, and more have been added to the providers’ offerings. Strong lobbying by special-interest groups added additional required coverage. My favorite continues to be mandatory in-vitro fertilization on everyone’s health plan at a cost-per-procedure of $10,000 or more. Is this health care? It is government determination of “care.”

And what has happened to jobs and employment in Hawaii? Mr. Wright cites some left-wing studies, and online articles at the Huffington Post and ThinkProgress, to support his contention that all is well in paradise. But talk to employers, particularly small-business employers, and you will get a different picture.

Many jobs have gone begging because of the PHCA and other Hawaii mandate costs. Wright alludes to the well-known fact that many employees are placed on part-time rolls, working less than 20 hours per week, in order to avoid the high costs of the PHCA. That results in many employees having two or three part-time jobs with no medical benefits. How have Hawaii’s unions responded to this development? By backing legislation that would make coverage mandatory if an employee works just one hour or more per week, and to make coverage permanent once a person is hired.

There are other conditions that should be taken into consideration when hawking Hawaii’s government mandate. For example, the lack of medical tort reform in Hawaii — which every medical professional cites as a major cost burden — has resulted in the departure of dozens of medical practitioners in Hawaii, especially in rural and Neighbor Island areas. Tort reform has conveniently been dismissed by President Obama and the House and Senate. Medical-repayment schedules are set artificially low by both government and providers like HMSA. Under the PHCA, the amount of patient reimbursement is generally limited to “usual and customary charges” as determined by the provider, and this may be well below the actual and total charges incurred by the patient. Costs continue to spiral upward.

Hawaii is a state of many firsts. It has the nation’s only single, statewide school district — which now boasts the lowest number of instructional days per year and terrible test scores, as well as little flexibility. It is the only state in the nation to have a general excise tax on every transaction involving goods and services — resulting the equivalent of an 18 percent sales-tax rate. It has the highest personal income tax rates and the third-highest overall tax burden. And Hawaii has the mandatory Prepaid Health Care Act, with its high costs, little choice, and lack of flexibility.

Should the nation follow Hawaii? For sunshine, shave ice, and the Aloha Spirit — but not government health mandates.

Sam Slom is a Republican state senator representing Hawaii’s 8th district, and the state senate’s minority floor leader. He is also the president of the Small Business Hawaii Entrepreneurial Education Foundation, and is a private consulting economist and small business owner.

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