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Almost Paradise

by Emily Friedman

First published in Hospitals & Health Networks OnLine, December 1, 2009

While the federal "reform" debate goes on and on and on (I am not unsympathetic; trying to redo health system financing and, to a degree, structure, is a very difficult proposition), some states are trying to achieve what may well get lost in the federal shuffle: near-universal insurance (truly universal coverage is impossible, for reasons I will discuss below). And as Maine, Massachusetts and Vermont move toward that goal, no one seems to remember the state that tried to do this first.

Emily Friedman
Emily Friedman

The state's leaders were determined to achieve universal coverage, or as close to it as they could get. The political environment was congenial. In relatively short order, a statute was enacted that promised affordable coverage to every resident, with varying levels of subsidy, depending on income. The benefit package was lean, but the providers agreed to it. People started signing up; it looked like the end zone was in sight.

Massachusetts in 2006? Nope. Try Hawaii in 1989.

A Historical Basis

What led to Hawaii's universal coverage program is a long story for which I do not have the space here (and for which I suspect my readers' tolerance might be limited). The short version is that from the arrival of the first planters and missionaries in the early 1800s until the 1950s, Hawaii was pretty much controlled by conservative, largely white interests, who eventually deposed Queen Liliuokalani in 1893 and established a brief republic before the United States took Hawaii on as a territory. It became a state in 1959.

But as the years passed, there was increasing labor unrest, union organizing and the growth of a politically progressive group of politicians-many of them Asian-Americans, who comprise the majority of the state's population. They began to wrest control of the state's political apparatus away from the traditional powers in 1954 and elected a governor of their choice, John Burns (who was white, interestingly) in 1962. By then, there was a tremendous amount of pent-up anger, frustration and hope that would be expressed in social legislation.

Health care had to wait its turn, but in 1974, the Hawaii legislature passed the Prepaid Health Care Act (PHCA), which required employers to offer insurance to workers employed more than 19 hours a week, with modest employee co-payments; the employers were to carry most of the freight. In 1976, the law was challenged by Standard Oil, a large employer in the state, and was overturned by the U.S. Supreme Court in 1981. However, most employers complied with it during the interregnum; they were used to it by then, and it seemed like a good idea for people to have coverage. In 1983, President Ronald Reagan signed a law that had a small provision in it that granted Hawaii a waiver to reinstate the PHCA. They were back in business.

The PHCA demonstrated that requiring employers to offer coverage at almost no cost to employees can make a big dent in the ranks of the uninsured; by 1977, by some estimates, less than 4 percent of the state's population was uninsured.

A New Initiative

But the numbers started rising. Although its economy historically has been robust, Hawaii is dependent on tourism, agriculture (although less so in recent years) and the military, and those are volatile bases for fiscal stability. Also, although most employers complied with the law, there were ways around it (something that Wal-Mart would later make into an art form): Employ people for only 19 hours. Don't offer coverage to dependents. Or just ignore the law.

In addition, there were and are in Hawaii thousands of people who are self-employed, who are not working, who are just there to surf, who are transient or homeless, or who are mentally ill or otherwise not together enough to participate in an insurance program.

So in 1989, under the leadership of Gov. John Waihee (Hawaii's first ethnically Native Hawaiian governor), state health department director John C. Lewin, M.D., and deputy state health director Peter Sybinsky, Ph.D., a state health insurance plan (SHIP) was proposed and passed by the legislature. It went into effect the next year.

The statute was not complicated. On a sliding-scale basis, the state would subsidize purchase of a limited benefit plan from the state's Blue Shield plan, the Hawaii Medical Service Association (HMSA) or Kaiser Permanente. And it was limited: only five inpatient days a year and restricted physician visits and pharmaceutical benefits. However, the hospitals were willing to go along. This was made easier by the fact that the state owned most of the hospitals on all the islands other than Oahu. "I was CEO of the state hospitals, so I could make it work," Lewin, who is now CEO of the American College of Cardiology, recalls.

There were other interesting twists. Kaiser Permanente, as a matter of principle, refused to offer a benefit package leaner than its standard package, so instead it asked that enrollment be capped at 5,000 people — a threshold that was never reached. "We refused to offer a smaller benefit package, so there was no discrimination," says Cora Tellez, who was director of Kaiser Permanente in Hawaii at the time and is now president of Sterling HAS.

Recruiting potential members was a creative endeavor. Easy-to-use kiosks were set up in public places. Special mailings were sent to cab drivers and other low-income, self-employed groups. Community health centers were encouraged to enroll their clients.

And it worked. At its height, in 1993, the SHIP had at least 50,000 members, and the uninsured population may have dropped to less than 2 percent, although the numbers were soft and most of us who were following the story believe that Hawaii didn't do quite that well.

End of the Dream

But after 1993, things began to go south. A new governor, Ben Cayetano, was elected after defeating Lewin in the Democratic primary, which may have had more than a little to do with the SHIP's fate. Gov. Cayetano wanted to enact a single-payer system and obtained a waiver from the Clinton administration to combine Medicaid, SHIP and other public programs. The benefit package was greatly enhanced, the cost went up markedly and many SHIP enrollees could no longer afford it and dropped out. Although Gov. Cayetano never achieved a single-payer system, it was the end of the SHIP.

Part of the problem, says Richard Meiers, former president of the state hospital association, was that the Hawaii economy faltered. "Hawaii looked good [in terms of health coverage] compared with the rest of the nation, but then the economy began to slide. The mainland went down first, but then Hawaii started to slip, too, and the small businesses began letting go of their full-time employees and hiring part-time employees who weren't covered by the SHIP, and that's when everything began to unravel."

Recent Efforts

There are those in Hawaii who have not forgotten the goal of universal coverage. The state still ranks second (Massachusetts is first) in terms of its percentage of insured. And state senator Daniel Ige (D), chair of the state Senate Finance Committee, says that the legislature has made repeated attempts to expand coverage. It passed a bill twice to cover most uninsured children, but Republican Gov. Linda Lingle, who assumed office in 2002, cancelled implementation the first time and vetoed it the second time; the legislature overrode the veto, but the governor has been slow to implement the latest measure. The state Senate has also voted to require employers to offer coverage to part-time workers and to require insurers to offer small-group coverage (and rates) to self-employed individuals. The governor vetoed both, and the House sustained the vetoes.

So Hawaii continues to try and maintains a high level of insurance coverage. It has many lessons to teach other states and the federal government, if any of them is willing to listen.

What Can We Learn?

Every state is unique. If there is one thing that frosts the people of Hawaii when it comes to health policy (and I realize that "frost" and "Hawaii" do not usually occur in the same sentence), it is the constant mantra that "Hawaii is unique" — and therefore that the lessons of its health reform efforts are irrelevant for the rest of the country. Excuse me, but that is hogwash. Is Alaska not unique? Do you think that reaching victims of natural disasters is any easier in Montana during the winter? Is the legislature in California any less fractious than the one in Hawaii? Are the lobbyists more effective in New York? Are there more primary care physicians per capita in Nebraska or North Dakota? Hawaii has a tendency toward communalism; so what? So does most of the Upper Midwest and, to some extent, the entire northern tier (after all, multispecialty group practice was born in Minnesota, not Texas). So Hawaii has an employer mandate; it wasn't a magic bullet. States like Wisconsin and Minnesota have done almost as well in terms of coverage without it.

And I live in Illinois, with its culture of corruption and insiderism, which is so toxic that, despite it being a Midwestern state, Illinois has more in common with the do-nothing states, with the exception of our program of providing health insurance to all children, and, depending on what our political leaders decide, that could be in jeopardy as well.

The right people have to be in the right places at the right time. I once asked a Maryland official how the state had managed to enact its all-payer hospital reimbursement system. He said that the right people were in the right positions at the right time. The governor, the state's health and human services officials, and leaders of the hospital and medical associations were supportive of the idea, and the federal government was favorably inclined toward the waiver that eventually allowed creation of the system.

The same was true in Hawaii in the late 1980s and early 1990s: The state had a popular governor, an equally popular and charismatic leader of the state health department, excellent health department staff, a legislative leadership inclined toward social activism, and health care providers who were willing to listen.

It is difficult to overestimate the influence of popular political and social leaders who are committed to an idea. Lest you forget, or weren't around at the time, the Civil Rights Act of 1964 passed despite the fact that the majority of Americans opposed it. Then-President Lyndon Baines Johnson wanted it — and he got it.

The political, economic and cultural environments have to be right. At that time in Hawaii, the economy was booming, unemployment was low and things were looking good. In addition, Hawaii has a long history-since the 1950s, anyway-of a communal perspective on social services and especially health care; most people who live there consider access to health care to be a right, and health policy has followed that core belief. After all, most plantation workers in the 1800s, however horribly they were treated in other ways, had access to company physicians and hospitals. Culturally, because it is one of the most isolated archipelagos — indeed, one of the most isolated places — on earth, Hawaii has bred in its people a dual sense of self-sufficiency and camaraderie. If they need help from outside, they know that it will take some time to get there; and thus, if they don't help each other, people will suffer. As a result, says Meiers, "People here are not basically cutthroat."

A recent illustration of why culture matters was the proposal during the health care reform debate from North Dakota Sen. Kent Conrad, a Democrat, that instead of the controversial "public plan option," the feds establish member-owned nonprofit health care cooperatives, of which there used to be many in this country, and of which there are precious few these days (one of the oldest, in Minnesota, just folded). Well, of course co-ops would appeal to a man from North Dakota; the Dakotas and Minnesota and Wisconsin are dotted with cooperatives, from grain elevators to the Land o' Lakes dairy operation. But I'm not sure that this idea would fly in Alabama or Arizona. Culture plays a huge, and largely overlooked, role in health policy, and policymakers would be well advised to look toward solutions that are culturally comfortable.

And in the counterintuitive department, I would remind you that the formation of many of our most powerful unions occurred during the dark days of the 1930s, not because there was lots of money around, but because people realized that if there was not some way to protect workers from ruthless employers, everyone was at risk. Both bad times and good times can breed social change if the cultural environment is right.

Having a predominantly nonprofit health care sector helps. There is one aspect in which Hawaii is unusual, but not unique (other states, such as Minnesota, Vermont, Wisconsin and New York are similar in this regard). At the time of its push for universal coverage, all of its hospitals were nonprofit (today, it has only one proprietary facility, and it's in trouble), and the two insurers that dominated the market were also tax-exempt. "Hawaii's dominant form of organization for delivering care is nonprofit health plans and hospitals," notes Christopher G. Pablo, partner in the lobbying firm of Goodsill Anderson Quinn and Stifel in Honolulu, and a former executive of both of the state's nonprofit health plans. Furthermore, during the SHIP years, almost all the hospitals on the "neighbor islands" (that is, all the islands except Oahu, on which Honolulu is located and where most of the population lives) were owned by the state. (Those hospitals have since been transferred to the control of a quasi-governmental nonprofit entity.)

This is not to say that a nonprofit environment makes for a piece of cake in the wonderful world of health policy, but it's easier with nonprofits, for three reasons. First, they are more easily regulated. Second, they are obligated, as providers or insurers, to justify their tax-exempt status, and the customary way to do that (not always vigorously enforced by the Powers That Be) is to provide care or coverage to the most vulnerable people. Third, they are not beholden to financiers, investors and stockholders, who have a right to their share of the pie. A nonprofit environment doesn't guarantee success; it just makes things somewhat less challenging.

There is also some evidence that health care costs in nonprofit environments are lower — this is true in both Hawaii and Minnesota — but there also tend to be numerous other factors at work, such as widespread multispecialty group practice and shorter lengths of stay, so I'm not sure this can be attributed solely to the dominance of nonprofits.

If costs are not controlled, nothing will work in the long term. Ian Morrison wrote about this in a recent column for H&HN Weekly, so I won't belabor the point. But the fact is that if costs keep on escalating, there is no coverage program in the world that can continue to function — public or private, employer-based or individual. It is impossible to insure against the consequences of anything whose costs double every seven to 10 years. Cost escalation (and other factors, including politics and changes in leadership) doomed Hawaii's bright dream, and I fear that it could hamper Massachusetts's and Maine's and other states' efforts as well. If we can't put our health care system on a diet — preferably, a diet consisting of an end to waste, fraud, medical error, administrative duplication of effort, profiteering and overspending — then other state programs, and perhaps the federal effort, will end up on the garbage heap of nice tries.

Mandates help but are difficult to enforce. Yes, since 1974 (except for the few years when the mandate was interrupted), Hawaii has required that employers cover employees who work more than 19 hours a week, and there is no question that this has reduced the uninsured population. But Hawaii also, historically, has had a high rate of unionization, which boosted the ranks of the insured. And because it is a very expensive place to live, Hawaii has also historically had a very high percentage of two-earner families. So other factors have contributed to the high rate of insurance; it isn't just the mandate.

Furthermore, most of Hawaii's employers are small businesses. Enforcing a mandate under those conditions — with thousands of small shops, spread over several islands, to ride herd on — is very difficult. And in recent years, as coverage costs escalated, employers simply resorted to hiring part-time workers for less than 20 hours. It isn't hard to game this mandate; it isn't hard to game any mandate, especially if state enforcement is lax. Ask all those millionaires who don't pay any taxes. It's easy to pass a law; it can be the dickens to enforce it, even if the political will is there — and that is often lacking.

Truly universal coverage is impossible to achieve. Policymakers always have prattled and always will prattle about "universal coverage," but it's a myth. Some small percentage — I tend to go with 5 percent, but scholars differ — of people simply won't take up the offer, even if the insurance is free. They may be slinging burgers at Mickey D's and would prefer to get a motorcycle; they may be wandering the streets, lost in a permanent daze; they may have religious objections (something that has been almost entirely overlooked by these mandates); they may have just gotten in from Bhutan and have no concept of insurance; or they may just not care.

There will always be a need for safety-net hospitals and community health centers for those who don't quite get the quaint middle-class concept of health insurance. And Hawaii provided for that, asking community health centers to create and maintain medical records for the lost and wandering and subsidizing their care directly. That was a very good idea.

Providers can (or will) absorb only so much loss. Escalating costs hit hospitals and physicians, too, and even when they have been good sports and have been willing to absorb losses, at some point they have to draw the line. Hawaii's hospitals started hemorrhaging money after a while, what with the lean SHIP package and, more importantly, low and/or delayed Medicare and Medicaid payments. This was not just a problem in Hawaii; in Utah, where the state has an extra-lean Medicaid offering that counts on hospitals to fill in the gaps, the hospitals were willing to play ball for quite a while, but at some point, especially in this economy, it became untenable. Hawaii tried to rely on its hospitals to be the safety net for the underinsured; so have Oregon and Utah and other states. At some point, it gets to be too much for the hospitals, which end up essentially serving as reinsurers. I will always remember Craig Becker, president of the Tennessee Hospital Association, during one of the state's questionable experiments with "universal coverage," telling an audience that the state's hospitals had become the second-largest health insurers in Tennessee.

Don't underestimate your opponents. The Clintons didn't learn this, and apparently neither has the Obama White House. There are those who don't want expansions of coverage to succeed — however heartless that appears to some of us — and they will wait for their chance. And there are those who want a single-payer system and will settle for nothing less. Gov. Cayetano wanted a single-payer system, and gambled big on it and lost; Gov. Lingle is committed to for-profit market-driven solutions, competition and other philosophies that don't make any sense in Hawaii. But she's the governor, and she has been able to slow any further progress to a crawl. It is my belief that — all other factors aside, with very few exceptions (the civil rights movement was one) — those who oppose an idea are generally more fervent than those who support it, especially when the benefits will largely go to people other than themselves.

All situations change over time. There is no "forever" in human life. Venice is sinking and the Parthenon is eroding; in neither case were the builders familiar with the ecological impact of diesel engines, canal dredging or global warming. Given that most Americans have the historical memory of a gnat, it is not surprising that we think that whatever the situation is that we are in, it will go on forever, and therefore we pass statutes and enact regulations that won't stand the test of time because they weren't designed to pass that test. Flexibility (which the Hawaii waiver does not allow), creativity and accommodation of change are necessary elements for any health policy that has any hope of lasting.

Many people dismiss Hawaii's lessons because they claim that it was a moment in time, or because Hawaii is somehow unique, or because things unraveled. That would be a mistake — and a lousy excuse for inaction. As Christopher Pablo has observed, "Hawaii has a culture that is more caring of others than in many other places because we are a boat in the ocean. But is that an excuse — that it's OK to do nothing because you have a culture that doesn't care? Arguing that Hawaii cares and others don't, and that Hawaii's experience is therefore irrelevant, is hardly acceptable."

This column is dedicated, with love and aloha, to Christopher G. Pablo, Esq., who was there for it all and wanted the story to be told.

If you are interested in learning more, read "The Aloha Way" (HMSA Foundation, 1993) by Emily Friedman (from which I do not make any money, so this is not a solicitation). It is available from the Hawaii Medical Service Association, HMSA Center, 818 Keeaumoku St., Honolulu, HI 96814, 808-948-6111.

Copyright 2009 by Emily Friedman. All rights reserved.

Emily Friedman is an independent writer, speaker and health policy and ethics analyst based in Chicago. She is also a regular contributor to H&HN Weekly and a member of the Center for Healthcare Governance's Speakers Express service.

First published in Hospitals & Health Networks OnLine, December 1, 2009

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