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Lecture #496 on Social Security

August 4, 1994

A Critique of the Hawaii Health Care System

By


(Archived document, may contain errors)

A Critique of the Hawaii Health Care System

By Dr. Philip D. Hell rcich As legislative chair of the Hawaii Federation of Physicians and Dentists, I have been for many years actively lobbying our state legislature to preserve the traditional doctor-pa- tient relationship and the right of every individual to select the ph y sician of his or her choice. It must seem a little bizarre to many that our small state located:in the middle of the Pa- cific ocean would play such a prominent role in the debate over how we should reform our health care system. The reasons are that Dr. J ohn Lewin, our state director of health, has had considerable input into the crafting of the Clinton health care proposals and that many of the ingredients of the Hawaii plan have been incorporated into the President's health care reform package. Hawaii's Prepaid Health Care Act was enacted in 1974 and went into effect on January 1, 1975. Hawaii thus became the first state to mandate employer-provided medical cover- age for employees. In 1974, the Hawaii economy was dominated by the so-called Big Five corp o rations, and the Prepaid Health Care Act was adopted because of union domination of our legislature. To quote Sam Slom, the head of Small Business Hawaii: strong, paternal- istic, centralized control. "From the plantation era (1900-1960) health care was d e livered either by the plantation owners (who also provided ho and other basics) or by the UsIng government, so Hawaii has always had a high ratio of government employees. Govern- ment became the new 'Luna' (or boss) of a current Hawaii plantation. Health c are was de- scribed as a right of every employee without limit." Chevron challenged the new law on constitutional grounds, because the Federal ERISA law prohibited employer mandates. The Act was even suspended while it awaited this ju- dicial review. Pres i dent Nixon intervened and granted Hawaii exemption from ERISA. This is the only exemption ever given to any state in the Union. As in the Clinton plan, it has an employer mandate for all employees who work 20 or more hours a week for a month or longer, bu t dependents are not covered as they would be in the Clinton health care proposal. In practice, however, most employers do cover their employees, depend- ents. As in the Clinton plan, we have a standard benefits package. The Prepaid Health Care Act designa t es that the benefit package must be equivalent to the plans "that have the largest number of subscribers in the State." This in essence means HMSA, which is Ha- waii's Blue Cross/Blue Shield, which controls some 70 percent of the market, and the Kai- ser- P ermanente HMO plan, which covers approximately 20 percent of the population. The benefits package expanded considerably during the 1980s, to even include in-vitro fertili- zation, costing between $10,000-$15,000 for each attempt. The in-vitro fertilizatio n was added after intense political pressure and lobbying by the small group of physicians who performed that procedure and their very vocal patients. This demonstrates how a stand-

Dr. Phillip D. Hellreich, a dermatologist, is the Legislative Chairman of the Hawaii Federation of Physicians and Dentists. He spoke at The Heritage Foundation on December 8, 1993. ISSN 0272-1155 01994 by The Heritage Foundation.

ard benefits package may be altered by political pressure, thereby favoring certain more political ly correct procedures and diseases over others. As in the Clinton plan, alliances of small and large business groups have been formed to negotiate contracts with Hawaii's health plans in the hope of getting cheaper rates. Similar to Clinton's National Hea l th Board, Hawaii's State Health Planning and Development Agency (SHIPDA) has established quasiglobal budgeting and has started to ration care. SHPDA is a state bureaucracy which has the sole authority for permit approval and authorization for any private h ealth care facility or equipment. In 1990, the state decided to take care of the remaining so-called gap group, that is to say, those people with incomes too high for Medicaid but below 300 percent of the federal poverty level. This group included seasona l workers, dependents of low-income employ- ees who are not covered by employer plans, sales people on commission, -and self-em- ployed independent contractors and so-called mom and pop shop-owners. These people are covered under the so-called State Health Insurance Plan, or SHIP. We in Hawaii have been living with a Clinton-like health care system since 1975. And so a study of what has happened in Hawaii should be a pretty good indication of what the adoption of the Clinton health care proposals will do fo r , or to, therest of the nation. Dr. John Lewin and other proponents of the Hawaii health plan make the following points about Hawaii's Prepaid Health Care Plan and what it has brought to our state. First, he has gone all over the country and has appeared o n national talk shows indicat- ing that our state's uninsured rate is only 2 percent compared to the alleged 37 million Americans who are uninsured nation-wide, or roughly 14 percent of the entire U.S. popu- lation. Proponents of the Hawaii system claim t h at Hawaii's health care- expenditures are lower than those for the nation as a whole and compare very favorably to many other developed Western nations with whom the United States is often compared. For example, it is claimed that in 1988 the percentage o f the Hawaii gross state product expended on medi- cal goods and services was 8.1 percent in contrast to 11.1 percent of the U.S. gross national product. Proponents also claim that, when compared to other industrial countries with suppos- edly exemplary na t ional health programs, Hawaii's health expenditures as a percentage of the economy are lower than many of these. They also claim that Hawaii has one of the lowest hospitalization rates in the nation in terms of the number of admissions per thousand popula t ion, in which the national aver- age is 130 while for the state of Hawaii it-is only 92. Dr. Lewin also claims that Hawaii has lower hospitalization expenses because we have far fewer hospital beds per thousand population than the nation as a whole. In th e United States, for example, the average is 3.9 hospital beds per thousand population, while in Ha- waii it is 2.4. According to Dr. Lewin, in 1990 the monthly premium for an individual in Hawaii's Blue Cross/Blue Shield comprehensive small group policy w a s $94; for Kaiser's HMO in Hawaii it was $90. By way of contrast, similar Blue Cross/Blue Shield coverage cost about $104 per month in Arizona, California, Georgia, and Iowa, $150 in Illinois and New York, and $220 in Massachusetts, $230 in Delaware, and $280 in Kansas.

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Using the above statistics, Jack Lewin and others have convincingly argued that Ha- waii's health care delivery system is fantastic and should be transferred to the nation as a whole. But a more careful and rigorous evaluation of what has really transpired in Hawaii might lead you to a completely different conclusion. As I stated earlier, our Hawaii state health director claims that only 2 percent of Ha- waii ' s population is uninsured, compared to the national average of 14 percent. But this claim is untrue, A 1992 report by the American Public Health Association found that Ha- waii's uninsured rate is 11 percent and that Hawaii ranked 15th in the nation in th e per- centage of its-population being uninsured: Additicmally, a-1991 AARP study entitled ""Health Care in American State Profiles" stated that Hawaii's uninsured rate was 9 per- cent to 11 percent. According to the U.S. Department of Labor in 1974, which is one year before Hawaii's Prepaid Health Care Act went into effect, the uninsured r 'ate in Hawaii was 10 percent. So in terms of the percentage of Hawaii's population not insured, not much has changed since the enactment of these reforms. A recent News d ay article reported that because of Hawaii's health- care system, 51 per- cent of companies restrict wage increases and raised prices to cover health costs and 38 percent have had to reduce the number of employees because of the effects of this em- ployer mandate. Newsday has also found that Hawaii's insurance premium rates are going up an average of 12 percent per year, even though physician fees and hospital rates are sig- nificantly lower than in comparable cities on the mainland U.S. According to Sam S lom, the head of Small Business Hawaii, in the September 1993 issue of Hawaii Citizen,

In mid-1993 Hawaii led the nation in bankruptcies, foreclosures, delinquent loans, all areas in which 20 years ago Hawaii was the envy of the United States .... Our majo r industry, tourism, is in serious decline, sugar. is ended as a viable employer, there is little manufacturing and economic diversity.... Since government neither listened nor modified the mandated health benefits, many businesses exercised the only opti o n, they moved, to Las Vegas, Tucson, Seattle and elsewhere. Outrigger Hotels moved its reservations offices to Denver, more will leave, others will shut down. Landmark businesses, the Pearl City Tavern, the Willows, have gone, and they cited mandated heal th costs.

And most telling is that the state of Hawaii has exempted state employees from the Hawaii Prepaid Health Care Act because it is too expensive and would place an excessive burden on the state economy. -State employees must pay 40 percent of their health insurance premiums, and the state has hired many so-called temporary hires to avoid this mandate. We wonder why the state assumed that this mandate would not be excessively burdensome to small business as well. The Families USA Foundation report da t ed October 1990 revealed that from 1980 to 1990, total health care expenditures in Hawaii increased 191 percent compared to the na- tional average of 163 percent. They also found that the state of Hawaii per capita health ex- penditures in 1990 were $2,46 9 as compared to a national average of $2,318. As I mentioned earlier, the State Health Department has claimed that premium costs in Hawaii are below the national average. But in Hawaii, insurance premium costs to small businesses have escalated geometrica l ly. Small Business Hawaii has formed a purchasing affiance, similar to the Clinton health plan, in which they have negotiated health insurance premiums for their member firms. An HMSA (which is Blue Cross/Blue Shield) small business premium for a single i ndividual was $57.50 in 1987 and was $214.98 in 1993, which is an increase of nearly 375 percent in six years. For a family plan which covered the

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employee and dependents, the premium in 1987 was $213.34, whereas in 1993 it had esca- lated to $597.92. Dr.Theresa. Smith of the Hawaii Federation of Physicians and Dentists, compared several plans submitted to Small Business Hawaii and discovered the premium costs are below the national average only for single employee coverage, while premiums for family p lans were actually higher in Hawaii than in many other states in the country. The State Health Insurance Program, the so-called SHIP program enacted in 1990, which as you recall was to cover the gap group whose income was too high for Medicaid but was wit h in 300 percent of the federal poverty level, offers only a bare-bones package limiting outpatient visits-to twelve per year, hospitalization for -a maximum of five days, and ma- ternity to a maximum of two days, and many elective surgery and tertiary care services are excluded. In order to pay for these services, SHIP enrollees must "spend down" to the point where they qualify for Medicaid. The SHIP package offers very min 'imal coverage, es- pecially when you compare it to the Standard Benefits Package wh i ch the Clinton plan would guarantee to all Americans, and therefore the Clinton plan would be far more ex- pensive than the cost of the SHIP program in the state of Hawaii. State Health Director ohn Lewin states that Hawaii's health system is so good "'be c ause we've offered, for nearly two decades, basic primary care for almost all of our people, [that] Hawaii has nearly twice as many outpatient visits per capita as the rest of the na- tion, and fewer than 40 percent of inpatient visits." But Dr. Lewin's c o ntentions are incor- rect. Marvin Hall, the Director of HMSA (Hawaii's Blue Cross/Blue Shield), states, "From the best numbers we can find, our people visit the doctor about as often as people any- where do." So it is incorrect to claim that Hawaii has ne a rly twice as many outpatient vis- its per capita as the rest of the nation. Also, to quote Medical Economics, February 3, 1992, "Neither are there exceptional numbers of primary care physicians. AMA statistics are rep- resented in Hawaii at about the same proportion as in the rest of the country." As I mentioned earlier, the proponents of Hawaii's health care system have indicated that Hawaii spends, as a percentage of its gross state product, only-8.1 percent on health care, compared to the national exper i ence of 11.1 percent. But according to the Bank of Ha- waii's chief economist, as reported in the Wall Street journal in September of 1993, "the state is leaving out key costs" and the real percentage of the gross state product expended in Hawaii on healt h care is 11 percent to 13 percent, and so is close to the national average or higher. The August 5,1993, issue of the New England Journal ofMedicine pointed out that Hawaii currently led the nation in terms of hospital expenses and throughout the 1980s it was fourth, behind only New York, Alaska, and Conneclicut. 1he journal article also revealed that Hawaii was fifth in the nation in terms of hospital administrative expenses. So Hawaii's Prepaid Health Care Act has not worked in terms of decreasing the nu m ber of people uninsured in the state, or in terms of controlling increases in health care expendi- tures as compared to the rest of the nation, even though Hawaii has several features that are unique. To quote Medical Economics, "Hawaii's system cannot si m ply be shipped to the Mainland like pineapple and macadan-da nuts." Hawaii appears to have a healthier popu- lation than most of the rest of the nation. In 1988, Hawaii's death rate per 100,000 people due to heart disease was 54 percent of the national av erage; from cancer, 62 percent of the national average, from stroke, 61 per- cent of the national average; and from accidents, 73 percent of the national average.

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To quote the National Center for Health Statistics report in 1990: Asian persons and Paci fic Islanders in the United States havethe lowest death rates across each age group and for nearly all causes of death compared. Among those under 45 years of age, black persons and American Indians have the highest death rates. Hawaiian citizens are more Asian than Caucasian, 23 percent Japanese, 11 percent Filipino, and 5 percent Chinese, versus 24 percent white; only 2 percent are black; and native Hawaiian and part-Hawaiian comprise 20 percent of the population. Hawaii doesn't have smog, Hawaii doesn't have an urban ghetto-with attendant violence and high rates of AIDS, and more than 85 percent of non-agricultural jobs in Hawaii are in sectors such as tourism, trade, government, communications, and finance, rather than the more hazardous occupations of manufacturing and construction.

Despite these advantages present in Hawaii, health insurance premium rates are escalat- ing at a very high rate. This increase is occurring in spite of the rationing of health care by SHPDA, the State Health Planning and Dev elopment Agency, through its certificate of need process. For ex- ample, in 1991, the number of MRIs in the state of Hawaii was 1 to 1.1 million population compared to the national average of 1 to 100,000. Without any political pressure, the Ha- waii Depa r tment of Health seemed to be happy with this arrangement even though many physicians were sending their patients to the mainland for MRIs because the total cost, in- cluding hotel and air fare for the patient and companion, was cheaper than getting an MRI in Hawaii. To the Hawaii Federation of Physicians and Dentists, it appeared to be more than mere coincidence that five new MRls were quickly approved by SHPDA through its CON process just when the Hawaii Plan began to be touted as a model for the rest of t he nation. Even with the additional MMs, the ratio is still only 1 to 400,000 population. In addition, the CON process, as well as the cost of land and development, has pre- cluded the construction of hospital beds in our state. For example, the national a verage for acute-care hospital beds per 1,000 population is 4.2 to 4.7, as compared to 2.1 in Hawaii. This has also resulted in a deficiency in the number of long-term beds available. There are many occasions when all the hospital beds in the state are fu l l and a 48-hour waiting list for admission to a major hospital is not unusual. Additionally, the shortage of long- term nursing beds often requires patients to remain in acute-care beds for several months awaiting placement. And despite this, published SH P DA plans reveal that their goals are to decrease the number of hospital beds per 1,000 even further. Reports from the islands of Maui and the big island of Hawaii report a greater than 10 percent occupancy rate in their hospitals for three months out of l a st year, and there have been reports of physicians having to treat patients with critical illnesses at home because no hospital beds could be found. And despite this rationing of health care, the neighbor is- land and rural hospitals under state control r u n huge deficits because the state's Medicaid program is the most generous in the country. In the nation as a whole, the number of nursing beds per 1,000 population for people over the age of 65 is 56, while in Hawaii it is only 18. Last year the Medical T ribune reported that Hawaii had the highest rate of physician exo- dus and early retirement in the nation.

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Another indication that Hawaii's Prepaid Health Care Act has failed to contain costs is the newly instituted Health Quest Program, which was intr oduced after Hawaii received a waiver from the federal government, in which first the indigent population of Hawaii, and later in Phases 11 and M most of the rest of the population, will be assigned to a primary care provider and will not be allowed to se e any other physician unless that primary care provider agrees. It also states that advanced nurse practitioners have to be included as pri- mary care providers, so we may have a situation in which a patient will be assigned to a Health Maintenance Organiz a tion and be unable to see any physician, let alone a special- ist, unless that nurse refers the patient. The Clinton health care proposals contain similar provisions which would expand the role of nurse practitioners in the delivery of health care, so peo p le all over this nation may be confronted with this same situation whereby they can get to see a physician only if the nurse recognizes that they are sick enough to warrant it. In conclusion, Hawaii has had most of the components of the Clinton health car e propos- als in effect since the enactment of its Prepaid Health Care Act in 1974. It has failed in its two major goals of 1) decreasing the number of Hawaii's population that were uninsured and 2) curtailing the ever-rising costs of health care delivery. In order to control spiraling health care costs, it has just instituted its Health Quest Program, which will severely ration care and deprive most of the citizens of our state of their right to be treated by the physi- cian of their choice. In light of th i s information, the American people and members of Congress should think long and hard before enacting a health care proposal which shares so many features of Ha- waii's Prepaid Health Care Act. This is especially important when you consider that most of t h e statistics about Hawaii's health care delivery system come from three sources: HMSA (Hawaii's Blue Cross/Blue Shield), Kaiser Permanente, and the Hawaii Depart- ment of Health. These three would seem to have a vested interest in making the system look g ood. We should not base a national health system on data provided from a state which have not been independently verified.

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