Medicare and Medicaid

In addition to ensuring a high level of coverage, the new system enabled Hawaii to keep health care costs relatively low. First, because almost everyone has health insurance, residents can seek care early for illnesses and accidents. As a result, the system is protected from the tremendous medical costs that can accrue when illness or accidents are left untreated. Second, Hawaii benefited from the unintended development of monopolistic, nonprofit insurance plans. About 70% of Hawaiians receive their insurance from one of two nonprofit insurers: the Hawaii Medical Service Association or Kaiser Permanente. Because these two insurers control such a large share of the market, they can exert considerable control over medical costs. Doctors who refuse to accept their reimbursement schedules or salaries can attempt to seek patients elsewhere but will find few patients who don’t belong to these plans. Finally, Hawaii restrained costs through reducing hospital use and costs. Unlike most U.S. insurers, Hawaii’s two major insurers pay only for hospital stays in wards, not semiprivate rooms. Meanwhile, Hawaii implemented a strict system for prospectively reviewing any hospital capital expenses. Hospitals can’t purchase major equipment or construct new facilities unless they can demonstrate need for those services. Therefore, consumers need not pay the costs of maintaining unused hospital beds or duplicative technologies. In 2017, Bloomberg News declared Hawaii’s health care system the best in the nation based on life expectancy, cost per capita, and cost as a percentage of the state’s gross domestic product.

Conversely, the continued existence of Medicare and Medicaid has hampered Hawaii’s ability to restrain health care costs. Because these plans don’t reimburse hospitals at rates high enough to cover the actual costs of providing care, hospitals have shifted costs to patients with private health insurance. At the same time, Medicaid’s especially low reimbursement schedules have hampered access to health care because many doctors won’t accept Medical patients. These problems have been exacerbated by the (nationwide) shift toward replacing full-time workers with part-time workers, which means that more Hawaiians must turn to the state rather than employers for their insurance. As a result, costs have increased, and the state has had to reduce the benefits available through its insurance program. In addition, the costs of meeting various ACA requirements also have placed pressures on Hawaii’s health insurance program.

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In sum, the Hawaii experiment demonstrates both the advantages of moving toward a single-payer, nonprofit system with strong centralized control and the problems when multiple payers—in this case, public and private insurers—continue to function in the same economic sphere. It also demonstrates the benefits available from a reasonably unified managed care system and the difficulties of sustaining a strong system in the face of external economic pressures.