October 24, 2004
Hawaii Offers a Look at Mandatory Healthcare
The state's employers have long provided what Proposition 72 calls for: compulsory coverage.
Jordan Rau, Times Staff Writer
KIHEI, Hawaii — As Californians weigh whether to
require employers to provide health insurance, Hawaii, the only state with
such a mandate, provides a glimpse of what could be ahead.
years, all Hawaii businesses have been required to provide insurance to
any employee who works at least 20 hours for four consecutive weeks. The
state was an inspiration for Proposition 72, the referendum on
California's Nov. 2 ballot that would impose a similar mandate on
businesses with at least 50 workers.
Only 10% of Hawaiians are
without insurance — one of the lowest rates in the country and about half
of California's 19%, one of the highest. Hawaiians are healthier than the
national average by several key measures.
But not all is perfect in
the tropics. As premiums have escalated, Hawaii's Prepaid Health Care Act
has become increasingly unpopular among employers. Some have found ways —
legal and not — around the mandate, and there are growing calls to relieve
the burden on businesses.
"It's fabulous from an employee
standpoint, but the law crushes small businesses," said Cindy Eiting, an
owner of Stella Blues Cafe here on Maui. The restaurant employs 60 people,
40 with health insurance.
"There are lots of businesses that just
cross their fingers and hope no one will check up on them, but those are
places where employees don't stay," she said.
Once the nation's
leader in providing insurance, with as few as 2% uninsured, Hawaii now
trails Minnesota, Rhode Island, Iowa and Massachusetts, which have
expanded their public-health programs for the poor.
surprisingly, many of Hawaii's 1.2 million residents love the law,
especially those working in the retail and food service industries, where
health insurance is so uncommon on the mainland.
stability here," said Sanni Panopio, a bartender who moved here from San
Francisco. "It's comforting to know that if your kid gets sick, you can go
to the hospital and you're not going to have to pay out of
Sara Chappell, a waitress who used to attend Los Angeles
Harbor College, said the law means she has health insurance while she
finishes school at the University of Hawaii satellite program on Maui.
"It's awesome," she said. "When I found out about that, it was an added
But an unknown number of companies skirt the law through a
variety of means, including paying cash or hiring workers for fewer than
the coverage threshold of 20 hours per week for four consecutive
Gary Lite, a salesman at an art gallery in the Wailea resort
area, said he did not have insurance for several years when he worked as a
scuba instructor and an "activities" salesman, offering recreational
junkets for tourists.
"I was an independent contractor. They tell
you it's for your tax benefit, but it isn't," he said. His current
employer, Elizabeth Doyle Gallery, provides insurance.
of Proposition 72 say Hawaii's experience shows that businesses can adapt
to mandated coverage without the dramatic rash of bankruptcies business
groups are predicting.
"Hawaii is a good example of a miraculous
success story," said Dr. Jack Lewin, Hawaii's state health director from
1985 to 1994 and now chief executive of the California Medical Assn., one
of the chief proponents of Proposition 72.
"The negatives that the
business community complained about never manifested," Lewin said. "There
were a lot of positives that occurred."
Though Gov. Arnold
Schwarzenegger and business groups that oppose Proposition 72 say the
coverage mandate will cost jobs, the experience in Hawaii suggests a
"What we know generally is employer mandates of
the type they have in Hawaii in the long run don't lead to fewer jobs;
they lead to lower wages," said Jonathan Gruber, an economics professor at
the Massachusetts Institute of Technology.
"It's not really the
employers who are bearing the burden," agreed B.J. Ott, an executive at a
nonprofit company who used to own three sporting-goods stores on
"If they weren't paying that out in healthcare, they'd
probably be paying that out in better wages. I never found [the healthcare
mandate] to be a problem because it's an even playing field, so long as
people aren't gaming the system."
The law, however, has had an
effect on how employers structure their workforces. Researchers at the
University of Hawaii recently concluded that the law has made Hawaii
employers much more reluctant to hire part-time workers for 30 or 35 hours
a week, the standard in the rest of the country.
has a disproportionate number of employees working just under 20 hours.
The study found those workers were less likely to have health insurance
than were employees in the rest of the country working comparable hours.
Hotels designate many workers as "casual employees," who work
intermittently or are on call and generally don't get healthcare.
All of that makes it hard for those looking to earn more. "People
have to have two, three, four jobs," said Jillyne Condon, who works in a
cheese shop. She said employers were especially reluctant to hire her when
they found out she was a single mother.
"Employers are scared of
that," she said. Condon, who has since married, now gets her health
insurance through her husband's job.
Yet even some of those who
deplore the mandate continue to do business here. Lily Garfield, a
Coloradan, said the cosmetics shop she opened in Maui in 2002 is less
profitable than her Cosbar stores in Aspen, Colo., Santa Fe, N.M., and
several other Western resorts.
"It's very hard to make money
here," she said. Nonetheless, Garfield has no intention of closing shop.
"I want to beat all the odds. I like the challenge." Plus, she admits, "I
like the lifestyle here."
Ann Tuomela, Condon's employer, said the
healthcare costs have strengthened her support of socialized medicine, as
in Canada. "I would prefer to see it in taxes, and I'm not a big advocate
of raising taxes," she said.
Opponents of Proposition 72 say it
would be a mistake to assume that California's experience would duplicate
"Hawaii doesn't have a diverse industrial base like
California. Its economy is based on tourism," said Allan Zaremberg,
president of the California Chamber of Commerce.
"It's not a
situation where you can move offices somewhere else."
72 differs from Hawaii's law in several details. Though Hawaii's law
applies to all employers, Proposition 72 would exempt companies with fewer
than 50 workers from having to provide insurance. Firms with 20 to 49
employees would have to provide insurance only if the Legislature created
a special tax credit, which it has not done.
exemptions appear smartly targeted because small businesses are the ones
that have had the most trouble complying with Hawaii's mandate. But some
California businesses object that under Proposition 72, smaller firms
would have a competitive advantage over larger ones.
difference is that Proposition 72 sets the definition of full-time work as
100 hours or more per month. It is not clear if California employers would
be able to juggle workers' schedules to avoid providing health insurance
as easily as some Hawaiian firms do.
The biggest problems with
Hawaii's law come from its creators' decision to protect workers from
having to pay more than 1.5% of their salary in premiums.
when Hawaii's law was passed, that meant that all but the lowest-wage
workers split healthcare costs with employers. But the massive increases
in insurance costs since then have forced employers to pick up virtually
the entire tab. To the chagrin of all sides, Hawaii cannot change that
provision without action by Congress, which is considered unwilling to
(Proposition 72 caps the amount employees would have to
pay at 20% of the premiums or, for low-income workers, 5% of their
salaries, whichever is less.)
Despite their complaints, Hawaii's
business community is not pushing for the law's abolition — in part
because the state has a long history of employers providing insurance,
going back to the days when sugar plantations ran their own hospitals.
"Having the Prepaid Health Care Act is definitely a good thing,
but it's been difficult for employers," said Wanda Kakugawa, a Honolulu
business owner on the state's Chamber of Commerce board.
cultural thing; it's so much a part of what we do
Hawaii, the only state that requires employers to offer
health insurance, has one of the lowest rates of uninsured residents in
the country. California has one of the highest rates.
people without health insurance