Hawaii’s Health Plan Offers Lessons for Future : Medicine: An employer mandate achieves coverage for 96% of the state’s workers. But other efforts still must help those who fall through the cracks.

Atop a wind-swept bluff with an ocean vista that a posh resort would envy, the Waianae Comprehensive Health Clinic on Oahu’s leeward coast offers a compelling view of the benefits and limits of the employer mandate--the controversial linchpin of President Clinton’s health reform plan.

After 20 years under a state law that requires employers to pay part of their workers’ health insurance, 96% of Hawaiians enjoy medical insurance, easily the highest percentage of any state. Yet this rural clinic still provides $1 million a year in uncompensated care to those lacking coverage, mostly people who drift in and out of odd jobs, seeking treatment only when a serious problem arises.

“Hawaii’s not perfect,” says Dr. Jack Lewin, a chief architect of the state’s recent efforts to cover everyone. “But we have powerful lessons for the future. We’re not theoretical. We’re real.”

Many lawmakers and analysts, the President among them, believe that requiring employers to pay the lion’s share of their workers’ health costs is the most feasible way to achieve universal coverage and that spiraling costs cannot be contained until everyone--including the nation’s 38 million uninsured--is covered. But others believe that cost containment must come first, with the savings used to extend coverage gradually. They also believe that an employer mandate would pose severe financial burdens on many businesses, costs that would only grow.

Hawaii’s unique experience as the only state with an employer mandate offers lessons for all participants in the debate.

Some of the results of the state’s experiment:

* Hawaii has contained costs, even while expanding coverage, and is approaching universal coverage, with 96% of its 1.2 million residents covered. The explosive growth of insurance costs for all, especially small businesses, has been lowered by 30% or more.

* An employer mandate alone does not guarantee that all will be insured. Other programs must be put into place to pay for the medical care of those who slip through the cracks.

* Independent studies have shown that the employer mandate has not resulted in “disruptions” or high unemployment among small businesses here, but the costs to such firms have clearly grown over the years. The employers’ share of premium payments has skyrocketed in relation to employee contributions, and the state has required a host of new benefits that must be covered, further driving up costs.

* A Louis Harris & Associates poll, sponsored by the California-based Kaiser Family Foundation, found that 56% of small businesses in Hawaii cited health insurance as “a major problem,” more so than any other government mandate. And yet, the identical percentage also said they would support an employer mandate if one were proposed today.

* Nearly universal coverage can dramatically improve overall public health, further reducing spending and leading to a more productive work force. Hawaii officials cite the infant mortality rate, which is down 50% from its 1974 high of 16 deaths per 1,000 births, and the state’s life expectancy of 78, the highest in the nation.

When Hawaii adopted the Prepaid Health Care Act in 1974, most of the state’s then-million residents already were insured. The employer mandate was designed to reach the 17% believed to be without coverage, roughly the same percentage of Americans nationwide who now lack health insurance.

All employers were required to pay at least 50% of an employee’s health insurance premiums. But the state law capped a worker’s contribution at 1.5% of wages. Thus, a minimum-wage worker in the mid-1970s, when health costs were much lower than they are now, paid almost one-third of the cost of his insurance premiums.

Over the years, insurance premiums skyrocketed, far outpacing the growth in wages. Yet the 1.5% cap remained, meaning that employers were forced to pay an increasingly disproportionate share.

“Workers are not being asked to share the burden. There has to be more of a shared responsibility,” said Russell R. Watanabe, president of a family-owned flower and floral supplies business in Honolulu.

State officials concede the point. Lewin, the former state health director who is now seeking the Democratic gubernatorial nomination, said the cap on individual contributions should be raised to “somewhere between 3% and 6%” to make the arrangement more equitable. (Originally, Hawaii had intended a 50-50 split between employer and employee.)

Watanabe and many other small business owners also complain that the frequent addition of new and costly benefits--such as in-vitro fertilization and mental health--have forced many small business owners to reduce other benefits, to lay off employees, to hire more part-time workers or simply to go out of business.

“Subsidies may come and go, but mandates are forever,” said Bette Tatum, state director of the National Federation of Independent Business, a small business advocacy group.

Although Clinton would require employers to pay the premiums of part-time employees working as little as 10 hours a week, Hawaii placed the cutoff at 20 hours or more per week.

Watanabe and other entrepreneurs said some business owners have attempted to duck the mandate by hiring part-timers to work 19 hours a week. In the Harris poll, three of 10 firms said they had engaged in the practice in the last two years, specifically to avoid the requirement. But state officials disputed such claims, noting that the percentage of part-time workers on the islands (18.2%) is lower than on the mainland (19.2%).

A study this year by the General Accounting Office concluded that the employer mandate in Hawaii “has not resulted in large disruptions” among small businesses. But it also questioned the extent to which Hawaii’s experiences might be replicated nationally.

For one thing, Hawaii’s law--unlike Clinton’s proposal--did not require dependent coverage. Yet, because of the state’s tradition of generous plantations that provided free medical care to workers and because of strong pro-union forces here, most businesses have chosen to pay the cost of dependent coverage as well. Up to 80% of companies pay the full premium for dependents, state officials said.

Too, the state’s traditionally low unemployment rate--below 5% last year--forces employers to be competitive. “Good employees are hard to get. The costs are high but I’m willing to do it,” said the owner of a gift shop in Honolulu’s Ala Moana Shopping Center.

In addition to part-timers, Hawaii’s mandate exempted from coverage seasonal workers and salespeople working on commissions. It is they and the working poor ineligible for Medicaid who have eluded the reach of the employer mandate.

For that reason, the state has significantly expanded Medicaid eligibility, bringing in thousands of previously uninsured residents, mostly women and children. And in 1990, the state launched with great fanfare the State Health Insurance Program to further target the remaining uninsured.

In contrast, Clinton’s plan would require all individuals to have insurance, with the needy receiving partial or full subsidies from government.

Despite such efforts to reach universal coverage in the state, as many as 20% of patients who show up at the Waianae clinic are uninsured, administrator Richard Bettini said.

And it is the same story at the bustling Queen Emma Clinic in downtown Honolulu. Of the 38,000 patients who visit the clinic each year, one in four is uninsured, director Chuck Duarte said.

C. J. Eguchi, 22, has come seeking treatment for a severe cold. Now unemployed, she recently came off a series of part-time jobs that totaled more than 30 hours, but not one of which qualified her for employer health coverage.

She is uninsured. “Oh, I’ll get billed directly, but I don’t know how much, or how much I can pay,” Eguchi said.

The adjacent Queen Emma Hospital ends up picking up the tab for the uninsured, passing the $3-million to $4-million annual cost on to paying customers.

“You need an employer mandate,” Duarte said. “But some employers are right; the demands are too high on the employers.”

It is clinics such as Duarte’s that, when all else fails, reach the remaining uninsured, Lewin said. “Anyone can walk in off the street.”

But despite some problems in achieving total coverage, officials here generally agree that the employer mandate is the essential building block of universal coverage.

“Without it,” said Marvin Hall, Hawaii’s top private health insurance executive, “you are just not going to do the job.”

“Our message to Congress is, ‘Whatever you do, don’t sacrifice universality,’ ” Lewin said. “If you commit to universal coverage, everything else will fall into place. Otherwise, you’ll have prolonged agony of rising costs and more cost-shifting.”