NCPA - National Center for Policy Analysis


January 22, 2009

Hawaii just had a vivid lesson in health care economics, learning that if you offer people insurance for free -- surprise, surprise -- they'll quickly drop other coverage to enroll.  As a result, Hawaii has ended the only state universal children's health care program in the country after just seven months, says Grace-Marie Turner, president of the Galen Institute.

The program, called the Keiki (Child) Care Plan, was designed to provide coverage to children whose parents can't afford private insurance but who make too much money to qualify for other public programs, such as Medicaid and Hawaii's State Children's Health Insurance Program (SCHIP).  However:

  • State officials found families were dropping private coverage to enroll their children in the plan.
  • In fact, 85 percent of the children in Keiki Care previously had been covered under a private, nonprofit plan that cost $55 a month.
  • When Gov. Linda Lingle (R) saw the data, she pulled the plug on funding; she realized it was unwise to spend public money to replace private coverage that children already had.
  • Yet, Lingle is facing a political firestorm from critics who say she's denying children health insurance -- even though children in Hawaiian families earning up to $73,000 a year are eligible for Medicaid.

All this is a lesson for political leaders who are drafting plans to expand SCHIP to children in families earning up to $82,000 a year or more.  That expansion would wind up doing what Keiki Care did: crowd out the private coverage that millions of middle-income kids already have.

The Hawaiian debacle should also be a caution to President Obama, who wants to mandate health insurance for all children at the national level.  That would require not only penalties for those who don't comply, but also new programs to help parents get their children covered.  The risk of further crowd-out will be great, says Turner.

Source: Grace-Marie Turner, "Hawaii's Keiko Crash Offers Lesson for All," Heartland Institute, January 2009.


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