Low-income patients and their doctors face an economic cliff

A doctor in expensive San Francisco has a distinct economic advantage when it comes to treating elderly patients insured by Medicare over a doctor in similarly expensive Honolulu. Federal authorities pay San Francisco doctors large sums of money for the exact same consultations.

Now, despite promised funding from Congress to enhance Medicaid payments thanks to the recent One Big Beautiful Bill Act, Hawaii’s doctors will soon face the same disadvantage when treating low-income patients eligible for Medicaid.

The result is a looming fiscal cliff that could severely impede access to health care for more than a quarter of the state’s population, including many of its most vulnerable residents.

Dr. Jack Lewin, secretary of the Hawaii Department of Health Planning and Development, said Medicare providers are already feeling the pain of reimbursement rates that don’t take into account Hawaii’s high cost of living, putting a strain on doctors and hospitals treating older Medicare patients.

Lewin said Congress has committed money to collect Medicaid reimbursements. But Congress banned the practice when it passed the One Big Beautiful Bill Act, which President Donald Trump signed into law in July. Starting in 2028, Hawaii will need to begin cutting Medicaid reimbursements to match Medicare’s inadequate reimbursements, Lewin said.

For Lewin, there is nothing beautiful about federal law.

“It just causes more pain right away,” Lewin said.

Lewin, Gov. Josh Green and Hawaii’s Congressional delegation are working to resolve Hawaii’s Medicare reimbursement issues, which Lewin said will also resolve pressing Medicaid issues.

Meanwhile, Hawaii’s health care providers are struggling, Lewin said. The proposed One Health Agreement between HMSA and Hawaii Pacific Health, which proponents say would strengthen the state’s health care system, would not be necessary if federal officials paid Hawaii doctors the same salaries as doctors in other high-cost areas.

“With the adjusted reimbursement needed, that proposal probably wouldn’t be on the table,” Lewin said.

Federal law limits states’ ability to support Medicaid

Although both Medicare and Medicaid are funded by the federal government, they are separate programs that serve different populations. Medicare covers seniors and is paid entirely by the federal government. Medicaid is funded by the federal government and states to cover low-income people.

As of March, about 315,000 Hawaii residents were covered by Medicare, and about 169,000 of them chose Medicare Advantage plans, which are funded by Congress and operated by private insurers. Approximately 429,000 Hawaii residents were eligible for Medicaid as of January, according to the Hawaii Department of Health.

That leaves about half of the state’s 1.4 million residents dependent on stingy government programs to compensate doctors. Lewin, a former president of the American Medical Association and director of the Hawaii Department of Health, said low reimbursement, combined with an aging population and a shortage of doctors, is setting the stage for a serious crisis.

“The Medicare reimbursement we receive does not accurately reflect the cost of doing business and providing care.”

U.S. Congresswoman Jill Tokuda

The problem lies in the way Congress sets Medicare reimbursement rates using a complex formula that takes into account basic treatment costs and geographic variables. Geographic factors are thought to explain the value of a physician’s work in different regions and the cost of operating a practice, including rent, utilities, and staff. Malpractice insurance costs play a small role in the equation.

Hawai’i’s fundamental problem is that Congress’ formula does not fully account for the painful reality of Hawai’i’s cost of living at the nation’s top. Hawaii’s housing, gas and food costs are comparable to some of the most expensive areas in the country, but the formula doesn’t reflect that.

In fact, this formula ranks the effort Hawaii doctors put into a particular procedure lower than the national average and only slightly higher than the same procedure in low-cost states like Alabama, Indiana, South Dakota, and Vermont. Never mind that it costs a lot of money for a Hawaiian doctor to just live here. The Physician Work Index does not take that into account.

As a result, doctors in San Francisco rated their jobs 9.5% higher than doctors in Hawaii, and doctors in Alaska rated their jobs 50% higher than doctors in Hawaii.

This formula also shows that the cost of operating a medical practice in Hawaii is significantly lower than in other expensive areas. The formula recognizes that it costs much more to run a clinic in Hawaii than, say, Alabama. However, the formula shows that operating a clinic in San Francisco costs 24% more than operating a clinic in Hawaii.

Finally, Hawaii’s tort reform law has reportedly reduced the cost of malpractice insurance, which hurts Hawaii’s doctors when Medicare considers malpractice insurance amounts, which are only 4% of the weighted formula.

All of this is factored into the amount Medicare pays Hawaii doctors, creating a huge difference between them and doctors doing the same work in other expensive markets.

For example, federal regulators will reimburse a Hawaii doctor $202 for a moderately complex 40-minute follow-up appointment for a Medicare patient in Honolulu. Doctors in San Francisco receive about $235, about 16% more. Multiplyed over a year, the cost to Hawaii physicians could be reduced by up to tens of thousands of dollars. Hospitals face similar contradictions.

“The bottom line is that the Medicare reimbursements we receive do not accurately reflect the cost of doing business and providing care in island nations like Hawaii,” said U.S. Representative Jill Tokuda.

State and federal leaders working to solve problems

The situation can quickly deteriorate. While the federal government pays the full cost of Medicare, states pay a portion of Medicaid reimbursement. Lewin said Hawaii lawmakers have stepped in to raise Medicaid reimbursement rates by 20% above Medicare rates, with plans to increase them by another 50%.

But that will change thanks to Congress’s mandate that Medicaid reimbursement rates cannot be higher than Medicare rates, even if states are paying the cost.

Lewin said the law’s effects will not be felt immediately. He said states will need to phase out Medicaid reimbursements, and won’t reach Medicare levels until 2030.

Asked about the Legislature’s move to limit Hawaii’s Medicaid funding, state Sen. Angus McKelvey, vice chairman of the Senate Health and Human Services Committee, called the Big Beautiful Bill “a big barrel of bullshit.”

This bill isn’t all bad for Hawaii. The measure includes $189 million to fund rural health programs in 2026, and an additional $189 million in grants each year through 2030, part of a $50 billion national investment.

But that additional funding won’t make up for Hawaii’s inadequate Medicare reimbursement rates. In May, U.S. Senators Brian Schatz and Maisie K. Hirono, and Representatives Tokuda and Ed Case introduced legislation in both houses of Congress to address this issue.

The Protecting Access to Health Care Act in Hawaii would increase payments to doctors by up to 38%, bringing them on par with Alaska, which receives special consideration because of Hawaii’s remote location.

The Green government is also grappling with this issue. Mr. Lewin’s office commissioned a study to show Congress both the initial costs of increasing Hawaii’s reimbursement rates and the long-term benefits of increasing the number of physicians who provide Medicare patients with access to preventive care. Lewin said Greene is also seeking help from the Trump administration in negotiating land leases with the U.S. military.

After all, half of Hawai’i’s patients are paid for with government funds, and that low reimbursement impacts everyone in the state who needs medical care and the doctors who treat them, Lewin ultimately said.

“The public side of this issue is dragging everyone down and we are moving towards an unviable situation,” he said.

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Civil Beat’s community health coverage is supported by the Atherton Family Foundation, and its reporting on economic inequality is supported by the Hawaii Community Foundation as part of its work to build equity for all through the CHANGE framework. From the Cook Foundation.