There are few things more nonsensical than encouraging doctors to leave a state during a pandemic, but that is exactly what the Hawaii State Legislature is doing.
On March 9, the Hawaii State Senate passed SB56, a bill called the “Enola Gay” of tax proposals by the Tax Foundation of Hawaii. Most notably, it seeks to increase the personal income tax rate on those making more than $200,000 from 11% to 16%, which would give Hawaii the highest personal income tax rate in the country.1
It also would increase the state’s corporate, capital gains and conveyance taxes, and “temporarily” repeal numerous general excise tax exemptions, which would effectively be tax increases.
Even before the bill was proposed, Hawaii was facing a shortage of doctors. In December 2020, the Hawaii Physician Workforce Assessment Project determined the state needed more than 1,000 doctors and specialists to serve the state’s residents and their health needs.2 In 2017, that figure stood at about 700.3
“The single most important deficit that we have that directly contributes to the erosion of our health care here in Hawaii is really our provider manpower,” Maui radiologist Elizabeth Ignacio stated in May. “We are in critical need.”4
Between doctors retiring or moving away and Hawaii residents needing additional medical services, the state is facing a significant challenge. In 2019, 152 doctors left the state and 91 retired.5 With many of Hawaii’s existing physicians nearing retirement, the shortage will only grow unless something is done.
That doctors flee Hawaii is unsurprising, given the state’s high cost of living; it’s the highest in the country at 195% the national average.6 The Aloha State has also been ranked as one of the worst states in which to practice medicine,7 thanks largely to its uncompetitive salaries and high taxes.8
Among the doctors who have left Hawaii, many cite the high cost of living and massive tax burden.
Kyle Varner, a former resident physician at Tripler Army Medical Center in Honolulu who left Hawaii in 2016, stated, “I moved away because I want to get ahead financially, and I want to be financially independent. That’s just not possible in Hawaii, even for somebody with my earning potential.” He said that since leaving Hawaii, he had gained a “$50,000 a year increased salary.”9
“The sunshine and the aloha is nice, but it’s not worth the price,” said Varner, who now lives in Washington state, which has no income tax.
Radiologist Dr. Scott Grosskreutz, of the Hawaii Physician Shortage Crisis Task Force, said, “Doctors incur huge debts throughout college, medical school, internship, residency and fellowship training. When they finally are ready to start their practice in their 30s, they often have little or no retirement savings and owe over $200,000 of student debt.”10
Not only that, “In Hawaii, our practice start-up costs are often hundreds of thousands [of dollars],” Grosskreutz said. “The high overhead costs for offices and support staff, high income taxes and very low reimbursements make our state unattractive to most young doctors looking to start up practice.”
SB56 would add to those costs and likely worsen Hawaii’s doctor shortage, by chasing away existing Hawaii physicians and discouraging new ones from moving here. That, in turn, would undermine the very purpose of SB56, which is to increase state revenue following the drastic decline of tax payments caused by the coronavirus lockdowns. Fewer doctors means fewer tax dollars.
Further, the Senate’s vote undermined whatever trust businesses might have had in the Legislature’s intentions. Few medical startups will want to expand to a state where their taxes might suddenly spike.
But the Hawaii Senate didn’t seem to consider these factors when it approved SB56 almost unanimously, 24-1. That vote heightened concerns among Hawaii physicians and their patients.
“Already, my patients have asked me if this would be something that would make me consider moving,” said obstetrics and gynecology specialist Dr. Colleen Inouye.11
Inouye proposed an innovative idea for marshalling opposition to the bill. She suggested doctors across the state voice their concerns by sending in written testimony with just two words: “I’m moving!”
Following critical public reaction, SB56 appears unlikely to make headway in the state House.12 But, there’s still the danger of next year.
If Hawaii lawmakers hope to resolve the state’s shortage of physicians, they should take a piece of advice from the Hippocratic Oath: “First, do no harm.” The lesson is that current fiscal policies are exacerbating the problem, not fixing it.
Instead of an ill-timed, progressive tax hike, for example, exempting doctors from the general excise tax could provide them with more than $200 million in increased earnings and possibly entice new physicians to the state.13
As Keli‘i Akina, Grassroot Institute of Hawaii president, wrote in September 2019, “Just as in every other industry, health care workers will vote with their feet when it comes to finding the best job. But Hawaii can fill those vacant health care jobs, if we just work on making our state affordable again.”14
- Keli’i Akina, “Senate vote on tax bill sends nation alarming message,” Grassroot Institute of Hawaii, March 12, 2021. Note: This proposed 16% rate is a marginal tax increase, meaning it applies to only income above the first $200,000.
- “Report to the 2021 Legislature: Annual Report on Findings from the Hawai‘i Physician Workforce Assessment Project,” prepared by Kelley Withy, M.D., Ph.D., p. 2, Dec. 2020.
- Beverly Creamer, “The Doctor is Not In,” Hawaii Business Magazine, June 12, 2017.
- “Is Hawaii taxing health care to death?” Grassroot Institute of Hawaii webinar interview with Scott Grosskreutz, Ed Gutteling and Elizabeth Ignacio and John Dunham, May 1, 2020.
- Les Masterson, “States with Lowest Cost of Living,” Insure, Jan. 6, 2021.
- John S. Kiernan, “Best & Worst States for Doctors,” Wallethub, March 16, 2020. Hawaii ranked 42 out of the 50 states and the District of Columbia.
- Personal correspondence with Dr. Kyle Varner, March 11, 2021.
- Personal correspondence with Dr. Scott Grosskreutz, March 15, 2021.
- Personal correspondence with Dr. Colleen Inouye, March 12, 2021.
- Kevin Dayton, “The Hike In State Income Taxes On Top Earners Is As Good As Dead,” Honolulu Civil Beat, March 12, 2021.
- Keli’i Akina, “Tax waiver could help cure Hawaii doctor shortage,” Grassroot Institute of Hawaii, Jan. 31, 2020. The American Recovery Act complicates the tax situation as it may preclude states that received federal COVID-19 assistance from lowering taxes and offsetting those revenue decreases with the federal funding. See: Jared Walczak, “Does the American Rescue Plan Ban State Tax Cuts?” Tax Foundation, March 10, 2021.
- Keli’i Akina, “How to fill Hawaii’s vacant health care jobs,” Grassroot Institute of Hawaii, Sept. 9, 2019.