Banks, insurance companies and home owners have already fallen victim to the US financial crisis. Now healthcare is under fire. Last week, the state of Hawaii announced that it was ending Keiki Care, the only universal health insurance program for children in the United States. In the face of a projected deficit of $900 million by 2011, Hawaii Governor Linda Lingle was forced to cut the program just seven months after she had signed it into being. On the national stage, the presidential candidates have refused to explicitly shelve any one of their proposals for office, including health reform. But Hawaii’s decision augurs badly.

Keiki Care provided health insurance to 2000 children in Hawaii up to the age of 18, at a cost to the state of $50,000 a month. Families were not expected to pay anything except a small co-payment for visits to the doctor. Keiki Care served children who fell through the gap between Medicaid, the public insurance program for the lowest income children, and private, employer-sponsored health insurance. Many of these children are likely to remain uninsured when the program ceases at the end of the year. Their parents earn more than the $73,000 annual income cut-off for Medicaid (based on a family of four) but are unlikely to be able to afford the $55 a month necessary to buy into a private health plan.

Hawaii’s struggle to maintain Keiki Care is a familiar one for states in an economic downturn. One of the main problems states face is that demand for public programs such a Medicaid picks up in a downturn, just as the state’s tax revenue to pay for these programs starts to shrink. In the last downturn, Oregon faced the same challenge that Hawaii currently faces. As unemployment rose and income tax revenues shrank, the state could no longer fund the health insurance program it had begun in the mid-90s, when the Oregon economy was strong. Over the course of 18 months, beginning in 2003, 80,000 people who had been insured were dropped from coverage.

Last week Barack Obama stood alongside Hilary Clinton and renewed his commitment to make health reform a top priority if he is elected. But in the wake of the demise of Keiki Care, it is hard not to be pessimistic about his prospects. A central piece of Obama’s plan is subsidised insurance that, like Keiki Care, will pick up those people who fall through the gap between Medicaid and employer sponsored insurance, and the numbers falling through this gap are growing. The percentage of Americans with employer-sponsored health insurance has decreased year on year since 2000. Three million fewer Americans got their health insurance through work in 2007 compared to 2000.

It took Linda Lingle seven months to discover that Hawaii’s budget would not stretch far enough to keep subsidising families in the gap. With a price tag for reform of an estimated $1.6trn over 10 years and an estimated increase in the federal deficit of $2.3trn over the same period, the next President may quickly reach the same conclusion.

Vidhya Alakeson is a former Harkness fellow.