KIHEI, Hawaii — As Californians weigh whether to require employers to provide health insurance, Hawaii, the only state with such a mandate, provides a glimpse of what could be ahead.

For 30 years, all Hawaii businesses have been required to provide insurance to any employee who works at least 20 hours for four consecutive weeks. The state was an inspiration for Proposition 72, the referendum on California's Nov. 2 ballot that would impose a similar mandate on businesses with at least 50 workers.

Only 10% of Hawaiians are without insurance — one of the lowest rates in the country and about half of California's 19%, one of the highest. Hawaiians are healthier than the national average by several key measures.

But not all is perfect in the tropics. As premiums have escalated, Hawaii's Prepaid Health Care Act has become increasingly unpopular among employers. Some have found ways — legal and not — around the mandate, and there are growing calls to relieve the burden on businesses.

"It's fabulous from an employee standpoint, but the law crushes small businesses," said Cindy Eiting, an owner of Stella Blues Cafe here on Maui. The restaurant employs 60 people, 40 with health insurance.

"There are lots of businesses that just cross their fingers and hope no one will check up on them, but those are places where employees don't stay," she said.

Once the nation's leader in providing insurance, with as few as 2% uninsured, Hawaii now trails Minnesota, Rhode Island, Iowa and Massachusetts, which have expanded their public-health programs for the poor.

Not surprisingly, many of Hawaii's 1.2 million residents love the law, especially those working in the retail and food service industries, where health insurance is so uncommon on the mainland.

"There's more stability here," said Sanni Panopio, a bartender who moved here from San Francisco. "It's comforting to know that if your kid gets sick, you can go to the hospital and you're not going to have to pay out of pocket."

Sara Chappell, a waitress who used to attend Los Angeles Harbor College, said the law means she has health insurance while she finishes school at the University of Hawaii satellite program on Maui. "It's awesome," she said. "When I found out about that, it was an added bonus."

But an unknown number of companies skirt the law through a variety of means, including paying cash or hiring workers for fewer than the coverage threshold of 20 hours per week for four consecutive weeks.

Gary Lite, a salesman at an art gallery in the Wailea resort area, said he did not have insurance for several years when he worked as a scuba instructor and an "activities" salesman, offering recreational junkets for tourists.

"I was an independent contractor. They tell you it's for your tax benefit, but it isn't," he said. His current employer, Elizabeth Doyle Gallery, provides insurance.

Supporters of Proposition 72 say Hawaii's experience shows that businesses can adapt to mandated coverage without the dramatic rash of bankruptcies business groups are predicting.

"Hawaii is a good example of a miraculous success story," said Dr. Jack Lewin, Hawaii's state health director from 1985 to 1994 and now chief executive of the California Medical Assn., one of the chief proponents of Proposition 72.

"The negatives that the business community complained about never manifested," Lewin said. "There were a lot of positives that occurred."

Though Gov. Arnold Schwarzenegger and business groups that oppose Proposition 72 say the coverage mandate will cost jobs, the experience in Hawaii suggests a different effect.

"What we know generally is employer mandates of the type they have in Hawaii in the long run don't lead to fewer jobs; they lead to lower wages," said Jonathan Gruber, an economics professor at the Massachusetts Institute of Technology.

"It's not really the employers who are bearing the burden," agreed B.J. Ott, an executive at a nonprofit company who used to own three sporting-goods stores on Maui.

"If they weren't paying that out in healthcare, they'd probably be paying that out in better wages. I never found [the healthcare mandate] to be a problem because it's an even playing field, so long as people aren't gaming the system."

The law, however, has had an effect on how employers structure their workforces. Researchers at the University of Hawaii recently concluded that the law has made Hawaii employers much more reluctant to hire part-time workers for 30 or 35 hours a week, the standard in the rest of the country.

Instead, Hawaii has a disproportionate number of employees working just under 20 hours. The study found those workers were less likely to have health insurance than were employees in the rest of the country working comparable hours. Hotels designate many workers as "casual employees," who work intermittently or are on call and generally don't get healthcare.

All of that makes it hard for those looking to earn more. "People have to have two, three, four jobs," said Jillyne Condon, who works in a cheese shop. She said employers were especially reluctant to hire her when they found out she was a single mother.

"Employers are scared of that," she said. Condon, who has since married, now gets her health insurance through her husband's job.

Yet even some of those who deplore the mandate continue to do business here. Lily Garfield, a Coloradan, said the cosmetics shop she opened in Maui in 2002 is less profitable than her Cosbar stores in Aspen, Colo., Santa Fe, N.M., and several other Western resorts.

"It's very hard to make money here," she said. Nonetheless, Garfield has no intention of closing shop. "I want to beat all the odds. I like the challenge." Plus, she admits, "I like the lifestyle here."

Ann Tuomela, Condon's employer, said the healthcare costs have strengthened her support of socialized medicine, as in Canada. "I would prefer to see it in taxes, and I'm not a big advocate of raising taxes," she said.

Opponents of Proposition 72 say it would be a mistake to assume that California's experience would duplicate Hawaii's.

"Hawaii doesn't have a diverse industrial base like California. Its economy is based on tourism," said Allan Zaremberg, president of the California Chamber of Commerce.

"It's not a situation where you can move offices somewhere else."

Proposition 72 differs from Hawaii's law in several details. Though Hawaii's law applies to all employers, Proposition 72 would exempt companies with fewer than 50 workers from having to provide insurance. Firms with 20 to 49 employees would have to provide insurance only if the Legislature created a special tax credit, which it has not done.

The proposition's exemptions appear smartly targeted because small businesses are the ones that have had the most trouble complying with Hawaii's mandate. But some California businesses object that under Proposition 72, smaller firms would have a competitive advantage over larger ones.

Another difference is that Proposition 72 sets the definition of full-time work as 100 hours or more per month. It is not clear if California employers would be able to juggle workers' schedules to avoid providing health insurance as easily as some Hawaiian firms do.

The biggest problems with Hawaii's law come from its creators' decision to protect workers from having to pay more than 1.5% of their salary in premiums.

In 1974, when Hawaii's law was passed, that meant that all but the lowest-wage workers split healthcare costs with employers. But the massive increases in insurance costs since then have forced employers to pick up virtually the entire tab. To the chagrin of all sides, Hawaii cannot change that provision without action by Congress, which is considered unwilling to accede.

(Proposition 72 caps the amount employees would have to pay at 20% of the premiums or, for low-income workers, 5% of their salaries, whichever is less.)

Despite their complaints, Hawaii's business community is not pushing for the law's abolition — in part because the state has a long history of employers providing insurance, going back to the days when sugar plantations ran their own hospitals.

"Having the Prepaid Health Care Act is definitely a good thing, but it's been difficult for employers," said Wanda Kakugawa, a Honolulu business owner on the state's Chamber of Commerce board.

"It's a cultural thing; it's so much a part of what we do here."

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The uninsured

Hawaii, the only state that requires employers to offer health insurance, has one of the lowest rates of uninsured residents in the country. California has one of the highest rates.

Percentage of people without health insurance coverage

Texas 24.6%

California 18.7%

Nevad a18.3%

Florida 17.6%

Arizona 17.3%

New York 15.5%

U.S. avg. 15.1%

Oregon 14.8%

Hawaii 9.9%

Minnesota 8.2%

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Sources: Census Bureau