The Keiki Care Plan, a state program once hailed as a step toward providing health insurance for all residents, is falling victim to a poor economy and cost cuts and will lapse at year's end.

The state started the program this year to provide uninsured children in "gap group" families with health coverage, and enlisted the Hawaii Medical Service Association to run the program.

Hawai'i lawmakers had come up with the health plan to make sure there was healthcare coverage for all children in the state. But the state pulled out at the end of October, saying the program might be helping people it wasn't intended for — that some children enrolled in Keiki Care had previously had private health insurance.

The state had paid half of the program's monthly cost of about $100,000 and had participated in it for seven months.

The announcement came at a time when the state was looking for ways to shave its budget because of lower-than-expected tax revenue gains.

That left HMSA to fund the program by itself. But it says it can only shoulder the costs through the end of the year.

HMSA this week reported net losses through the first nine months of 2008 of $21.6 million and said its reserves, which were near $600 million two years ago, have fallen below $500 million.

"To continue without the state's participation would not be sustainable through 2009," HMSA said.

HMSA pledged to help find coverage for the 2,000 children in the program.

The health insurer said some of the families may qualify for Hawai'i's expanded QUEST program, the free Medicaid coverage program for low-income households.

HMSA said families not qualifying for QUEST will be offered coverage under its Children's Plan at the 2008 rate of $55 per child. It said it will use its reserve to cover costs that exceed that.