Why? Because the parents of those who already had coverage dropped it so that they could get a freebie:

Hawaii is dropping the only state universal child health care program in the country just seven months after it launched.
Gov. Linda Lingle’s administration cited budget shortfalls and other available health care options for eliminating funding for the program. A state official said families were dropping private coverage so their children would be eligible for the subsidized plan.
“People who were already able to afford health care began to stop paying for it so they could get it for free,” said Dr. Kenny Fink, the administrator for Med-QUEST at the Department of Human Services. “I don’t believe that was the intent of the program.”

Is anyone shocked that parents would want to save money and get their piece of the pie? Why shouldn’t they pay when others are getting health care for free? It’s the Michelle Obama syndrome (who whines a lot about her student loans), why should I be burdened with this expense when the government can provide it for me?