Medical insurance not provided for family
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Having a medical insurance provided by state is mandatory for all residents so yes, they will be able to use it. The cost per year is in range of 50 KWD for your wife and around half of that amount for children, so for you it would be around 250 KWD per year (around 800 US$). There are rumors though that they may be raising this amount considerably.
Public hospitals are not bad in my opinion. It is all about the physician, and not the place anyway. 
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