Hawaii is switching its Obamacare program to the federal exchange, meaning 37,000 residents insured through the Hawaii Health Connector will have to re-enroll via the federal marketplace for coverage in 2016, Gov. David Ige’s administration confirmed Thursday.

Ige acknowledged last week that Hawaii is out of compliance with the federal Affordable Care Act and is at risk of losing $1 billion in Medicaid funds if Washington does not accept the state’s plan to remedy the ailing Hawaii Health Connector.

"We have agreed that we’re going to proceed (to the federal marketplace)," Laurel Johnston, Ige’s deputy chief of staff, said Thursday. "We’ve taken steps to go ahead and make plans to do that (for fall 2015 open enrollment)."

The state is negotiating with the federal government to release grant money to avoid closure of the Connector, which was awarded $204.3 million in federal startup funds over the years, but was unable to become financially sustainable by the beginning of this year, as required by the ACA. As a result, the feds restricted roughly $70 million in remaining grants, putting pressure on the state to move to the federal marketplace, healthcare.gov.

"The federal government has a huge interest in making sure this thing stays alive and so do we," Johnston said.

"They’ve made a huge investment in it. I don’t know why they’d let it tank at this point. We’re pressing the feds pretty hard to release funding because we felt we kept our end of the arrangement. We’re hoping the federal government is going to pay for it."

The administration put forth a plan to spend $30 million to temporarily use healthcare.gov for one year to enroll residents in coverage under the ACA, commonly referred to as Obamacare.

That would buy the state time to bring the state-based exchange into compliance with the federal law, which requires the Connector be financially sustainable, resolve ongoing technology issues and be integrated with the Medicaid system that determines eligibility for subsidies and tax credits obtained through the online marketplace.

"We would have until fall 2016 to do the integration and fix some of these issues," she said. "That’s all something they (the feds) should technically be paying for."

This "corrective action" plan would require the state Department of Human Services spend $20 million to link its Medicaid eligibility system to healthcare.gov. Most of that would come from the federal dollars Medicaid receives, Johnston said. However, the Connector estimates it would need another $10 million to $11 million to connect to the federal marketplace, but does not have the money to do so.

Under the plan, the federal government would take over the technology functions of the exchange, while the state continues outreach, enrollment and customer support. The Connector estimates the outreach, enrollment and customer support functions alone would cost between $5 million and $8 million a year. It is unclear who would pay for that, Johnston said.

A move to the federal Obamacare technology means all 37,000 members insured via the Connector will have to go through the enrollment process again using healthcare.gov.

A lack of funds is the main barrier to bringing the Connector into compliance with the ACA. After its launch in October 2013, the Connector was to fund its operations with a fee collected on each health insurance policy. To sustain operations, the Connector needed to enroll 70,000 members.

Jeff Kissel, the Connector’s executive director, asked the state Legislature to help make up the shortfall by appropriating $5.4 million, but lawmakers granted the exchange just $2 million.

The Connector, a nonprofit created by the Legislature in 2011, has prepared a second option, known as its "contingency plan," to shut down operations by Sept. 30 if the federal government doesn’t accept the state’s temporary fix.

The ACA requires Americans to obtain coverage or face tax penalties. The theory is that if everyone has health insurance, they are more likely to get medical care and detect illness before developing high-cost chronic diseases.

The exchanges offer subsidized health plans for those with incomes too high to qualify for Medicaid, the government health insurance program for the poor.

Moving to the federal marketplace puts Hawaii residents in a precarious situation.

The U.S. Supreme Court is currently deliberating whether to invalidate insurance subsidies worth billions of dollars for people using healthcare.gov. Without financial assistance with their premiums, officials fear millions of those consumers would drop coverage.

"As long as we have the state-based marketplace, we’re in full compliance," Kissel said. "I have no idea what the Supreme Court’s going to decide."