Senate lawmakers have shelved a controversial bill that would have banned health insurers from serving on the board of the state’s new health insurance exchange.

Hawaii Health Connector, a nonprofit designed to provide residents access to affordable health insurance, is the first major piece of the federal health care reform. The Connector has a 15-member board, appointed by the governor, which includes three representatives from the insurance industry.

A bill that would have excluded health insurers from the board was not heard in conference committee before Friday’s legislative deadline.

"The death of the bill means we’re essentially at status quo," said Matthew Nagato, spokesman for the Hawaii Primary Care Association, which opposes the inclusion of health plans on the board. "Everybody who was on the board before is still on and they’ve all been confirmed now. The interests of consumers who ultimately are going to be the ones to choose these plans and to pay the prices the Connector’s going to be offering is no better off today."

Several consumer advocacy groups — fearful that insurance industry executives on the board might place their companies’ interest above the public’s — were disappointed that the bill failed.

"It’s a frustrating and disappointing situation when 20,000 emails, letters and calls to the legislators urging adoption of this bill falls on deaf ears," said Barbara Kim Stanton, AARP’s state director. "The irony is that this pro-consumer bill is being blocked by the Senate Consumer Protection chair. If this bill dies, the public is the clear loser."

Sen. Rosalyn Baker (D, Maui), chairwoman of the Senate Commerce and Consumer Protection Committee, said she doesn’t believe there are any conflicts of interests with three out of 15 board members being from the health insurance industry. She also said it was important not to remove board members now after most of them have been working together as an interim board since August.

"Rather than creating something that was divisive, we want to give people who had started working together an opportunity to do so," she said. "We had every intention of working collaboratively on this bill, but that didn’t happen. It seemed to the Senate that the better course at this particular point in time is to stay the course. If there are issues it can always be revisited."

Bev Harbin, a former legislator and executive director of Rights of Consumer Consortium based on the Big Island, said it was a losing battle from the start since lawmakers never intended to remove the health insurers from the board.

"There was no way we were going to get them off," Harbin said. "They ran the clock out. Very honestly Roz Baker killed a whole bunch of consumer-friendly bills."

The Senate in March confirmed the 15-member board, which includes representatives of the Hawaii Medical Service Association, the state’s largest health insurer; Kaiser Permanente Hawaii, the dominant health maintenance organization; and Hawaii Dental Service.

The federal Affordable Care Act requires states to set up health insurance exchanges, which will match uninsured individuals to subsidized health care plans. The law mandates that health insurance exchanges —envisioned as one-stop shops where health plans compete and consumers compare medical plans — be operational nationwide by January 2014. The exchange could be used by as many as 100,000 uninsured Hawaii residents to select their health care coverage.

The Kokua Council, an organization advocating good government, said the legislative process surrounding the health exchange has been contentious, beginning with an earlier Senate confirmation hearing on the nominees in which not all advocates were allowed to present oral testimony.

However, Baker said the opinions of consumer advocates were taken into consideration.

"They were heard in the legislative process; the Legislature just did not agree with them. There is a difference," Baker said. "Perhaps not everybody got a chance to say something, but written testimony was accepted and their point of view was heard. They just don’t like the decision."

The Kokua Council and the League of Women Voters filed complaints in March with Senate leadership about the way Baker conducted the confirmation hearing process.

"In the end, since (the insurers) are designing the basis of which all of us are mandated to buy insurance, we can never be sure that they’re giving us the most favorable health plans," said Larry Geller, of the Kokua Council. "We’ll always have a suspicion that they’ve set plans favorable for themselves."