The Hawaii Health Connector, which is implementing the federal health insurance overhaul locally, decided Friday to charge insurance companies a 2 percent fee on premiums starting in January.
The fee will raise more than $5 million in 2014 to pay for the operations of the Connector, a government-affiliated nonprofit tasked with matching uninsured individuals with health insurance coverage.
The fees are scheduled to rise significantly in 2015 and 2016.
Hawaii Medical Service Association, the state’s largest health insurer, said it will have to raise premiums for individuals purchasing insurance via the Connector to recoup the 2 percent fee.
"In a way it’s a disincentive for somebody to go onto the exchange," said Steve Van Ribbink, chief financial officer of HMSA, one of two medical insurers participating in the Connector. "If you don’t go onto the exchange, you don’t have to pay it. So why would you go onto the exchange?"
The Patient Protection and Affordable Care Act, better known as Obamacare, requires states to set up health insurance exchanges that will match qualified individuals with subsidized health plans.
Open enrollment in the program starts Oct. 1 with insurance coverage beginning Jan. 1. All uninsured must sign up for insurance or pay a fine.
The exchange is envisioned as a transparent marketplace where health plans compete and consumers and businesses can compare and select coverage.
The exchange could be used by as many as 100,000 uninsured Hawaii residents, a market valued at $300 million.
In addition to the 2 percent fee charged by the Connector, insurers also will be subject to federal fees to help finance health reform. HMSA said it has already informed businesses that it will pass on federal fees and other taxes, but hasn’t yet factored the local Connector fee into its rates. The federal fees will raise rates by 2.3 percent.
"There’s going to be wild swings (in premium rates)," Van Ribbink said. "It’s all these different things that conspire to create a very volatile 2014."
The 2 percent fee is needed to make the Connector self-sustaining by 2015, according to Connector spokesman Brian Fitzgerald.
The state received $205 million in federal funds to build and launch the Connector, but that money isn’t earmarked for ongoing operations.
Two alternatives to imposing the 2 percent fee on insurance companies would be charging the fee to individuals or asking the state for funding.
"To us, neither of those models is an option," Fitzgerald said. "In regard to what that means for insurers here in Hawaii, the impact should be minimal. Not only will we be helping to grow the customer base for Hawaii’s insurers, we will also be handling some of the administrative and marketing duties as well. That alone should counterbalance any costs to the insurers."
Connector board members said the federal law, which aims to increase competition in the medical insurance market and cut costs, requires that insurers charge the same for health plans both on and off the exchange.
A company would not be allowed to raise rates on Connector customers to recoup fees without also increasing rates on non-Connector customers, board members said.
The board also is deliberating compensating brokers, but didn’t specifically discuss it when also approving its budget for fiscal 2014, which ends June 30.
The budget projected revenue of $123.5 million and expenses of $120.7 million. The largest part of revenue comes from federal grants totaling $117.5 million, while the biggest expenses include $74.8 million in technology costs to build the exchange and $13.3 million to market it to the public.
The Connector expects to have 59 full-time employees this fiscal year and has budgeted $6.1 million for their wages and benefits.
