State lawmakers are considering turning the nonprofit Hawaii Health Connector into a state agency nearly two months after it fumbled the start of the online insurance marketplace created by the Affordable Care Act.

The Connector, the state-based health insurance exchange assigned to sign up Hawaii residents for medical coverage under President Barack Obama’s signature health reform law, was supposed to launch on Oct. 1 but did not go live until Oct. 15 due to software problems that have stifled enrollment.

State officials said Thursday at a briefing on the Connector that making the organization a state agency could give it access to greater resources, reduce information technology costs, improve security of private health information and make it more transparent.

Rep. Angus McKelvey (D, Lahaina-Kaanapali-Kapalua-Maalaea-Kihei-North Kihei), chairman of the House Committee on Consumer Protection and Commerce, said he will be introducing legislation next year to change the governance of the Connector.

"In all the other states, they’re pretty much state agencies or part of state agencies," McKelvey said. "Then you look at things like transparency and other issues that you have by being a state agency that is not necessarily present as a private nonprofit."

House Committee on Health Chairwoman Della Au Bellati (D, Makiki-Tantalus-McCully-Papakolea) added that the Legislature will review all governance options in the upcoming session.

"We need to have a tough conversation about what the Health Connector is going to look like in the future where we can restructure it in a way so that it’s beneficial for our state," she said.

The Connector’s interim executive director, Tom Matsuda, who took over the post Monday, said at the briefing that he has been told the Connector needs to sign up 50,000 people — 10,000 individuals and 40,000 small-business workers — by June 30 to be financially sustainable after its federal grant runs out.

The Connector has been operating with $204.3 million in grants that expire at the end of 2014.

Matsuda said the Connector’s goal is to enroll an additional 133,000 residents in fiscal 2015 — 39,000 individuals and 94,000 workers. He added that he did not know how those numbers were determined.

As of Dec. 7 the Connector, designed to match low-income residents with subsidized health coverage, has signed up just 683 individuals.

Matsuda told House lawmakers that the Connector has spent $49.2 million and contracted to expend another $44.2 million. Roughly $110.9 million in unobligated funds must be used by the end of next year, or the federal grants will be forfeited.

"There’s nothing that says we have to spend all of it. I want to spend what we need to accomplish the goal and mission of the organization," Matsuda said. "Beyond that, I’m certainly not interested in wasting taxpayers’ money."

Aside from charging insurance companies a 2 percent fee on premiums starting in January, the Connector has no other "substantial" form of revenue to sustain operations once the federal funds dry up, he said.

"The goal is to be self-funded and not rely on public funds," Sherry Menor-McNamara, chairwoman of the Connector’s board of directors, told lawmakers. "We’re at a critical juncture where we need to find out what our options are to make the Connector sustainable."

After the grants end, the Connector projected operating expenses of more than $40 million in 2015 and in excess of $20 million in 2016, according to a budget report released earlier this year.

"With enrollment so far below what’s needed to break even, the taxpayers will be on the hook to bail out the Connector," said Barbara Kim Stanton, state director of AARP Hawaii, which is calling for a financial and management audit of the Connector. "What’s the fiscal sustainability plan?"

Regarding security of health information, Sonny Bhagowalia, chief information officer in Gov. Neil Abercrombie’s Office of Information Management and Technology, told legislators that Hawaii is not fully prepared for possible security breaches of private health data. Absent a sustainability model, the state should take over the Connector, he said.

"I’ve not seen the full sustainability model, and I don’t think they’ve had a chance to fully produce it," he said. "(But) health systems and health data … are going to be under increasing attack. That’s why security has to be taken up to the next level. They should look at whether the Connector itself should become a state agency."