The head of the Hawaii Health Connector acknowledged for the first time Wednesday that the state-based insurance exchange won’t be sustainable beyond this year.

"We’re not even close to breaking even," Tom Matsuda, interim executive director of the Connector, told state lawmakers.

The Connector, the online health insurance marketplace created by the federal Affordable Care Act, needs $15 million a year to operate but expects to earn only $1 million this year from fees. Until now the Connector has been funded through $204.3 million in federal grants. About half of that money has been spent or committed and the remainder expires on Dec. 31.

"If there are no changes to current revenue sources … the Connector will become unsustainable in 2015 unless there is a grant extension from the federal funding agency," Matsuda said. "With an extension, it will become unsustainable a year later."

Before this year, Connector officials had said the agency would be self-sustaining primarily based on a 2 percent fee on each insurance policy. But to generate $15 million in fees, the Connector estimated it would need to enroll between 152,000 and 184,000 people in 2016. Between its Oct. 15 launch and last week, the Connector signed up only 4,467 people.

Matsuda, testifying before the House Finance Committee, said the number of uninsured in Hawaii — estimated at about 100,000 — is low compared with most states, and that roughly half of them are expected to qualify for Medicaid, the government insurance program for low-income people, which means they would not need to get insurance through the Connector.

"There are not enough lives left to enroll at a volume that could sustain the Connector," Matsuda said. "This is not an operational problem. It is a market problem."

Hawaii’s "market dynamics are not right for an online marketplace of this type" and there is "little chance of the Connector becoming self-sustaining under its current revenue model," he said.

"Even with substantial reductions to the estimated $15 million annual operating budget, we will not be sustainable."

The Connector would need to dramatically increase fees on participating exchange plans or the state would need to assess a fee across the market just to preserve services, he added.

Federal and state governments decided in November to give consumers the option to remain with their existing health plans this year, reducing the volume of potential Connector customers.

Further stifling enrollment is Hawaii’s 1974 Prepaid Health Care Act, which already requires employers to provide coverage for full-time workers, leaving "little need for the average small business" to use the Connector, Matsuda said.

Relatively few companies can qualify for small-business tax credits that were supposed to give employers incentive to use the Connector, he added. Tax credits that can be obtained only through the exchange are a fundamental part of the Connector’s marketing campaign.

The Connector is exploring other revenue sources allowed under the Affordable Care Act and is seeking a one-year extension on its federal grants.

The Connector also will seek a federal waiver in 2017 to modify ACA rules to fit Hawaii’s insurance market. The ACA Innovation Waiver could allow the Connector to pursue its own strategies to ensure residents have access to affordable coverage. It could potentially allow the state to opt out of the exchange altogether.

Lawmakers are considering turning the Connector into a state agency and paying for its operations out of the general fund.

"Obviously this is not going to be sustainable," said Rep. Jo Jordan, (D, Waianae-Makaha-Makua). "The only deep pocket we’re going to have is general funds."

The Connector, which is designed to provide subsidized coverage to lower-income individuals and small businesses, went live two weeks after its scheduled Oct. 1 launch. The delay was due to software problems that continue to plague the system.

"The Connector has experienced some well-known operational challenges," Matsuda said. "If these had been prevented and the rollout had been smooth, the public might have been happier with the Connector and enrollment might have been marginally higher, but that would not have made a substantial impact on sustainability."

The Connector’s chief information officer, Anjali Kata­ria, told Connector board members last week that the nonprofit is still struggling to get its main contractor, CGI Group Inc., to fix computer defects preventing many consumers from enrolling online.