The Hawai‘i Health Connector — beset by delays, computer malfunctions and low enrollment since its inception in late 2013 — expects to be self-sufficient by 2022.
The state’s health insurance exchange created by the Affordable Care Act, also known as Obamacare, said in its annual report issued Monday that it is on the path to financial self-sustainability and could reach a surplus of $1.8 million by June 30, 2022.
The Connector said it will need about $28 million of taxpayer money over the next eight years before it can generate enough revenue through fees to become self-sufficient.
The nonprofit has enrolled 15,552 to date, up from fewer than 500 a year ago, and estimates it will generate $984,443 in revenue this fiscal year from a 2 percent monthly service fee. The Connector will increase the fee to 3.5 percent on July 1, and by 2022 expects to bring in $14.8 million in revenue.
Connector Executive Director Jeff Kissel said an independent projection by market research firm SMS shows the Connector could reach the break-even point before 2022.
"I think the (2022 estimate) is conservative," Kissel said. "We have to present the base case, but I’m really quite optimistic that if I were running the business independently, I would be shooting to meet the high-case model."
That best-case projection calls for the Connector to have a surplus of $1.8 million in fiscal year 2020. The worst-case model projects a surplus of $1.3 million in fiscal year 2023.
The online marketplace, which began providing health coverage to residents in 2014, estimated in its report that by June 30 it will have 27,280 enrollments. By 2022 the Connector estimates it will have 80,765 enrollments.
The launch of the Connector, which was delayed by two weeks at the outset, has been hurt by negative public perception amid continued technical difficulties that finally are starting to be rectified.
CGI Group Inc., the embattled information technology vendor that set up the Connector’s faulty exchange, was paid $40.8 million from inception through June 30, according to the annual report. The contract with Montreal-based CGI, which also originally built the troubled federal exchange, will continue with the Connector — under a reduced scope and price — at least through 2015.
Kissel said the Connector is tapping local talent to help shore up its technology.
"What we’re doing with the federal government’s cooperation is we’re actually starting to hire local talent," he said. "We were able to acquire one of the senior people — John Lacy — who retired from Bank of Hawaii. He’s one of the few people in the state who had broad experience with complicated IT (information technology) systems that involve security and regulatory compliance. We just brought him on at the beginning of December, and he’s well networked in Hawaii and is bringing on other excellent talent."
OPERATIONS DEFICIT
The Connector projects it will incur a $2.5 million deficit for calendar year 2015 after being cut off from the remainder of $204.3 million in federal grants. Since the beginning of this year, the federal money can be used only for further development of the exchange but not for operations. The Legislature appropriated $1.5 million for Connector operations this year through June 30, a third of the Connector’s $4.7 million request.
In the annual report, the Connector said that from inception through June 30, 2014, it spent $104.4 million and had obligations for an additional $32.7 million of the overall $204.3 million grant funding. About $67.3 million went unspent. In fiscal 2014 alone the Connector had total expenses of $68.8 million, which was more than double its fiscal 2013 expenditures of $34.3 million.
"The whole nation has been spending money to start an insurance business, and it’s very expensive to start an insurance business," Kissel said. "But once you have clientele it becomes reasonably cost-effective to market, and the example is life insurance. Companies pay huge commissions to get the business, but it doesn’t cost them much to maintain the business. We will have to go through a lot of expense to get our first 100,000 customers, but maintaining them will be less costly. That’s how we’re forecasting our operation costs in our business expenses through 2024 — a 10-year period."
PLANS TO TRANSFORM
The Connector said it is analyzing and developing plans to improve its sustainability as it transforms itself from a startup to a stable business. Among those plans are offering potential cost-saving alternatives to COBRA; providing affordable health insurance options for Hawaii’s college students who may be uninsured or underserved by student health services options; offering enhanced services and choices to members of the Hawaii Employer-Union Health Benefits Trust Fund; and performing Medicaid eligibility determination.
The nonprofit also hopes to spend less by reducing its marketing costs to match industry benchmarks and simplifying the technical architecture and infrastructure to reduce maintenance costs.
"Collectively, the Connection believes that these activities have the potential to result in net revenue gains and cost avoidance totaling millions of dollars each year, and have the potential to reduce certain segments of operating cost by as much as 40 percent per year," the report said.
The report also highlights the positive impact in Hawaii from new tax credits available under Obamacare designed to lower the price of health insurance for those less able to afford coverage.
The value of individual and family federal tax credits, as well as small-business federal tax credits, through 2024 is estimated at $505 million, which is expected to provide direct financial stimulus to the state.
"In addition to the direct financial stimulus they provide, these tax credits facilitate the expansion of health insurance," the report said. "This expansion will help to promote a healthier, more productive population, reduce uncompensated health care costs associated with caring for the uninsured, and transfer risk away from the state and providers to the issuers."
The Connector, which in October named Kissel as its third executive director in less than a year, said in its report that it is facing challenges this year in three key areas: customer perception and trust; stabilizing and simplifying technology to make the system more user-friendly; and increasing the number of issuer participants, expanding consumer choices and spurring competition.
"Advancing in these … areas is a critical success factor in the effort to grow enrollment and achieve self-sustainability as quickly as possible," the report said.
