$28M in state bonds proposed

The Hawaii Health Connector, which came under fire by the state auditor last week for the way it spent millions of dollars in federal grants, may be able to borrow as much as $28 million in bonds backed by the state.

Lawmakers are considering proposals that would allow the health insurance exchange created by the Affordable Care Act, also known as Obama­care, to use state bonds as operating capital until 2022, when the Connector plans to have enough income to cover its expenses.

"It’s an alternative mechanism for financial support other than general fund appropriation. They would then have to repay the state back completely once they became sustainable and making money," said Rep. Angus McKelvey (D, Lahaina-Kaanapali-Hono­ko­hau), who introduced the House bill.

The Connector currently collects a 2 percent fee on health plans sold on the exchange, its only source of regular income. Last year the Legislature approved $1.5 million in state funds for exchange operations this year. The Connector is still using funds from a $204.3 million federal grant, but that money can’t be used beyond the end of this year.

In addition to authorizing the $28 million in bonds, Senate Bill 1028 and its companion House Bill 1283 would allow the state-based exchange to generate income by providing enrollment and benefit administration services for non-ACA health plans. The Connector could also sell or lease its information technology system and services to other programs and charge fees for displaying advertisements for ancillary services on the its website.

"We want the Connector to be successful, it’s important for the state and we need to provide them with some access to capital," said Sen. Roz Baker (D, West Maui-South Maui), who introduced the Senate version of the bill.

"It’s a hand up, not a handout," said the Connector’s executive director, Jeff Kissel. "We don’t need an appropriation because we are confident that we have a viable business as well as an important piece of infrastructure for the community that can add economic stimulus and pay its own way. Very few businesses are profitable in the early days of operation, including Twitter, Uber and nearly every hotel and shopping center that’s been built in Hawaii since the Second World War. It takes time to develop a business that is profitable; that doesn’t mean it is not sustainable."

As of June 30 the Connector had spent $104 million of its federal grant money, Kissel said.

Lawmakers also are attempting to increase competition on the exchange.

House Bill 726 and Senate Bill 745 would require any insurer with a 20 percent share of the health insurance market to sell plans on the online marketplace.

In a major blow to the Connector, Hawaii Medical Service Association, the state’s largest health insurer, announced in August it would stop selling policies on the small-business side of the exchange, leaving Kaiser Permanente Hawaii the sole health plan choice for employers.

"The affect is to give all business equal access to Hawaii’s major insurance providers," Kissel added.

McKelvey said lawmakers also are discussing whether to make the Connector a state agency and replace the existing Connector board of directors.

A state auditor’s report released last week criticized the role of the Connector’s board and former Executive Director Coral Andrews in the failed launch of the exchange that opened in October 2013 and poor management that exposed the organization to significant financial risks and the inefficient spending of public funds.

In its financial sustainability report in January, the Connector said it could reach a surplus of $1.8 million by June 2022. The organization has enrolled more than 16,500 people to date, up from fewer than 500 a year ago, and estimates it will generate $984,443 in revenue in the fiscal year ending June 30. By 2022 the exchange expects to collect $14.8 million in revenue.