Hawaii’s health insurance exchange pau

The state is walking away from a $130 million investment in the Hawaii Health Connector and permanently moving the insurance exchange to the federal Obamacare program.

Gov. David Ige’s administration has decided to abandon the troubled Connector, which has struggled since its launch in October 2013 to meet enrollment targets, provide satisfactory service and raise enough money to be self-sustaining.

The Connector has burned through $130 million of $204 million in federal money granted to the state to build the exchange but not to fund ongoing operations.

Ige originally thought he could temporarily move Hawaii’s online marketplace to the federal exchange for one year while the state worked on getting the Connector into compliance with the Affordable Care Act, commonly referred to as Obamacare.

In recent weeks Ige has decided the best path is to permanently move Hawaii to the federal exchange.

Ige acknowledged last month that Hawaii is out of compliance with the ACA and is at risk of losing $1 billion in Medicaid funds if Washington does not accept the state’s plan to remedy the ailing Connector.

The administration’s revised “transition plan,” obtained by the Honolulu Star-Advertiser, states the Connector will shut down its Small Business Health Options Program, or SHOP, on June 15.

On July 1 individual and family enrollments will be moved to the federal healthcare.gov, and staff reductions will begin. The exchange has 32 employees, 29 temporary staff and 12 full-time contractors.

The Connector’s board of directors is scheduled to vote Friday to approve the plan to move the technological functions to the federal marketplace, while the state will run outreach, enrollment and customer support.

Transition to the federal exchange will be completed by Oct. 15. About a dozen Connector employees will work through January, providing limited support to the state. The Connector’s workforce will be completely eliminated by May 1, the document shows.

“The Connector is, and will remain, in noncompliance with the federal requirements until it shuts down its operations,” the plan said. “The objective of the following plan is to provide for an orderly transition of the essential functions of the (state-based marketplace) to the state and to terminate other functions.”

Connector Executive Director Jeff Kissel is expected to be dismissed after the bulk of operational and administrative activities end, the plan said.

Lawmakers appropriated $2 million for exchange operations starting on July 1 but failed to grant the full $5.4 million the Connector said it needed to be financially sustainable.

“It was a failed project. It was a boondoggle from the very beginning, and our residents deserve better than that,” said Sen. Sam Slom (R, Diamond Head-Kahala-Hawaii Kai). “The changes they said they were going to make were too little and too late. I’m glad my colleagues (in the Legislature) for whatever reasons decided not to do the funding. I’m from the school that says if you cannot succeed and you can’t keep your pledges on your economic projects, then it’s better to fail now than continue to waste additional money.”

Under the plan, roughly 40,000 enrolled on the exchange will have to sign up again on healthcare.gov. The state will spend an estimated $30 million on the transition to the federal marketplace, according to the proposal.

The revised plan comes the same week Hawaii Medical Service Association is proposing an average 49.1 percent rate hike — the highest it has ever requested — for 20,935 members in Obamacare plans purchased via the exchange for 2016.

The feds restricted roughly $70 million of the original $204 million grant, putting pressure on the state to switch to healthcare.gov after the Connector was unable to become financially sustainable by the beginning of this year, as required by the ACA.

The federal law also requires the nonprofit exchange, created by the Legislature in 2011, to resolve ongoing technological issues and be integrated with the Medicaid system that determines eligibility for subsidies and tax credits obtained through the online marketplace — problems it has not been able to fix since its inception.

The state has been negotiating with the federal government to release grant money to avoid closure of the Connector.

“Unfortunately the feds are being rather insistent,” said Sen. Roz Baker (D, West Maui-South Maui). “They won’t release any more of the grant funding to do the fixes that would allow us to bring it back (to the state). All of us would have preferred to stay totally with a state-based exchange.”

State officials are worried that if the federal government takes over the exchange, Hawaii’s 1974 Prepaid Health Care Act, requiring employers to provide health insurance for employees working at least 20 hours per week, will be abolished, and more people will become uninsured.

“I remain concerned about Prepaid, and we’re going to continue to work to make sure Prepaid is protected,” Baker said.

Hawaii would not be the first state to switch from having its own exchange to using healthcare.gov, said Cynthia Cox, associate director of health reform and private insurance at the Kaiser Family Foundation.

Hawaii will join three other failed state-based marketplaces that are using healthcare.gov: Nevada, New Mexico and Oregon.

“It was a significant investment for several states to set up their websites,” Cox said. “For some states it’s sort of like a sunk cost. They’ve made this investment, but it may not make sense to continue to put more money into the system if it’s not going to work as well as it could.”