Two years away from launching the first major piece of federal health care reform in Hawaii, the beginning stages of a program designed to provide residents access to affordable health insurance is already bogged down in controversy.

The federal Affordable Care Act requires all states to set up health insurance exchanges, which will match uninsured individuals to subsidized health care plans.

Hawaii’s health insurance exchange, known as the Hawaii Health Connector, is stirring contention among consumer advocacy groups opposed to officials from the health insurance industry serving on the exchange board.

The board will oversee the design of the exchange, and the consumer groups are concerned insurance company representatives might place their companies’ needs above consumers’ interests.

The Hawaii Health Connector could be used by as many as 100,000 uninsured Hawaii residents to select their health care coverage.

The federal law mandates that health insurance exchanges — envisioned as a one-stop shop where health plans compete and consumers compare medical plans — be operational nationwide by January 2014.

But Hawaii’s program could be compromised even before it’s established because local health plans that will compete on the exchange are also on its governing board, said Rosemarie Day, a national health exchange expert who helped develop the 2006 Massachusetts program, on which the federal legislation is based.

The state’s largest health insurers, Hawaii Medical Service Association and Kaiser Permanente Hawaii, as well as two others representing health plans, were recently appointed by Gov. Neil Abercrombie to the health exchange board. Abercrombie’s appointees must be confirmed by the state Senate. A hearing on the nominees will be held Friday before the Senate Commerce and Consumer Protection Committee at 9 a.m. in Conference Room 229 of the state Capitol.

"It’s an inherent conflict of interest. People are getting wise that this is really a bad situation," said Barbara Kim Stanton, AARP state director. "What’s at stake here is transparency, ensuring there’s no conflict of interest and that the consumers’ interest is first and foremost."

The exchange potentially opens up a new $300 million market, based on average monthly premiums and the number of estimated uninsured who would be covered, according to the Hawaii Primary Care Association. The estimates do not include the small businesses and families of four earning less than $80,000 that are also eligible to purchase insurance — and receive subsidies — through the program.

There is a fear that the insurers, which provide coverage for the bulk of residents, will discourage competing health plans from entering the Hawaii market and hinder smaller plans that require a certain amount of market share to be viable, from joining the exchange.

"Generally in competitive markets the idea is you’ve got to have competition or you’re not getting the best price. Potentially that’s the big risk," said Day, president of Boston-based Day Health Strategies and a consultant for AlohaCare. "If you can’t get full competitive value, then that’s going to hurt the consumer. You have people on the board that perhaps that’s not their goal because that’s not in their company’s best interest. They don’t necessarily want to set up a mechanism that’s going to underminewhat they’ve already got."

Jennifer Diesman, HMSA vice president of government relations and one of Abercrombie’s appointees to the health exchange board, said officials from the insurance industry would not be determining what health plans participate in the program. The law precludes that.

"The board is created to implement the policies set by the Legislature and governor and federal law. It’s not to decide," she said. "The greatest concern is that there is a lot of work that has to be done in a very short period of time."

Hawaii intends to implement an "open-market" exchange, open to any health plan that meets solvency and other federal requirements, unlike most other states, which set a limit on the number of health plans that can participate.

"Every representative on the board brings knowledge, expertise and a unique view of health care. It is extremely valuable to have representatives from all areas of the system — health plan, provider and consumer," said Kaiser spokes­woman Laura Lott. "Eliminating any one of those representatives would be a disservice to the community and possibly damaging to the outcome. The diversity of the group is precisely the reason why we will be able to deliver a good product and process for the people of Hawaii."

There are 21 states that either prohibit or are in the process of blocking insurers with expertise in designing health plans, from actually being board members, according to the Primary Care Association, a group that advocates for community health centers. Other states have hired independent actuaries who previously worked for an insurer but no longer have a connection to the company, or economists and consultants. Insurers also serve asadvisers in other states that prohibit them from sitting on the board.

"There is a lot of value in having insurers on the board," said Beth Giesting, the state’s health care transformation coordinator. "However, I certainly recognize the appearance and potential for conflict of interest. The connector board is looking at a conflict-of-interest policy to make sure we can be as transparent as possible."

An interim board, currently attached to the state Department of Commerce and Consumer Affairs, will be replaced with the permanent board after confirmation.

"Public integrity in governance and progress in creating this exchange is important because they will be making available a range of insurance products from which a large number of people will be required to chose," said Sen. Les Ihara. "So it’s a captive market."