Highlights and updates
- Approved individual market rates for 2019 are lower than insurers proposed
- Weighted average rate increase for 2019 is just over 5 percent
- Working group recommended legislation to protect the ACA in Hawaii
- 2018 legislation: Short-term plans limited, but reinsurance program did not pass
- Enrollment grew for 2018, with nearly 20k people buying coverage
- With nation’s first approved 1332 waiver, Hawaii ended SHOP exchange
- 25.1% weighted average rate increase for individual plans in 2018
- Insurers have added CSR load to on-exchange silver plan premiums
- Insurers offering some silver plans off-exchange-only to avoid CSR load
- New law enhances access to contraceptives in Hawaii
Hawaii exchange overview
After two years of using a technologically-troubled state-based enrollment system, Hawaii began using the Healthcare.gov enrollment platform as of the 2016 open enrollment period (more details below). However, the exchange was still considered a federally-supported state-based marketplace at that point, and the state of Hawaii retained control over some of the exchange’s functions.
But starting in November 2016, to facilitate enrollment in plans for 2017, Hawaii switched to a fully-federally-run exchange, although that state still oversees the plans that are sold in the exchange. In September 2016, Hawaii navigator organizations received funding from the federal government for the first time, as the state is no longer playing a role in exchange outreach. Since Hawaii has been using Healthcare.gov for enrollment since the fall of 2015, the switch to a fully federally-run exchange had minimal impact on enrollees and insurers in the exchange.
Lawmakers in Hawaii considered various health care reform bills in 2018. Measures to limit short-term health insurance plans and to codify some of the ACA’s consumer protections into state law were enacted. But bills to implement a state-based individual mandate and a reinsurance program did not pass.
2019 health insurance rates and plans
Open enrollment for 2019 coverage will run from November 1, 2018 to December 15, 2018 in Hawaii, including plans sold in the exchange as well as plans purchased outside the exchange.
Hawaii’s exchange has two insurers that offer individual market coverage, and that will continue to be the case in 2019. In early October 2018, the Hawaii Department of Commerce and Consumer Affairs published the approved average rate changes for 2019. For both insurers, state regulators approved final rates that were lower than the insurers had proposed:
- HMSA: average rate decrease of 0.37 percent, as opposed to the 2.72 percent average increase HMSA had proposed.
- Kaiser: average rate increase of 12.9 percent, as opposed to the 28.6 percent average increase Kaiser had proposed.
HMSA’s filing projects 18,065 1members in 2019. Kaiser’s filing states that the rates would apply to 13,558 current members. Using those numbers, the weighted average approved rate increase for 2019 is about 5.3 percent, as opposed to the 13.8 percent weighted average rate increase the insurers had proposed. The Hawaii Division of Insurance noted that the approved rates will save consumers $20 million in 2019, in comparison with what consumers would have had to pay if the initially filed rates had been approved without modification.
Legislation passed to limit short-term plans and codify ACA protections into state law. Bills to create a Hawaii reinsurance program and impose an individual mandate did not pass
Following the recommendations of the Affordable Health Insurance Working Group, lawmakers in Hawaii introduced legislation in 2018 to preserve various ACA protections and begin the process of seeking federal funding for a state-based reinsurance program. Lawmakers also considered the creation of a state-based individual mandate, and a bill to restrict the sale of short-term health insurance plans.
H.B.1520 (SIGNED INTO LAW IN JULY 2018) all but eliminates the market for short-term health insurance in Hawaii. The legislation stipulates that a short-term plan can’t be more than 90 days, and it prohibits an insurer from selling (or renewing) a short-term policy to anyone who was eligible to purchase coverage in the exchange during the previous calendar year, either during open enrollment or a special enrollment period.
Virtually everyone in Hawaii is eligible to purchase coverage in the exchange. The only exceptions are people who aren’t legal US residents, people who are enrolled in Medicare, and people who are incarcerated. So now that H.B.1520 has been enacted, there are very few people to whom short-term insurers can market their plans.
The legislation took effect upon approval by Governor Ige.
S.B.2340 (SIGNED INTO LAW IN JULY 2018) calls for three of the ACA’s consumer protections to be codified into state law. The legislation:
- Ensures that young adults can continue to remain on their parents’ health insurance plans until age 26
- Prohibits insurers from using applicants’ gender to set premiums
- Prohibits insurers from rejecting an application based on an applicant’s medical history, or imposing coverage exclusions based on pre-existing conditions.
The purpose of this legislation is to ensure that these ACA provisions remain in effect in Hawaii, regardless of any potential changes to the ACA at the federal level. As of late 2018, the ACA remains largely intact. The individual mandate penalty was repealed in the GOP tax bill that was enacted in late 2017, but that repeal doesn’t take effect until 2019. And while the Trump Administration eliminated federal funding for cost-sharing reductions (CSR), the CSR benefits are still available to eligible enrollees, and premium subsidies are larger than they would have been if CSR funding had remained in effect.
So for the most part, the ACA is unchanged in 2018. But Hawaii lawmakers wanted to ensure that at least some of its most popular provisions will continue to be the law in Hawaii, regardless of whether there are any additional changes to the ACA. The legislation was sent to Governor Ige on May 3, and signed into law in early July.
H.B.2146 and S.B.2199 (DID NOT PASS) would have directed the state to submit a 1332 waiver to the federal government, in order to obtain federal funding for a reinsurance program in Hawaii. The idea is that certain high-cost claims would be covered by the reinsurance program, thus reducing premiums for everyone in the individual market. Lower premiums mean lower premium subsidies, and the 1332 waiver would be used so that the money the federal government saves on premium subsidies would be sent to Hawaii for the state to fund the reinsurance program. Alaska implemented a state-based reinsurance program in 2016, which resulted in very modest rate hikes for 2017 and a significant rate decrease for 2018. Minnesota and Oregon implemented reinsurance programs for 2018, which resulted in much more stable premiums for 2018 than those states had seen in prior years. Numerous states are pursuing or considering reinsurance 1332 waivers in 2018.
Hawaii was the first state in the country to receive federal approval of a 1332 waiver, which allowed them to end their SHOP exchange for small businesses. H.B.2146/S.B.2199 called for a second 1332 waiver, devoted to obtaining federal funding for reinsurance. Ultimately, however, the legislation did not advance during the 2018 session.
S.B.2924 and H.B.2209 (DID NOT PASS) would have created an individual mandate in Hawaii, effective in 2019. The ACA’s individual mandate penalty will be set at $0 in 2019 and beyond, essentially eliminating the individual mandate (the federal mandate will technically remain in effect, but there will no longer be any associated penalty, so there will be no method for enforcing the mandate). S.B.2924 passed the Senate by a vote of 24-1 in March, but did not advance in the House Finance Committee.
19,799 people enrolled in coverage through Hawaii’s exchange during the open enrollment period for 2018 plans. That was a 4.5 percent increase over the 18,938 people who enrolled for 2017, as Hawaii was one of the states that bucked the overall downward trend in enrollment for 2018 across states that use the federally-run exchange.
2018 rates and plans, and Hawaii’s approach to CSR funding
Two insurers offer plans in the Hawaii exchange in 2018: Kaiser, and Hawaii Medical Service Association (HMSA). They implemented the following average rate increases as of January 2018:
- Kaiser: 24.1 percent (13,195 members in 2017) — revised filing, submitted in September 2017.
- HMSA: 25.91 percent (19,702 members in 2017) — revised filing, submitted in August 2017.
The weighted average rate increase was 25.1 percent, assuming people kept the same plans they had in 2017.
HMSA’s filing was revised in August. Their initial filing was based on the assumption that cost-sharing reductions (CSRs) would not continue to be funded by the federal government, and the increased premium necessary to cover the cost of CSRs had been uniformly spread across all of HMSA’s ACA-compliant plans for 2018. However, the revised filing took a different approach, and it’s one that ended up being much more beneficial for consumers.
The new filing continued to assume that CSRs wouldn’t be funded by the federal government in 2018 (which was a good decision, as the Trump Administration announced in October that CSR funding would end immediately), but the revised filing added the cost of CSR only to on-exchange silver plan premiums and the mirrored off-exchange versions of those plans. And HMSA noted that they would eliminate their on-exchange Silver PPO 2500 plan at the end of 2017, but would continue to offer the Silver PPO 2500 outside the exchange so that people who don’t get premium subsidies can access a silver plan that doesn’t include the CSR load (the Silver PPO 2500 does not include the CSR load because it’s not being offered on the exchange for 2018).
This approach to the CSR load means that very few HMSA members have to pay the increased premiums to cover the cost of CSR. Premium subsidies are based on the cost of the second-lowest-cost silver plan, and grew in 2018 to keep pace with the increased on-exchange silver plan prices. Those subsidies offset the cost of the CSR load for premium subsidy-eligible enrollees who buy silver plans, and they make the other metal levels an even better value, since the larger premium subsidies can be applied to other metal level plans, even though those plans don’t include the CSR load (just the normal rate increase that would have applied if CSR funding had already been committed for 2018).
For people who aren’t eligible for premium subsidies, non-silver plans are an option to avoid the CSR load in the exchange in 2018, and the Silver PPO 2500 is available outside the exchange for those who want a silver plan but don’t qualify for premium subsidies. CSR benefits continue to be available to exchange enrollees who pick silver plans and have income between 138 percent and 250 percent of the poverty level.
Kaiser’s initial rate filing, submitted in May 2017, called for an average rate increase of 19.9 percent, and did not address the CSR funding uncertainty other than to say: “Changes to the applicable regulations, including but not limited to termination of the Cost Share Reduction Subsidies, Advanced Premium Tax Credits or Risk Stabilization programs could have a significant impact on rate development.”
But the Hawaii Department of Insurance confirmed in early October 2017 that they had instructed the insurers to assume that CSR funding wouldn’t continue, and to apply the resulting additional premiums to on-exchange silver plans (premiums have to be the same on and off-exchange if the same plan is sold on and off-exchange, but if the plans are different, the CSR load is only added to the on-exchange plans).
Kaiser ultimately filed revised rates in mid-September, with an overall average rate increase of 24.1 percent, confirming that the cost of CSR has been added to on-exchange silver plan premiums.
Working group was tasked with making recommendations for preserving the ACA in Hawaii
With all of the uncertainty around the future of the ACA, Hawaii lawmakers passed legislation (H.B.552/Act 43) in 2017 in order to create a working group to recommend ways the state can preserve the ACA’s consumer protections, regardless of federal action. The legislation states that “the purpose of this Act is to mitigate the potential damage to the State, its residents, and its health care system that is likely to occur if the Affordable Care Act is repealed by an act of Congress. Specifically, this Act establishes the affordable health insurance working group to address the complexities of the health care system in Hawaii and the related uncertainty over the future of the Affordable Care Act and to ensure that certain benefits of the Affordable Care Act remain available to Hawaii residents under state law.”
The final version of the bill, signed into law by Governor David Ige in June 2017, was much less robust than earlier versions. The initial version of the bill that the House passed would have preserved some ACA provisions, regardless of what happens on the federal level (Hawaii’s legislature is overwhelmingly Democratic, with 45 Democrats and six Republicans in the Hawaii House of Representatives, and 25 Democrats and zero Republicans in the Senate).
The initial House version of H.B.552 would have preserved
- The individual mandate
- Minimum essential benefits requirements
- Dependents allowed on parents’ health plan until age 26,
- The ban on preexisting condition exclusions and gender-based premiums.
That version passed the House in early March. The Senate passed H.B.552 on April 11, but with additional amendments (SD2) that went further than what the House had proposed. The Senate’s amendments would have:
- Created a Medicaid Plus program that would provide coverage to Hawaii residents with income between 138.5 per cent and 250 percent of the federal poverty level (the federal poverty level is higher in Hawaii; for an individual, 250 percent of the poverty level in Hawaii in 2017 is $34,650, and for a family of four, it’s $70,725). This program would have been designed to cover adults only, as children in Hawaii are already eligible for Medicaid with household income up to 300 percent of the poverty level.
- Created a trust fund to reimburse insurers for the costs of providing minimum essential insurance benefits.
- People with household income up to 250 percent of the poverty level would have been exempt from the state’s individual mandate.
The bill was then returned to the House and the House disagreed with the Senate’s amendments. A conference committee then began meeting to reach an agreement, and on April 27, 2017 the House and Senate both agreed to a much less robust version of the bill. The version that was passed and signed into law denounced the federal GOP-led efforts to repeal the ACA, detailed the ways that the ACA has benefitted Hawaii, and called for the formation of a working group (no later than August 1, 2017) that would make recommendations for preserving a variety of ACA provisions, including minimum coverage requirements, essential health benefits, and Medicaid expansion.
The Affordable Health Insurance Working Group was created after the bill was signed into law, meeting in September, October, and November 2017. The working group published their report in January 2018. The report outlined a few recommended legislative proposals, which included directing the state to apply for another 1332 waiver in order to obtain federal funding for a state-based reinsurance program, as well as legislation to codify the provision that allows young adults to remain on a parent’s health insurance until age 26. The working group also recommended legislation to prohibit insurers from basing premiums on applicants’ genders or rejecting applicants with pre-existing conditions
As described above, several healthcare reform bills were introduced in the 2018 session, some of which were in response to the working group’s recommendations. The reinsurance proposal and the individual mandate proposal did not pass, but legislation to codify some of the ACA’s consumer protections has been sent to the governor for consideration, as has a bill to limit the sale of short-term health insurance plans in Hawaii.
2017 law allows pharmacists to prescribe and dispense contraceptives
Hawaii partially addressed this issue many years ago, when the state required all state-regulated employer-sponsored health plans to cover the full range of FDA-approved contraceptives, starting in 2000 (the initial impacts of this change are discussed here).
Hawaii’s new law, which took effect immediately, allows pharmacists to dispense up to 12 months of contraceptives, even if the patient does not have a prescription from a physician. The pharmacist must have the patient complete a “self-screening risk assessment tool” and refer the patient to a primary care physician, but must also provide the contraceptives regardless of whether the patient follows through on the referral.
Hawaii law, along with the ACA, requires health plans to cover contraceptives, but S.B.513 extends the coverage to include reimbursement for pharmacists who prescribe and dispense contraceptives.
During the legislative session, H.B.513 received widespread support, but also some opposition. The Hawaii section of the American College of Obstetricians and Gynecologists (ACOG) opposed the legislation because they felt that it didn’t go far enough in terms of expanding access to contraceptives. ACOG felt that birth control should be available over-the-counter, and that even requiring a visit with a pharmacist was too restrictive.
2017 enrollment: 30% higher than 2016
18,938 people enrolled in private plans (QHPs) for 2017 through the Hawaii exchange during open enrollment, which ended January 31. That was a 30 percent increase over the previous year, when 14,564 Hawaii residents enrolled through Healthcare.gov. Across all states that use HealthCare.gov, there was an average decrease in enrollment for 2017, making Hawaii’s dramatic enrollment increase particularly significant.
The average unsubsidized premium in Hawaii’s exchange in 2017 is $477/month, nearly identical to the $476/month average across all states that use HealthCare.gov. But 80 percent of Hawaii exchange enrollees are receiving premium subsidies in 2017, and the average after-subsidy premium is $191/month; subsidies pay almost 60 percent of the total cost. In addition, 58 percent of enrollees are receiving cost-sharing reductions, which reduce the amount that enrollees have to pay when they need health care.
Hawaii eliminated SHOP exchange as of 2017; First approved 1332 waiver in the nation
As of 2017, Hawaii no longer has a SHOP exchange for small businesses. The State Department of Labor and Industrial Relations has an FAQ page about this.
In September 2015, Hawaii became the first state to post a draft 1332 innovation waiver. In June 2016, the state officially submitted its 1332 waiver proposal. In response to a July request from HHS for more details, Hawaii submitted a revised 1332 waiver proposal in August 2016, and requested approval from HHS in time for the waiver to become effective for 2017.
On December 30, CMS sent a letter to Hawaii Governor, David Ige, informing him that the 1332 waiver had been approved for five years, effective January 1, 2017, through December 31, 2021. The only portion of the waiver proposal that wasn’t approved was a provision that would have allowed agencies other than the Hawaii Medicaid Agency to have a role in the exchange; CMS noted that this was no longer applicable, since HealthCare.gov runs the exchange in Hawaii now.
Hawaii’s waiver aligns the ACA with the state’s existing Prepaid Health Care Act. Under the Prepaid Healthcare Act, employees who work at least 20 hours a week have to be offered employer-sponsored health insurance, and can’t be asked to pay more than 1.5 percent of their wages for employee-only coverage (as opposed to 9.69 percent under the ACA in 2017). And unlike the ACA’s employer mandate (which only applies to businesses with 50 or more workers), the Prepaid Health Care Act applies to all businesses, regardless of how few employees they have. In its 1332 waiver proposal, Hawaii “proposes to waive provisions in Sections 1301, 1304, 1311, and 1312 of the Affordable Care Act that enumerate marketplace requirements that conflict with Prepaid.”
Hawaii’s 1332 waiver proposal “is primarily focused on waiving the need to establish and maintain a state-based SHOP exchange or participate in a federal SHOP exchange.” The state sought to avoid the ACA’s SHOP exchange requirements, since they already have an employer-sponsored insurance system that they believe is more effective and affordable for employers than the ACA’s SHOP exchange. They also note that Hawaii cannot use the federally-facilitated SHOP exchange on HealthCare.gov, because it “does not inform Hawai‘i employers of their Prepaid-specific obligations and options.”
Enrollment in SHOP was very low in Hawaii (as has been the case in most states). Hawaii notes that only about 1,000 employees had coverage through the state’s SHOP exchange as of June 2016, while 742,000 have coverage under Hawaii’s Prepaid Health Care Act. And only one of the state’s four group insurance carriers offered plans through SHOP in 2016. The state-run SHOP exchange shut down in June 2015 as part of the transition to a federally-supported state-based marketplace, and small businesses have just been enrolling directly through Kaiser (the only carrier that participated in SHOP) since then.
Under the approved 1332 waiver, Hawaii businesses can no longer participate in SHOP for plan years that begin on or after January 1, 2017, but plans that started in 2016 can continue through their renewal date in 2017. The ACA’s small business tax credit will also not be available for plan years that begin on or after January 1, 2017, but CMS will give the money they would have spent on the small business tax credit (estimated at about $2.8 million over five years) to the state, and they can use it to implement the 1332 waiver, including payments to small employers who are eligible for the state’s Premium Supplementation Program.
$459,169 of that funding is for 2017, and the first payment from CMS will be sent to Hawaii in October 2017. Although the 1332 waiver is effective for five years, future pass-through funding for the state (in lieu of the small business tax credit) assumes that the ACA’s small business tax credit still exists. But that’s all very much up in the air for the time being, since the ACA could be significantly changed under the Trump Administration.
Hawaii’s waiver doesn’t make any changes to the way health insurance is provided for individual coverage under the ACA. So people in Hawaii who aren’t eligible for employer-sponsored health insurance (which is very few people, given the requirements in the Prepaid Health Care Act) will continue to have access to the ACA’s premium subsidies and cost-sharing subsidies through Healthcare.gov.
1332 waivers provide an opportunity for states to create their own unique approach to healthcare reform, although they must be budget-neutral for the federal government, and must also provide health insurance coverage for at least as many people as would be covered under the ACA without a waiver. But beyond some basic framework, the waivers give states a large degree of flexibility.
Average rate changes for 2017
Hawaii has just two carriers offering individual health insurance plans, and both offer coverage through the exchange. They have implemented the following average rate increases for 2017:
- Hawaii Medical Service Association: 35 percent (range of 26.2 to 50.8 percent; HMSA had 20,235 enrollees as of March 2016, including on and off-exchange)
- Kaiser Foundation Health Plan: 25.9 percent (range of 15.9 to 31.1 percent; Kaiser had 17,984 total enrollees as of December 2015)
As of early 2017, 80 percent of Hawaii exchange enrollees were receiving premium subsidies. The subsidies are designed to keep pace with the rate increases that apply to the second-lowest-cost silver plan (the benchmark plan) in the exchange, and in Hawaii, average benchmark premiums are 35 percent more expensive in 2017 than they were in 2016.
Because of the dynamics involved with plans jostling for position as the benchmark, some states have average benchmark premium increases that are considerably lower than the overall average rate increase across the whole market. But that’s not the case in Hawaii; residents there are receiving significantly larger subsidies in 2017 that offset a large portion of the rate increases that applied to most plans for 2017.
But it was still important to shop around, as there are some plans with rate increases that were well above the state-wide average. And rates are significantly higher for 2017 for people who aren’t eligible for subsidies (including those who enroll outside the exchange, where no subsidies are available).
2016 carrier news
HMSA has made headlines in 2016 with the roll-out of a pilot program that uses capitated payments rather than fee-for-service reimbursements for primary care providers. The switch to value-based payments instead of fee-for-service payments is one of the ways that healthcare reform is focusing on curtailing costs, and it’s becoming more prevalent nationwide. HMSA will switch to using their new capitated payment model for all of their primary care doctors in 2017.
Hawaii Health Connector’s SHOP exchange originally had two carriers (HMSA and Kaiser), but HMSA announced in August 2014 that they would not be offering small business plans through the Connector starting in 2015, due mainly to the technological problems with the exchange. That left Kaiser as the only small business option on the Connector in 2015.
For 2016, and again for 2017, Kaiser was again the only small business carrier offering plans in the Hawaii exchange. And Hawaii’s 1332 waiver states that “it is highly unlikely that any of the three other commercial insurers in Hawai‘i will compete on SHOP in the future.”
In early 2016 there were four additional carriers offering small business plans outside the exchange: HMSA, United Health Alliance, Hawaii Medical Assurance Association (HMAA), and Family Health Hawaii (FHH). But in April 2016, Commissioner Ito announced that FHH had been ordered into liquidation, effective immediately. The other three off-exchange carriers, along with Kaiser, are still available for small businesses in Hawaii that need to purchase health insurance.
Special enrollment period for COFA nation residents in 2016
With Hawaii’s switch to Healthcare.gov for 2016 enrollment, the state and CMS both agreed that there were difficulties with the enrollment process for some enrollees. The most significant problems were experienced with enrollments from the Federated States of Micronesia, the Marshall Islands, and Palau (Compact of Free Association – COFA – nations), due to language barriers in the enrollment process.
To address the issue, CMS established a special enrollment period for people from COFA nations. It ran for 60 days, from December 18 to February 16, with coverage retroactive to January 1 to ensure there was no gap in coverage.
Language barriers, time zones hindered re-enrollments in 2016
In addition to language barriers, Hawaii’s location has proved challenging as well. Although Healthcare.gov and its call center are available 24 hours a day, the Special Marketplace Assistance line operates on Eastern Time. Hawaii is five hours behind Eastern Time, which means the help line is not available during Hawaii’s peak enrollment hours. During an exchange board meeting in early November 2015, Hawaii Health Connector’s Executive Director, Jeff Kissel, detailed the problems that the state was encountering in their switch to Healthcare.gov.
In addition to the time zone issue, enrollments were averaging an hour and 15 minutes, although that had spiked as high as four hours when an applicant is in need of a translator who can speak Hawaiian, and as high as two and a half hours for English-speakers.
Kissel noted that it was unrealistic to expect that all of the existing enrollees would be able to re-enroll through Healthcare.gov by December 15 (the initial deadline for having coverage in place by January 1) due to the mitigating circumstances, and the exchange worked with CMS to establish the special enrollment period for COFA nation residents.
Subsidy eligibility for COFA nation residents
With the exception of Hawaii, the rest of the states have very few QHP enrollees with income below the poverty level. In states that have expanded Medicaid, residents with income below the poverty level are eligible for Medicaid. And in states that haven’t expanded Medicaid, residents with income below the poverty level are stuck in the coverage gap, and very few can afford to pay full price for health insurance through the exchange (no subsidies are available to people in the coverage gap).
In every state, people who would be eligible for Medicaid based on income, but aren’t eligible because of immigration requirements (ie, they haven’t been in the US for at least five years) are eligible for premium subsidies in the exchange. If their income is less than the poverty level, they’re eligible for subsidies as if their income were 100 percent of the poverty level. By and large, this is why most states’ exchanges have somewhere between one percent and four percent of their enrollees with income under the poverty level (although it also includes some people in the coverage gap who have purchased full-price coverage, and some people who would have been eligible for Medicaid but have opted instead to pay full price for a QHP in the exchange).
But in Hawaii, nearly a third (29 percent) of the people who enrolled in QHPs through the exchange have income below the poverty level. That’s because COFA nation residents are eligible for premium subsidies in the exchange even if their income is below the poverty level. They used to be eligible for state-funded Medicaid, but they’ve been transitioned to premium subsidies in the exchange instead; federal Medicaid expansion won’t cover COFA nation residents, but they are eligible for premium subsidies (Andrew Sprung has a nice explanation of how this all works).
Regulators adjusted rates for 2016
For 2016, HMSA proposed a 45.5 percent rate increase for their individual HMO plan, and nearly a 50 percent rate hike for their individual PPO plan (49.1 percent overall). The carrier justified their rate hikes based on claims costs, explaining that while virtually everyone in Hawaii was already insured, the uninsured pool – many of whom purchased new ACA-compliant plans – had significant medical needs.
The following day, Kaiser proposed an 8.7 percent rate increase for their individual market policies.
Insurance Comissioner Gordon Ito said in June 2015 that HMSA’s proposed rates would be “closely scrutinized.” The prior year, Ito’s office announced that they had approved an 8.4 percent rate hike for HMSA’s transitional (grandmothered) plans, which was less than half of the 19 percent rate increase the carrier had requested – so clearly, the Commissioner does not shy away from rejecting excessive rate hikes. But Ito noted that if it turned out that the new rates proposed by HMSA are justified by claims costs, the Commissioner’s ability to lower the rates would be “limited.”
Ultimately, for 2016 individual market plans, MHSA ended up with a rate increase that was smaller than requested, while Kaiser’s rates increased much more than they had projected.
More enrollees qualify for subsidies in 2016
HMSA’s final approved average rate increase for 2016 was 27.32 percent, while Kaiser’s was 34.4 percent. Based on reported enrollment in November, that puts the overall weighted average rate increase in the exchange at about 30 percent for 2016. According to HHS, only about 61 percent of Hawaii’s enrollees in 2015 qualified for premium subsidies. But that grew to 82 percent as of the end of the 2016 open enrollment period, due to the sharp increase in premiums (when pre-subsidy premiums are higher, more people qualify for subsidies, since the unsubsidized rates are considered unaffordable for a broader swath of the population; the upper cap on subsidy eligibility is always 400 percent of the poverty level, but when pre-subsidy rates are lower, people with income below that level don’t always qualify for subsidies; also, higher premiums motivate more people to shop in the exchange rather than outside the exchange, where subsidies aren’t available regardless of income).
In Honolulu, the average benchmark premium for a 40-year-old is 31 percent more expensive in 2016 than it was in 2015. Subsidies are based on benchmark premiums, so in addition to more enrollees being eligible for subsidies, the subsidies in 2016 are also larger than they were in 2015.
Assuming everyone kept the same policy they had in 2015, HMSA’s rate increase for 2016 applied to about 21,000 people, while Kaiser’s applied to about 13,000 people – but in both cases, the total includes on and off-exchange enrollments. And all of those enrollees were free to switch to a different plan during open enrollment. But since everyone in Hawaii’s exchange had to re-enroll through Healthcare.gov, there’s no data in terms of how many people actively renewed and switched plans during open enrollment.
There was significant discrepancy in 2015 regarding enrollment totals. In November 2015, the exchange was reporting that 30,000 people needed to re-enroll through Healthcare.gov to have coverage effective January 1. But according to HHS, fewer than 17,000 people had enrolled in 2015 – and many of them no longer had in-force coverage when open enrollment began on November 1 (in-force enrollment stood at just 8,802 as of mid-2015).
There have been very conflicting reports about Hawaii Health Connector’s total enrollment ever since 2014. The executive director’s report from July 2015 showed 33,479 individuals enrolled, but that was dramatically higher than the 13,000 people who were reported to have enrolled during open enrollment. And HHS was reporting only 8,200 people with effectuated coverage as of March 31, 2015.
I contacted the exchange to clear up the confusion. Executive Director Jeff Kissel claimed that the larger number was much more accurate. He said that the discrepancy stemmed from a significant lag time in enrollment reporting from carriers. Kissel said that the Connector’s in-force enrollment total as of late July 2015 was roughly 20,000 people with HMSA and 11,000 people with Kaiser.
And by early September, when HHS released a report stating that Hawaii Health Connector’s effectuated enrollment as of June 30 stood at 8,802 people, Kissel said that the actual total had grown to 35,600, and that the HHS report wasn’t including HMSA enrollments.
But in November 2015, Kaiser reported that just 7,300 of their 16,800 enrollees had used Hawaii Health Connector to purchase their coverage (the remaining 9,500 people enrolled directly through Kaiser). And HMSA reported that fewer than half of their enrollments (10,000 out of 21,000 total enrollees) had come through the exchange in 2015. At the same time, HHS reported that 16,803 people had enrolled in private plans through the Hawaii Health Connector in 2015.
These reports indicate that total enrollment might have been considerably lower than what was being reported by the exchange in 2015. In December 2015, Governor Ige noted that the state had “always had challenges getting accurate numbers from the Connector.” and explained that the discrepancies might be “one of the reasons the federal government had concerns.”
According to Hawaii Health Connector, about 60,000 people enrolled in Medicaid through Hawaii’s marketplace from the fall of 2013 through the spring of 2015, including nearly 33,000 who enrolled between November 2014 and February 2015.
Total net enrollment in Hawaii’s Medicaid program grew by more than 53,000 people from the fall of 2013 through March 2016—an 18 percent increase.
The state expanded Medicaid under the ACA, and as a result the uninsured population has been reduced. US census data found that the uninsured rate in 2013 was 6.7 percent, and that it had dropped to 5.3 percent in 2014; no doubt their data will find that it’s continued to decline in 2015. Hawaii’s uninsured rate has long been lower than the US average, thanks to the Hawaii Prepaid Health Care Act, which was enacted in 1974 and requires employers to provide health insurance for all employees working at least 20 hours per week (more details below).
Audit alleges wasted funds
In September 2015, the Hawaii state auditor released an audit report that found Hawaii Health Connector wasted more than $11.6 million in taxpayer funds due to a poorly-executed contract with Mansha Consulting, an IT firm. Mansha was the Connector’s second-largest contractor, with a total contract worth $21.6 million ($15.3 million was ultimately paid, and Mansha claims that they are still owed additional money from the Connector). The audit alleges that the exchange didn’t use proper procedures to determine which IT contractor should get the job, and that they didn’t clearly define the job that was to be done or have systems in place to amend contracts. The audit was strongly worded, noting that “the Connector board’s and management’s inattention to contract administration constituted abuse of public funds.”
In a response to the audit, Hawaii Health Connector noted that it “shared [the auditor’s] concerns about Mansha and other significant contractors and have worked to improve [the Connector’s] procurement and contract management practices.” But Kissel also said that the audit report is an “unctuous elaboration of the obvious,” stating that he had “no idea what the basis is for the $11 million — it doesn’t tie to anything that have been in our records and our records have been audited by our auditors.”
Ultimately – during the course of the audit – Hawaii Health Connector opted to become a supported state-based marketplace and use Healthcare.gov’s enrollment platform, so the exchange’s prior IT spending is water under the bridge at this point. But the audit report states that even as the exchange winds down its operations, “it is imperative that its activities be transparent and accountable and its records accessible.”
Switching to Healthcare.gov
In June 2015, the Hawaii Health Connector Board approved a plan to transition to Healthcare.gov by October, in time for the 2016 open enrollment period that began November 1, 2015. The exchange became a federally-supported state-based model, similar to Oregon, Nevada, and New Mexico. Healthcare.gov handles enrollment, but the state continues to oversee customer service and outreach. For 2017, Hawaii will transition to having a fully-federally-run exchange, but with plan management carried out by the state.
Initially, the exchange was slated to cease its operations by September 2015. But in late August, the Connector reached an agreement with the state and federal governments to allow them to continue to provide outreach and enrollment assistance during the 2016 open enrollment, with the state paying roughly $3.3 million, and the federal government contributing $2.8 million. With this funding, it was expected that the Connector would remain operational for outreach activities through October 2016, with enrollments conducted through Healthcare.gov. From May – October 2016, according to Kissel, the funding was primarily expected to be used for “doing whatever the Legislature requires of us in order to finish closing down and transferring operations.”
In early November, 2015, Hawaii Health Connector’s executive director, Jeff Kissel, announced that he would leave the exchange in December in order to take a position with the Energy Policy Research Foundation Inc. in Washington, D.C. Kissel had been appointed to lead the exchange in October 2014, and was the third executive director at Hawaii Health Connector. When Kissel’s departure was announced, Hawaii Health Connector still had 22 staff members and was scheduled to continue outreach activities until October 2016.
Exchange wound down sooner than planned
But on November 19, 2015 (after open enrollment for 2016 was already underway), amid concerns that the exchange had run out of money, the exchange’s executive committee voted to recommend that Hawaii Health Connector speed up the transition of remaining exchange functions to the state of Hawaii. In a press release regarding the move to shutter the exchange sooner than anticipated, Governor Ige noted that “the Connector’s ongoing financial challenges have forced the state to accelerate the transition beginning December 1, 2015.”
As a result of the abrupt shut-down of Hawaii Health Connector, the state worked out a contract with local IT company ike/DataHouse, to ensure that Forms 1095-A were processed and mailed to enrollees and the IRS for 2015. The forms were mailed in January 2016, but up to 80 percent of them contained errors, and the state was working to get corrected forms generated and mailed as of mid-March 2016.
In February 2016, Hawaii Attorney General Douglas Chin filed a request to dissolve the Hawaii Health Connector and have the court appoint a receiver for “the remaining charitable assets of the exchange.” The extent of those assets is uncertain at this point, and Chin noted that the dissolution process would reveal what assets remain. But he also said that the exchange’s assets are being “misapplied or wasted.”
Funding issues led to demise
In May 2015, the Hawaii legislature approved just $2 million in funding for Hawaii Health Connector – a far cry from the $10 million the exchange had requested. Lawmakers has been considering up to $5.4 million for the exchange, but ultimately approved less than half that amount (SB 1028 is the legislation that granted the $2 million).
HHS notified the state in March 2015 that Hawaii Health Connector wasn’t complying with the requirement that it be financially self-sustaining as of January 2015. As a result, the federal government began preparations for a possible transition to Healthcare.gov, and the remaining $70 million in federal funding for the exchange was frozen ($204 million had been allocated to the Hawaii Health Connector; $130 million had already been spent by the time the federal government notified the exchange that a switch to Healthcare.gov would likely be necessary).
The funding issue was a major problem for the exchange, leaving them with essentially no choice but to transition to Healthcare.gov. Exchange officials were in a race against the clock in May, attempting to secure additional funding. But they also prepared the contingency plan that was ultimately put into motion in early June.
Two contractors that performed services for Hawaii Health Connector did so in 2015 without a contract, but under the assumption that they would eventually be paid using the remaining federal grant money. They’re trying to recoup $2.7 million in payment from Hawaii Health Connector, but it’s unclear whether they will be successful.
In January 2015, Executive Director Jeffrey Kissel (who took over the exchange in October 2014) acknowledged “deficiencies in the planning process, procurement, and governance” following the release of a highly critical state audit. The audit found inadequate planning by the Connector’s board of directors led to an unsustainable health exchange, and improper procurement processes, contract administration, and financial oversight put federal grants at risk.
The Connector’s eligibility system was not integrated with the state’s Medicaid system, which is another reason the exchange wasn’t compliant with federal regulations. The disconnect caused significant delays, as the enrollment process required that all consumers seeking coverage through the marketplace first be screened for Medicaid eligibility. Those deemed ineligible for Medicaid continue through the enrollment process toward selecting private health insurance.
Hawaii Health Connector suspended payments to Mansha Consulting, the vendor responsible for data transfers between the exchange and the Medicaid system. Mansha representatives say the company is owed $4.2 million for work already completed. A state audit found that Mansha didn’t dedicate the agreed upon number of workers, and both the acting state auditor and a legal team hired by Hawaii Health Connector are continuing to evaluate if Mansha delivered contracted services.
Another major problem with Hawaii Health Connector was the lack of anonymous browsing. Consumers had to create an account before they could compare plans. That same design flaw was a major source of congestion and frustration with the original version of HealthCare.gov, the federal marketplace. HealthCare.gov was revamped to allow browsing, and Hawaii Health Connector officials had hoped to make the feature available on the state exchange at some point.
Insurmountable financial challenges
In addition to administrative and technical problems, Hawaii Health Connector faced financial challenges, mostly because of relatively low enrollment and a small pool of eligible enrollees. Federal funding for state-run marketplace operations ran out at the end of 2014. The state allocated $1.5 million of a $4 million request to fund exchange operations through June 2015, the end of the fiscal year.
Hawaii Health Connector planned to use a 2 percent fee on premiums to fund its ongoing operations. Given low enrollment, the premium fee wasn’t generating enough revenue to meet annual expenses, estimated at anywhere between $4.5 and $15 million, according to the Associated Press.
As of July 2014, Hawaii had about 75,000 uninsured residents — about 6 percent of the population. About half of them were expected to qualify for Medicaid — meaning the market for the Connector was less than 40,000 (from late 2013 to December 2015, Medicaid/CHIP enrollment in Hawaii grew by more than 50,000 people; some of them were previously insured under other coverage, but many were uninsured prior to 2014). Marketplace officials spent much of 2014 looking for alternative funding models as well as ways to cut expenses.
Hawaii Health Connector had expected to break even by 2022 if operating costs had remained stable. The Hawaii Senate in 2015 approved a bill that would have allowed Hawaii Health Connector to issue up to $28 million in state bonds over ten years to fund its operations until it became self-supporting. However, a House committee stripped the bonding provision from the bill.
In another effort to prop up the exchange, the state Senate also approved SB 1338, which included several measures to increase the number of potential Hawaii Health Connector customers (the bill did not pass however; the House added amendments that the Senate didn’t approve). The bill would have allowed employers with up to 100 employees – instead of 50 – use the small business exchange beginning in 2017 (ultimately, SHOP enrollment ceased in May 2015 in order to allow the exchange to transition to Healthcare.gov, and in October 2015, President Obama signed the PACE Act into law, keeping the definition of “small group” at 50 or fewer employees – very few states have opted to go forward with the switch to defining small groups as up to 100 employees). The bill would have also required, starting in 2020, that individuals eligible for COBRA plans be informed that affordable coverage can be purchased through the Connector.
SB 1338 would also have ended enrollment in transitional or “grandmothered” health plans at the end of 2015 (current provisions in the state allow grandmothered plans to continue to renew until October 2016, and remain in force until September 2017).
The House did not take up the measure however, and transitional plans are still allowed to renew until October 2016 in Hawaii, if allowed by the carrier (they may end up being able to remain in force until the end of 2017, as CMS has allowed this and states can follow suit if they choose to do so)
ACA presented a unique challenge for Hawaii
Many of the concerns that prompted national health care reform and the 2010 passage of the Affordable Care Act were not prominent in Hawaii. Some experts have even raised concerns that the Affordable Care Act is a threat to the quality of health insurance coverage in Hawaii. Long before the ACA brought health reform to the whole country, Hawaii already enjoyed a low uninsured rate, health insurance plans were required cover a core set of benefits, and employer-provided coverage was quite affordable.
This good state of affairs is largely due to the Hawaii Prepaid Health Care Act, which was enacted in 1974. The Prepaid Health Care Act requires employers to provide health insurance to employees who work more than 20 hours a week and to pay 50 percent of premiums. “Affordability” for employees is defined as 1.5 percent of income, compared to 966 percent (in 2016) under the ACA.
Given Hawaii’s small population and its historically low uninsured rate, implementing a state-run exchange was a questionable financial decision. According to Kaiser Health News, the Hawaii Health Connector was the nation’s most expensive exchange on a per-enrollee basis in 2014, at $23,899 per enrollee. As noted above, the small individual market in Hawaii made it difficult – impossible, really – for the exchange to be financially self-sustaining.
Hawaii health insurance exchange links
Hawaii Health Connector
State Exchange Profile: Hawaii
The Henry J. Kaiser Family Foundation overview of Hawaii’s progress toward creating a state health insurance exchange.
Louise Norris is an individual health insurance broker who has been writing about health insurance and health reform since 2006. She has written dozens of opinions and educational pieces about the Affordable Care Act for healthinsurance.org. Her state health exchange updates are regularly cited by media who cover health reform and by other health insurance experts.