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 is considered a federally-supported state-based marketplace, and the state of Hawaii has retained control over some of the exchange’s functions.
But for 2017, Hawaii will switch to a fully-federally-run exchange, and 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. Hawaii’s plan, however, is to function as a marketplace plan management exchange, which means that although the federal government runs the exchange, the state takes an active role in certifying QHPs for sale in the exchange (several other states that use the federally-facilitated marketplace operate as plan management exchanges).
During the open enrollment period for 2016 coverage, 14,564 Hawaii residents enrolled in private plans (QHPs) through Healthcare.gov. Everyone who had coverage through Hawaii Health Connector in 2015 had to re-enroll through Healthcare.gov in order to continue to have coverage through the exchange in 2016. Effectuated enrollment as of March 2016 stood at 13,313.
Since Hawaii has been using Healthcare.gov for enrollment since the fall of 2015, it’s expected that a switch to a fully federally-run exchange will have minimal impact on enrollees and insurers in the exchange, although there is some back-end processing that has to happen in a timely manner in order to have everything running smoothly for 2017.
Proposed rate changes for 2017
Hawaii has just two carriers offering individual health insurance plans, and both offer coverage through the exchange. They’ve proposed the following average rate increases for 2017:
- Hawaii Medical Service Association: 35 percent (range of 26.2 to 50.8 percent)
- Kaiser Foundation Health Plan: 25.9 percent (range of 15.9 to 31.1 percent)
As of March 2016, more than 82 percent of Hawaii exchange enrollees were receiving premium subsidies. The subsidies will keep pace with the rate increases that apply to the second lowest-cost silver plan in the exchange, so assuming the rates are approved for 2017, we can expect subsidies to rise considerably in 2017. That will offset much of the premium increase for the majority of enrollees, but there is no doubt that rates will be higher for people who aren’t eligible for subsidies (including those who enroll outside the exchange, where no subsidies are available).
Hawaii wants to drop SHOP exchange
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 (paywall or free trial necessary to view documents), and has requested approval from HHS in time for the waiver to become effective for 2017
Hawaii’s proposed waiver seeks to align 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 9.66 percent in 2016 under the ACA, and 9.69 percent in 2017). In its 1332 waiver proposal, Hawaii “seeks to maintain all aspects of the innovative Hawaii Prepaid Health Care Act and proposes to waive provisions in Sections 1301, 1304, 1311, and 1312 of the Affordable Care Act that diminish it.”
Hawaii wants to eliminate its SHOP exchange, 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.
Enrollment in SHOP has been very low in Hawaii (as has been the case in most states). Hawaii notes that only about 1,000 employees currently have coverage through the state’s SHOP exchange, while 742,000 have coverage under Hawaii’s Prepaid Health Care Act. And only one of the state’s four group insurance carriers offers plans through SHOP. 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 participates in SHOP) since then.
But Hawaii’s waiver doesn’t seek to make 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) would still 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.
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, Kaiser is once again the only small business carrier offering plans in the Hawaii exchange. 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
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 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 Assister 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 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’s 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.
Grandmothered plans can renew again
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 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.