Hawaii will be using Healthcare.gov during the upcoming open enrollment, but Hawaii Health Connector will continue to provide outreach until October 2016. There are two carriers in the individual market, both of which offer plans in the exchange. One has requested average rate increases of more than 45 percent, while the other is requested an average rate increase of just 8.7 percent.
2016 rates and carriers
Hawaii Health Connector offers individual plans from two carriers: BCBS’s Hawaii Medical Service Association (HMSA), and Kaiser Permanente. These are the only two carriers in the individual market in Hawaii, and both also offer plans outside the exchange.
For 2016, HMSA has 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.
HMSA’s rate increase would apply to about about 21,000 people, while Kaiser’s would apply to about 13,000 people. There have been very conflicting reports about Hawaii Health Connector’s total enrollment over the last year and a half (the executive director’s report from July 10 shows 33,479 individuals enrolled, but HHS was reporting only 8,200 people with effectuated coverage as of March 31).
So I contacted the exchange to clear up the confusion. Executive Director Jeff Kissel explained that the larger number is much more accurate. He said that the discrepancy stemmed from a significant lag time in enrollment reporting from carriers. Kissel confirmed that the Connector’s in-force enrollment numbers as of late July were 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 noted that the actual total had grown to 35,600, and that the HHS report wasn’t including HMSA enrollments.
The higher enrollment totals account for nearly all of the individual enrollments that are slated to be impacted by the proposed rate increases for HMSA and Kaiser – apparently very few of them are off-exchange enrollments. And as far as market share for Hawaii Health Connector, it looks like HMSA has about 65 percent of the current effectuated enrollments, while Kaiser has the other 35 percent. That puts the weighted average proposed rate increase at just under 35 percent (if you include off-exchange plans as well, the proposed weighted average rate increase is slightly lower, at 33.7 percent).
Insurance Comissioner Gordon Ito said that HMSA’s proposed rates would be “closely scrutinized.” Last December, 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 turns out that the new rates proposed by HMSA are justified by claims costs, the Commissioner’s ability to lower the rates will be “limited.”
In late September, Kissel confirmed that Ito’s office is still reviewing the rate proposals; he noted that it could be late October before that process is complete, but the rates will be available on Healthcare.gov once they’re finalized by the Insurance Commissioner’s ofice.
Audit alleges wasted funds
In September, 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
On June 5, the Hawaii Health Connector Board approved a plan to transition to Healthcare.gov by October, in time for the coming 2016 open enrollment period that begins November 1. The exchange will be a federally-supported state-based model, similar to Oregon, Nevada, and New Mexico. Healthcare.gov will handle enrollment, but the state will still provide customer service and outreach.
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 that will allow them to continue to provide outreach and enrollment assistance during the upcoming open enrollment. The state will pay roughly $3.3 million, and the federal government is contributing $2.8 million. With this funding, the Connector will remain operational through October 2016, although all enrollments will be conducted through Healthcare.gov. From May – October 2016, according to Kissel, the funding is primarily expected to be used for “doing whatever the Legislature requires of us in order to finish closing down and transferring operations.”
The exchange’s current enrollees will be able to retain their coverage for 2015, but will have to re-enroll through Healthcare.gov for 2016 coverage, much the way people in Nevada and Oregon had to do during the 2015 open enrollment period. The exchange will continue to enroll applicants with qualifying events until the end of September (small business enrollments ceased June 15). The Connector has already laid off 29 staff members; all of the remaining staff will be let go by May 2016.
Phase 1 of the Hawaii Health Connector’s transition plan, continued through the end of July and included transferring plan management functions. Phase 2 (August through December) includes transferring IT data, as well as transferring portions of the exchange to various state agencies. Phase 3 (January through April) will involve winding down the exchange’s IT systems, transferring IRS reporting to the federal system, archiving data, and other tasks to finish up the transition.
The exchange is currently working to train people in the community who will be able to take over outreach efforts once the exchange is no longer functioning as its own entity (although the loss of exchange-based outreach has been pushed out to October 2016 thanks to the infusion of some new funding from the state and federal governments). One of the challenges involved with the transition is that while Healthcare.gov supports enrollment in numerous languages, there are languages spoken in Hawaii that are not available on Healthcare.gov. So the exchange is working with the state to make sure that effective outreach and enrollment assistance will remain available once the state absorbs the remaining functions of the exchange next year.
Funding issues led to demise
On May 5, 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 that Hawaii Health Connector wasn’t complying with the requirement that it be financially self-sustaining as of Janaury 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 this year 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.
As of July 10, Hawaii Health Connector was reporting individual enrollment of 33,479 people. And the executive director confirmed that total effectuated enrollment is around 31,000. Both of those numbers are dramatically higher than the 13,000 people who were reported to have enrolled during open enrollment, and the 8,200 people that HHS said had private coverage in force through Hawaii Health Connector as of March 31.
HHS released a report stating that Hawaii Health Connector’s effectuated enrollment as of June 30 stood at 8,802 people, but in early September Kissel noted that the actual enrollment total had grown to 35,600, and that the HHS report wasn’t including HMSA enrollments because of reporting lag times.
Since the marketplace launched in the fall of 2013, about 60,000 people have enrolled in Medicaid through Hawaii’s marketplace, including nearly 33,000 who enrolled between November 2014 and February 2015. 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.
Open enrollment for 2015 has ended, although people who experience a qualifying life event can sign up for coverage within 60 days of the event, and Medicaid enrollment is open year-round.
In January, Executive Director Jeffrey Kissel (who took over the exchange in October) 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 causes big delays, as the enrollment process used in Hawaii requires 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 must create an account before they can 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.
Hawaii Health Connector’s small business 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.
In 2016, Kaiser will once again be the only small business carrier offering plans in the Hawaii exchange. But there are four carriers that offer small business plans outside the exchange: HMSA, United Health Alliance, Hawaii Medical Assurance Association (HMAA), and Family Health Hawaii.
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 2013 to June 2015, Medicaid/CHIP enrollment in Hawaii grew by nearly 40,000 people). 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 allow Hawaii Health Connector to issue up to $28 million in state bonds over ten years to fund its operations until it becomes 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). 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.
The Hawaii Health Connector is overseen by a 15-member board and led by an executive director.
Jeffrey Kissel was named as the executive director in October 2014. While Kissel is an experienced leader, he is new to the health insurance industry. Kissel is the former president and CEO of Hawaii Gas. Tom Matsuda served as interim executive director of the exchange from December 2013 through September 2014. Matsuda replaced Coral Andrews, who resigned.
The Hawaii House in 2014 considered a bill that would have made the marketplace a state agency as a way to address the poor performance of the Connector. However, with some legislators worried about taking on the marketplace’s revenue problems, lawmakers eventually passed a bill that continued the Health Connector as a nonprofit.
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 are 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 9.5 percent 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: $23,899 per 2014 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.