After receiving $205 million in federal funds to construct a state-operated Obamacare insurance exchange, Hawaiian officials decided they did not want to continue paying to keep the costly website operational and abandoned it for the federally run Healthcare.gov. Hawaii Health Connector, as the exchange was known, has the distinction of being the first completed, functioning state exchange to have been closed down in favor of the federal system.
When Obamacare was implemented in 2010, states had the option of constructing their own insurance exchanges to administer the program. To assist states with this venture, the Centers for Medicare and Medicaid Services (CMS) distributed $5.4 billion in grant money for states to evaluate, plan, and construct exchanges.
State exchanges were required by federal law to be self-sustaining by 2015, but Hawaii’s exchange could not meet that goal. It was estimated that running Hawaii Health Connector would cost upwards of $15 million a year, but the plan for funding it relied on a 2 percent fee on premiums — which did not come close to providing the needed revenue. The legislature did not want to spend more than $15 million in state funds each year on the exchange, especially when the federal system would cost the state nothing. Officials had no realistic choice but to default to Healthcare.gov, a process that yet again will be funded by federal taxpayers.
According to a report by Watchdog.org, Hawaii Health Connector was counting on attracting 300,000 enrollees over the first two years to fund the exchange, while Governor Neil Abercrombie boldly claimed that “hundreds of thousands” would enroll.
But this was only wishful thinking. One estimate placed the potential market as low as 40,000, and the governor later admitted that the approach taken was “fatally flawed.” In the exchange’s first year, the state managed fewer than 9,000 enrollees, an outcome that led it to be dubbed the most expensive exchange in the nation.
Now that Hawaii is moving to the federal system, questions must be asked of those who chose to go ahead with this $200 million project. If the officials ran the numbers, they must have realized a state-operated exchange was not feasible in Hawaii — but they went ahead anyway, perhaps because federal taxpayers were footing the initial bill.
The monthly premium for a 40-year-old non-smoker on Hawaii’s second-lowest-cost silver plan (the typical benchmark used) was $183 in 2014 before tax credits. Based on this premium, a 2 percent fee would raise about $44 a year per enrollee. With fewer than 9,000 enrollees, this fee would bring in less than $400,000 in revenue, a drop in the bucket compared with expected annual expenses.
Even if many Hawaiians selected more expensive plans, there was never enough potential revenue. In fact, if Hawaii Health Connector was serious about using this 2 percent fee to fund operating expenses, it would have needed at least 340,000 enrollees. Alternatively, it could have raised the fee to 76 percent of the premium — which would have driven many Hawaiians out of the exchange.
Clearly, Hawaii’s Obamacare exchange was never a realistic option. But Hawaii is not the only debacle on this front.
Clearly, the state exchange was never a realistic option. But Hawaii is not the only debacle on this front.
Oregon’s exchange is now the subject of multiple investigations after allegations that the state abandoned its $305 million exchange to help Governor John Kitzhaber in his reelection campaign. The Oregon exchange was a complete failure: Months after the deadline, the website still did not work, and applicants were forced to fax a 20-page document to enroll.
Massachusetts had a working exchange — the so-called Romneycare — but under pressure from federal bureaucrats, and with close to $250 million in federal funds, the state tried to “upgrade” the exchange. The “improved” version failed abjectly; in the process, 300,000 individuals were dumped into Medicaid, and the whole thing cost the state over $1 billion.
To this day, Vermont’s exchange does not work as intended. Several basic functions are missing, like the ability to re-enroll or update personal information online. For months, there was a backlog of 10,000 requests, which the state was able to reduce only after spending millions more.
Now that states are required to fund their exchanges without federal money, officials nationwide are being forced to confront the reality that they have no realistic plan for doing so.
While Hawaii is not the only Obamacare exchange failure, it is unique because its exchange actually worked — the state just had no plan to pay for it. As the dust settles from the Hawaii debacle, taxpayers deserve to know just why hundreds of millions of dollars were wasted on an exchange that was never going to work.