Failed health exchange closing

Oct. 25--Taxpayers could have saved close to $300 million if the state had used the federal Obamacare program to enroll residents in health insurance plans from the start, according to the head of the Hawaii Health Connector.

Instead, the state spent about $142 million to build the now-defunct health insurance exchange and another $144 million to develop an online Medicaid eligibility system that was supposed to be integrated into one seamless enrollment process, but never was.

In one week, Hawaii is moving enrollments from its health insurance exchange to the federal healthcare.gov website, and abandoning its multimillion-dollar investment in the exchange. Medicaid, the government health insurance program for low-income residents, is spending at least another $27 million to connect its online eligibility system with the federal hub.

"Hawaii should never have had to build its own exchange. It was a costly event and mistakes were made," said the Hawaii Health Connector's executive director, Jeff Kissel. "If this had never happened Medicaid would have saved hundreds of millions and the Connector would have saved hundreds of millions and we still would've been able to bring the tax benefits ... into the state for our population."

The Connector was awarded $204.3 million in federal grants to establish and operate the exchange. As of June 30, it spent or contracted for $142.7 million, including $90.4 million on information technology contracts. Another $25.5 million was spent on non-IT contracts; $10.6 million on personnel; $9.8 million on outreach, including "marketplace assister" grants; and $6.4 million for work done on behalf of the exchange by the state Department of Human Services, which administers Medicaid. The Connector expects to spend another $5 million to archive data and decommission its system.

The bulk of the money spent by the Connector went into developing a faulty system that launched two weeks late in October 2013 and frustrated consumers with a series of computer glitches and customer service problems.

CGI Technologies & Solutions Inc., the same contractor that was blamed for building a troublesome healthcare.gov website, won the largest technology contract at $58.3 million, followed by Mansha Consulting LLC at $15.2 million, according to a list of significant contracts over $500,000 provided by the Connector.

The federal government spent about $5.5 billion on establishing state-based exchanges in 17 states, most of which were plagued with technology problems.

"Hawaii relied on the judgment of the federal government in selecting its contractor and it proved to be a disaster for both the federal government and (the state)," Kissel said. "If you want to talk about the root cause of the problem, it was the lack of oversight and planning. There were serious errors on the part of the people who ran the business and there were serious errors on the part of the people who made policy at the federal and state levels and they cost the taxpayer a lot of money nationwide."

The state built the Connector alongside a separate Medicaid eligibility system, known as KOLEA, to comply with the federal Affordable Care Act, which mandates that Americans have medical coverage or face tax penalties. Officials chose to develop a state-based exchange because they believed using the federal website would have jeopardized Hawaii's 1974 Prepaid Health Care Act. The state law requires businesses to provide medical coverage for employees working at least 20 hours per week and is credited for Hawaii's low uninsured rate.

It also was a point of pride for Hawaii to be the first in the nation to declare its intent in 2012 to operate its own exchange in President Barack Obama's home state. At the time, Gov. Neil Abercrombie, lawmakers and state officials touted the online marketplace as a crucial component in moving Hawaii toward universal health care coverage. The Connector said it has enrolled nearly 40,000 people.

Less than a year into the program, the Connector lost its support from a powerful player, the state's dominant health insurer. Hawaii Medical Service Association, one of two health plans on the exchange, bailed out on the small-business exchange, citing significant losses related to the Affordable Care Act. Further, HMSA urged officials to dismantle the small-business program, which it said was a waste of taxpayer dollars.

The Connector lost another supporter when Abercrombie failed in his bid for re-election in August 2014. It also had a number of management setbacks when its first executive director, Coral Andrews, abruptly left the post just two months after the start of the exchange. She was replaced by interim director Tom Matsuda before Kissel was hired in October 2014.

Stephen Nii was the face of the Connector in several advertisements over the past two years, but even he lost faith in the operation.

The owner of Nii Superette was featured in numerous ads imploring fellow employers to enroll on the health insurance exchange and benefit from the federal subsidies and tax credits that lowered the cost of coverage for employees.

Nii said he put significant effort into providing feedback he'd hope would make the online exchange more user-friendly and accessible. But after two years, he came to the conclusion that his efforts were in vain. This year he didn't receive a renewal notice from the Connector when his policies were about to expire in June.

"If you really want to kill something beyond belief make it difficult for the customer to make a payment because you can't contact them or even better, don't issue a bill," he said. "That is the nail in the coffin. I have faith in the (Affordable Care Act). I lost faith in the Health Connector."

The Connector ran out of money to operate the small-business segments of the exchange earlier this year.

The federal government froze the $61.7 million remaining on the Connector's $204.3 million in grant funds earlier this year because the state was not in compliance with the Affordable Care Act. It failed to integrate the Connector with the Medicaid eligibility system and didn't earn enough revenue to be financially sustainable, as required by the federal health care law. Further, the feds threatened to withhold $1 billion in matching Medicaid funds if Hawaii did not come into compliance, essentially forcing the state to move enrollment to the federal marketplace, healthcare.gov.

"This was an orchestrated disaster that crippled the benefit of the (Affordable Care Act) in Hawaii. The persons who should accept primary responsibility for this disaster are the leaders of the Hawaii Health Connector," Nii said. "We should investigate this fully from top to bottom and hold people accountable. They did $140 million of disservice to this state."

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