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Hawaii’s health care collapse a bad omen for state Obamacare exchanges

By   /   May 19, 2015  /   News  /   No Comments

Courtesy of State of Hawaii

HEALTH DIS-CONNECTOR: Hawaii Health Connector is shutting down after lawmakers in the Aloha State decided the state-based exchange was too expensive and troublesome to maintain.

By Bruce Parker | Vermont Watchdog

The collapse of Hawaii’s state-run health exchange has observers wondering which of the other beleaguered exchanges could be next to fail.

Hawaii dumped its Obamacare exchange last week after state lawmakers refused to pump an additional $28 million into what they saw as a failed experiment.

Despite using up $135 million of an appropriated $205 million, Hawaii Health Connector fell well short of goals, enrolling just 37,000 Hawaiians since 2013.

The program ceased taking new enrollees on Friday, and health officials will end outreach services at the end of the month. The exchange’s 70-plus employees, temps and contractors will go home for good on Feb. 28, 2016.

The decision by lawmakers to abandon the exchange came after the federal Centers for Medicare and Medicaid Services restricted the state’s grant money. Earlier this year, the group warned Hawaii Health Connector would lose funding for not integrating with Medicaid or reaching target enrollment goals.

As Hawaii begins transitioning to the federal exchange, Americans in other states may wonder what the death of Health Connector portends for their state exchanges.

To date, the Obama administration’s Department of Health and Human Services has spent $5.4 billion on state exchange websites.

According to Americans for Tax Reform, top recipients of that $5.4 billion are California ($1.06 billion), New York ($575 million), Oregon ($305 million), Washington ($302 million), Kentucky ($289 million), Massachusetts ($224 million), Hawaii ($205 million) and Vermont ($200 million).

Of the 16 states that have health insurance exchanges, at least three — Vermont, Minnesota and Colorado —  are debating a permanent shutdown. Oregon, Massachusetts, Maryland, Nevada, New Mexico have already shut down or relaunched using new technology vendors.

In Vermont, a decision to call it quits could come by the end of the month.

Since launching in October 2013, Vermont Health Connect has been in constant meltdown. Last month, Vermont State Auditor Doug Hoffer released a 60-page report casting doubt on the survivability of the exchange.

Hoffer’s report cites a host of problems critical to operations as of March: mismatching data between state, vendor and insurer systems, 70 moderate-risk security holes, lack of website functionality, 7,256 unprocessed change-of-circumstance requests, and 7,360 unprocessed renewals for customers in qualified health plans, among other issues.

The report found “serious deficiencies” in financial controls for the premium payment process, and called lack of financial reporting and full reconciliation of customer account balances “troubling.”

In response, health officials are hurriedly working on major fixes set to complete on May 30 and Nov. 1. Gov. Peter Shumlin is expected to give a progress report by the end of the month.

Josh Archambault, senior fellow at the nonpartisan Foundation for Government Accountability, said other state exchanges may follow Hawaii Health Connector’s lead, but for different reasons.

“The question of the timing of the collapses has to do with the political environment and whether state lawmakers are willing to fund operations. In Hawaii they weren’t,” Archambault said.

Archambault added that states with fees in the 5 percent to 7 percent range are generating enough funding to support ongoing operations. Hawaii’s fees and sign-ups were too low to provide sustainable funds.

“I’m not sure the domino effect is a guarantee, because I think there will be some states that step forward and start funding their state-based exchange.”

RELATED: Hawaii Obamacare exchange not financially viable until 2022

Darcie Johnston, founder of Vermonters for Health Care Freedom, says Vermont’s problem is more technical than financial, as Vermont Health Connect, unlike Hawaii Health Connector, complies with the Affordable Care Act’s integration to Medicaid.

“I don’t think Vermont has the same fundamental problem. Although Hawaii had Medicaid expansion, it was separated out from the exchange marketplace, whereas ours has been co-mingled and built in,” Johnston said.

“From a budgetary point of view, there will always be some appropriation activity going on for the exchange. The feds are not going to come in here and close the Vermont exchange,” she added.

While Vermont isn’t running afoul of Medicaid expectations, severe operational failures cited in the Hoffer report may yet doom the site. Vermont House Speaker Shap Smith said if the site is failing at the May 30 deadline, he will begin discussions on a transition to the federal exchange.

According to Johnston, the public may never know the truth since there’s no way to verify claims from the administration.

“The governor’s going to say ‘it works fine, we’re good to go, we’re fixed.’ They’re not going to throw in the towel on this,” Johnston predicted.

A wild card for all state exchanges is the upcoming King v. Burwell Supreme Court decision.

Plaintiffs in the case argue the Affordable Care Act mandates that only states with state-run exchanges may receive Obamacare subsidies and tax credits. The Obama administration opposes that argument, as it would mean Obamacare is applicable to just 17 states that have exchanges.

Archambault says if the Court strikes down subsidies for states without exchanges, it is unlikely that states will rush out and create exchanges, in part due to disasters in Hawaii and elsewhere.

“Hawaii reinforces for those state legislators that they will not want to take on this very costly, complicated state-based exchange if the plaintiffs win in King v. Burwell. It costs so much money and is so difficult to set up … they’re going to avoid it like the plague,” Archambault said.

Nicholas Horton, the FGA’s policy impact specialist, sees one more reason states without exchanges won’t rush to create them — federal penalties.

“If they go in and say ‘We’re going to try to fix this’ and try to set up a state exchange … they’ll be subjecting their state to massive Obamacare penalties,” Horton said.

“If the Court strikes down the subsidies and every state moves to set up a state exchange, you’re talking about potentially 375,000 businesses and 86 million employees who would then be subject to the employer mandate. I don’t think that’s a scenario state lawmakers want to put themselves or their taxpayers in.”

Contact Bruce Parker at bparker@watchdog.org

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Bruce Parker is a reporter for Watchdog.org. His stories have been featured at FoxNews.com, Bloomberg, Politico, The Daily Caller, the Washington Times, Human Events and Thomson, among other outlets. Contact him at bparker@watchdog.org or follow him on Twitter @WatchdogVT.