Aloha: Hawaii sends its Obamacare exchange to the death panel


Cue up the Queen soundtrack… another one bites the dust. Hawaii is throwing in the towel and shutting down its state Obamacare exchange. $200M in federal taxpayer cash has essentially disappeared down a rat hole. Customers will instead be directed to the federal system.

Hawaii is taking its troubled ObamaCare insurance exchange off life support, the governor’s office announced Friday, the latest addition to a growing number of state exchanges forced to close after operations became unsustainable.

The once-highly praised Hawaii Health Connector has been “unable to generate sufficient revenues to sustain operations,” Gov. David Ige’s office said in a statement. The federal Centers for Medicaid and Medicare Services (CMS) informed the exchange last week that federal funds were no longer available to support long-term operations.

“The state is working with the Connector and CMS to determine what functions can be transitioned to state oversight to ensure compliance with the Affordable Care Act (ACA) by the next Open Enrollment in November 2015,” Ige said.

Ige said that Hawaii will maintain a Supported State-based Marketplace in which the state would provide local customer support.

The Hawaii exchange was a rather odd duck to begin with, at least when compared to the rest of the nation. Unlike many others – Oregon being the first to come to mind – their state exchange actually worked. That comes with the caveat that it experienced some hiccups in the beginning as all of them did, but they managed to get the thing up and running in fairly good order. Their problem wasn’t a lack of functionality, but that they simply couldn’t get enough people to sign up for it to the point where it was financially self-sustaining.

The Governor had predicted that 300,000 people would enroll, but not only did they miss that target, they never even got to the 70K mark which would have kept them at the break even point financially. That might not be too much of a mystery, though, and it has little to do with the appeal of Obamacare or lack thereof. The historical health insurance trends of the Aloha State show that they weren’t in much trouble to begin with. As of 2008 there were only 96,000 Hawaiians without health insurance out of a population of more than 1.4 million. In order to reach that 300K figure they were going to need a lot of people to abandon their existing plans for Obamacare in addition to insuring every one of the 96,000 without it. (Perhaps too many of them actually believed they could keep their plan if they liked it?)

The residents were already being served by Hawaii’s Prepaid Health Care Act (PHCA) for more than four decades and they had beaten their uninsured resident problem nearly into extinction. It was another case of letting a state deal with its own problems rather then mandating a federal solution in a top down fashion. Of course, to be fair, Hawaii has an easier time with such things given its position as one of the smaller population states as well as being one of the top ten wealthiest. Their unemployment rate is back near 4% now and never went above 8% even during the worst of the economic collapse in the summer of 2009.

I wonder if this decision wasn’t also one which serves to hedge their bets against the outcome in King v. Burwell. Keep in mind that each state with their own exchange could be set to take a huge hit if that case goes against the White House.

If the subsidies are struck down, the fallout would be immense. Those who lose their subsidy would likely be unable to afford coverage, raising the number of uninsured. It could destabilize the entire individual, or nongroup, insurance market, raising premiums and costs for millions.

Insurance companies, which would still be required to comply with other parts of the Affordable Care Act, including the requirement to cover people with pre-existing conditions, would lose clients and face financial difficulties because their risk pool would be out of balance.

In all likelihood, even if the SCOTUS ruling struck down the subsidies Hawaii could just fall back on PHCA, though they would have to eat the losses for the money they flushed into the exchange. But by being shut down in advance… problem solved. And the system was bleeding money already, so this is probably a win-win for them.

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