The hole is an open lava tube. A lava tube forms as flowing lava continues to move as lava near the surface hardens. The lava under the surface exits the area before hardening, and a tube/cave is formed.
The image below illustrates how this works.
Image credit: NFS
Watch as the water drains into the tube.
As for where the water is going? McHugh isn’t 100% sure. But, it probably drains into a massive aquifer that supplies water to springs throughout the area.
Local officials don’t want the hole plugged. Some have tried to plug the hole but have been unsuccessful.
If the hole were plugged, lake flooding would impact a nearby road according to McHugh.
The lava tube at Lost Lake is tiny. Check out some of these massive lava tubes from around the world.