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Yes this plugin definitely works with hosted Spira.
The issue may be that you are using a proxy server to connect to Spira that the JUnit plugin doesn't know to use. I would check your proxy settings to see if you can connect to that URL without a proxy. Log a help desk ticket with us if you need more information.
I had the same issue. The error occurred constantly, when I was using the proxy server. Then I had to bypass the proxy server, so I pointed directly to the SpiraTeam URL. Upgrading the Java SDK didn't help.