A Billion Here – A Billion There
The Affordable Care Act (ACA), better known as ObamaCare, has chucked more money down the memory hole than Agent J’s Neuralyzer in Men in Black. More than $5.3 billion has been doled out to 48 states and the District of Columbia, ranging from planning grants to establishment grants by the Centers for Medicare and Medicaid Services (CMS), to create state-based online exchanges; $2.4 billion in start-up and solvency loans have been provided to establish 23 Consumer Operated and Oriented Plans (CO-OP); and as of September 2014, $2.1 billion was spent to build the Federally-facilitated exchange, Healthcare.gov.
Here’s how the money has been squandered.
According to the Washington Post, almost half of the 17 state-based exchanges are failing financially. The healthcare law requires them to be self-financing this year. Many healthcare policy experts expect all of the state exchanges to collapse and migrate their citizens to HealthCare.gov. This is especially likely to occur since the Supreme Court ruled in King v Burwell that subsidies can continue to flow to people in federal exchanges, in spite of what the law actually says. Because of their huge populations, the California and New York exchanges may be able to survive.
The state exchange Cover Oregon has often been cited as the best example of a failed online ObamaCare marketplace. No one was able to utilize the website when it opened in October 2013 and all applications for insurance had to be handled by hand. The website officially shut down in April 2014, and now the state’s citizens are utilizing the federal-facilitated exchange. Its downfall has resulted in lawsuits and counter lawsuits between the state and the primary contractor, Oracle. But evidence is growing that election politics related to former Governor Kitzhaber may have played a major role in the website’s ultimate demise. The House Committee on Government Reform and Oversight is investigating the failed exchange and the political shenanigans surrounding its failure. Cover Oregon received $305 million from the Federal government.
Hawaii’s exchange, which cost taxpayers $205 million and was only able to enroll 8,500 in 2014 and 13,000 in 2015, officially went out of business in June, 2015. It will now likely cost Hawaii taxpayers $30 million to transfer to HealthCare.gov. Other states that have failing exchanges include Maryland, Massachusetts, Minnesota, Rhode Island and Vermont. These states together have already received more than $800 million in federal grants.
As the state exchanges are beginning to fail one by one, the Utopian hopes for CO-OPs are also starting to crash and burn. CO-OPs were created in ACA to try to appease those members of Congress that wanted a single-payer or government-run plan. It was thought that CO-OPs, which are non-profit organizations owned by their members (enrollees), would be more altruistic. According to former Sen. Max Baucus (D-Mont.) who served as a lead architect of ObamaCare, the CO-OPs would “be tough enough to keep insurance companies’ feet to the fire.” But many healthcare policy experts believed the CO-OPs were destined to fail because of their unstable financial foundation and excessive regulations. Even the Office of Management and Budget estimated in 2012 that the CO-OPs would lose more than $3.1 billion in loans.
Sure enough, the insurance rating firm A.M. Best reported in January 2015 that all of the CO-OPs were underwater, except one, by September 2014. A July 2015 Health and Human Services Office of the Inspector General (HHS OIG) report explained why the CO-OPs are running in the red. Most of the 23 CO-OPs had not met their initial program enrollment and profitability projections as of December 2014 and continued low enrollments and net losses might limit the ability of the CO-OPs to repay their start-up and solvency loans. The start-up and solvency loans are due to be repaid to the federal government within 5 and 15 years respectively. The IG recommends that HHS take the following actions:
- Continue to closely monitor and take corrective actions for underperforming CO-OPs within Federal requirements;
- Work with state insurance regulators to identify and fix underperforming CO-OPs;
- Provide guidance or establish criteria to determine when CO-OPs are no longer maintainable; and
- Use whatever methods are available in accordance with loan agreements to recover lost funds from closed CO-OPs.
But in spite of these recommendations, it is more than likely most of the CO-OPs will disintegrate and taxpayers will get stuck with the bill. The Iowa-Nebraska CO-OP collapsed in December 2014 and Louisiana’s will close by the end of 2015.
Originally, ACA had provided $6 billion to help create the CO-OPs. Taxpayers are fortunate that Congress saw the folly of these plans in 2010 and 2011 and cut the funding to $3.4 billion via two consolidated appropriation bills (P.L. 112-10 and P.L. 112-74) and further stemmed the bleeding through the American Taxpayer Relief Act (P.L. 112-240) by reducing the amount to funds already obligated plus 10 percent of the unobligated funds.
In regard to the highly touted HealthCare.gov, everyone remembers the disastrous rollout that occurred in October 2013. Almost immediately, the website crashed and continued to have problems well into 2014. While the second enrollment period that began in November 2014 was not a complete disaster, there were still numerous problems.
In January 2014, three months after the initial rollout CMS, the agency that oversees the implementation and running of the exchange, terminated its contract with CGI Federal. The contractor was hired in 2011 to build and support the information technology (IT) systems for HealthCare.gov but after the colossal failure of the website in the fall of 2013, the contractor was replaced by Accenture in a no-bid contract for $91.1 million for one year. It was a no-bid contract because CMS said the financial management problems had to be fixed by mid-March 2014 otherwise the government “could make erroneous payments to providers and insurers.” While Accenture took over CGI’s role, CMS meanwhile had utilized another sole source contract in October 2014 to have Optum/QSSI (a subsidiary of UnitedHealth Group that is one of the major insurers in ObamaCare) to serve as the systems integrator or chief contractor, a role that did not exist as HealthCare.gov was being developed from the very beginning. Optum/QSSI had already been working on building the data services hub for HealthCare.gov under a contract worth $85 million.
When the government serves as the chief IT contractor, the results are usually abysmal. As the chief operating officer and chief executive officer of The Lexington Institute and Source Associates respectively, Loren Thompson is very familiar with problems in military acquisition projects and was able to recognize similar problems in developing HealthCare.gov. In his December 3, 2013 Forbes article, “HealthCare.gov Diagnosis: The Government Broke Every Rule of Project Management,” he stated, “Having made my career in the field of defense analysis, I have seen many such foul-ups in military acquisition projects. It’s a rare weapon system that gets delivered on time, on budget, and with all performance specifications satisfied. The contractors always get blamed when weapon programs go awry, but usually it’s the government customer who is really at fault, and that looks to be the case with HealthCare.gov too. The Center for Medicare & Medicaid Services (CMS) overseeing HealthCare.gov appears to have violated every principle of sound project management.”
In spite of the fact that Accenture and Optum/QSSI both had their no-bid contracts extended, the website is still having problems. While the front end of the website, with which the public engages, seems to be working, problems with the “back end” of the website, where complicated financial transactions between CMS, the state exchanges, and insurers occur, are still not resolved. With the next open enrollment less than three months away, it is hard to expect HealthCare.gov to be fully functional. Meanwhile, billions of dollars have been placed and continue to be placed at risk.
Reports by the Government Accountability Office (GAO) and the HHS OIG demonstrate the vulnerability of the unfinished website. A June 2015 HHS OIG report entitled, “CMS’s Internal Controls Did Not Effectively Ensure the Accuracy of Aggregate Financial Assistance Payments Made to Qualified Health Plans Issuers Under the Affordable Care Act” found that, “CMS’s internal controls did not effectively ensure the accuracy of nearly $2.8 billion in aggregate financial assistance payments made to insurance companies under the Affordable Care Act during the first 4 months that these payments were made.” In other words, CMS could not account for nearly $3 billion it paid to insurance companies in just the first four months of 2014. The IG found CMS:
· Relied on issuer attestations that did not ensure that advance CSR [cost-sharing reduction] payment rates identified as outliers were appropriate,
· Did not have systems in place to ensure that financial assistance payments were made on behalf of confirmed enrollees and in the correct amounts,
· Did not have systems in place for State marketplaces to submit enrollee eligibility data for financial assistance payments, and
· Did not always follow its guidance for calculating advance CSR payments and does not plan to perform a timely reconciliation of these payments.”
The IG said CMS relied too much on insurers to determine who has paid their premium and who is entitled to subsidies because there were no systems in place to provide an accurate determination. The Hill, a Capitol Hill newspaper, reports, “Officials from HHS dismissed the findings but acknowledged they have ‘not established a computerized payment system.’” So, three years later, there is still not a functioning computerized system that can accurately determine who should and should not get subsides from the taxpayers in spite of the billions of dollars paid out.
But it does not end there. A July 16, 2015 GAO report entitled, “Patient Protection and Affordable Care Act: Observations on 18 Undercover Tests of Enrollment Controls for Health-Care Coverage and Consumer Subsidies Provided Under the Act,” found that 11 out of 12 fictitious people could get subsidized health insurance either via HealthCare.gov or by phone. The fake applicants got subsidized health insurance coverage amounting to a total of $30,000 in annual advance premium tax credits plus eligibility for cost- sharing subsidies that lower the amounts individuals have to shell out for copays and deductibles. Even worse, all 11 were able to re-enroll automatically in ObamaCare a year later. GAO admits this money would be “paid to health-care insurers, and not directly to enrolled consumers, they nevertheless represent a benefit to consumers and a cost to government.” The GAO also stated that the undercover testing is “illustrative” and “cannot be generalized to the population of all applicants or enrollees.” It is unlikely this qualification will give taxpayers any comfort that their money is being carefully spent.
Indeed, a lot of taxpayers would agree with Senate Finance Chairman Orrin Hatch’s (R-Utah) assessment on GAO’s investigation as reported in The Hill. He said, “Ironically, the GAO has found ObamaCare is working really well – for those who don’t exist. When the Administration deemed the conversation about ObamaCare [was] over after reaching enrollment targets, they were dead wrong. These appalling findings not only question the validity of their numbers but show this poorly drafted law’s massive vulnerabilities to rampant waste and fraud.”
A July 29, 2015 GAO report entitled, “Patient Protection and Affordable Care Act: IRS Needs to Strengthen Oversight of Tax Provisions for Individuals,” found that due to “incomplete and delayed marketplace data” the IRS was limited in its ability to match taxpayer premium tax credit (PTC) claims to marketplace data at the time of tax return filing. In fact, as of March 21, 2015, the IRS only had complete data available for verification of just four of the 50 marketplace states and the District of Columbia.
Under ObamaCare, individuals must either pay a tax penalty, also referred to as the individual share responsibility payment, if they do not purchase health insurance. Also individuals and families are entitled to premium tax credits (PTC) and cost-sharing subsidies if their household income falls within a certain threshold, 100 to 400 percent of the federal poverty level. Individuals can choose to have their PTC paid in advance to the insurance company, thus lowering their monthly premium, or claim a credit at the end of the year. According to CMS, advance PTC’s totaled $15.5 billion in 2014. Taxpayers that choose the advance payment, which is based on projected income, must reconcile in their tax returns with what they are actually eligible for in tax credits based on their reported income. If their income was higher than they predicted, they may have to return their entire PTC to the IRS, if lower, the taxpayer may get a higher refund.
It is this information, such as whether someone did not have insurance for an entire year or not, whether they were enrolled in a qualified plan and were eligible to receive a PTC, or whether the person is exempt from purchasing health insurance altogether because of religious reasons that the IRS needs from the state and federal-facilitated online marketplaces to determine who owes what.
Another nerve-wracking finding in this report is that the “IRS does not know whether these challenges are a single year or an ongoing problem.” Of course all of these problems were supposed to be solved over a year ago, so it is a good bet it will be an ongoing problem. In an effort to resolve this matter, CMS announced on August 10, 2015, that Booz Allen Hamilton (the same company that hired Edward Snowden) has been tapped as the new systems integrator, replacing Optum/QSSI. Booz Allen’s five year contract is worth $202 million. Perhaps CMS has lost confidence that Accenture and Optum/QSSI can get the job done; but it may not matter who is in charge of the program.
According to an article in Modern Healthcare, “Optum said it was no longer interested in working on the enrollment portal ‘having achieved the goal of making HealthCare.gov a stable, reliable platform for people seeking health coverage.’” The article noted that “some Republican lawmakers have suggested there are conflicts of interest surrounding the Optum contract because acting CMS Administrator Andrew Slavitt worked for Optum before joining the CMS in July 2014.”
The appointment is quite controversial and should produce interesting Senate confirmation hearings when Congress returns in the fall. Modern Healthcare reported that CMS responded that “Slavitt severed all financial ties with the company and has recused himself from matters involving his former employer.”
Ironically, Slavitt is replacing former CMS Administrator Marilyn Tavenner, who oversaw the launch of HealthCare.gov. Ms. Tavenner left CMS and will now be the new CEO of the major trade association for health insurance companies, America’s Health Insurance Plans, better known as AHIP. That’s the epitome of a revolving door if there ever was one.
But the waste, fraud and abuse is not over yet. The HHS OIG released another report on August 10 which shows that Healthcare.gov still cannot accurately determine if an individual is eligible for subsidy payments and it cannot be sure the payments that are paid to the insurers are accurate. The IG found:
- Social Security numbers were not always validated through the SSA
- Citizenship was not always verified properly
- Annual household income was not always verified properly
- Family size was not always determined correctly”
ObamaCare has upended the nation’s healthcare system and wasted billions of dollars that could have been utilized more efficiently to create a consumer-driven system that would have created more competition, driven down costs, and still helped those that could not afford to buy insurance. To quote the late Senator Everett Dirksen (R-Il), “A billion here, a billion there, and soon you’re talking about some real money.”
