Health & Human Services

Maryland, Massachusetts Ask Feds for Bigger Budgets to Fix Exchanges

Maryland and Massachusetts, two states with a history of health-care innovation, are seeking approval to spend more money to fix their exchanges before the next enrollment period. Will the feds approve?
by | May 20, 2014
Maryland Lt. Gov. Anthony Brown, center, talks about problems with the state's health exchange accompanied by Carolyn Quattrocki, the interim director of the exchange, left, and Joshua Sharfstein, Maryland's health secretary, right. AP/Brian Witte

Few states have embraced the ideas behind the Affordable Care Act (ACA) with more enthusiasm than Maryland and Massachusetts, which adopted many of them years before the passage of the federal law. But the two now find themselves trying to fix their malfunctioning health insurance exchanges and seeking federal approval to spend more money to do so.

Both states plan to replace their systems with technology from more successful state-based exchanges, but Massachusetts also wants to be prepared to switch to the federal exchange as a backup plan in case it can't pull off the switch in time for the next enrollment period, which starts Nov. 15. Switching from a state to federal-run exchange adds tens of millions in additional costs and would require giving up features that have been unique to the state’s health-care system since its 2006 overhaul, which greatly influenced the ACA.

The two aren’t alone among the 14 states that built their own health exchanges. Hawaii, Minnesota, Nevada and Oregon have all had technological failures that forced them to rely on paper applications for some or all of open enrollment. Only Oregon, though, announced that it will switch to the federal exchange. But most of them aren't spending more money to adopt technology from more successful states. Nevada, however, voted today to drop its health exchange contractor and partner with the feds for at least the next year and has already applied for federal grants to cover the additional costs, according to the Las Vegas Review-Journal.

Maryland received $180 million from the Centers for Medicare & Medicaid Services (CMS), the federal agency overseeing the formation of health exchanges about $119 million of which it spent on an exchange that ranked 40th among all states in sign-ups.  The state is now seeking permission from CMS to put more of the remaining $61 million toward a purchase of Connecticut’s exchange technology, which is estimated to cost more than $50 million.

When states first applied for what are called Establishment Grants to build their online marketplaces, they had to predict the costs. Going over those costs requires them to resubmit plans to spend money that would have either returned to the federal government or gone to future changes.

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Joshua Sharfstein, Maryland’s top health official, argues the approach makes more sense than trying to debug the existing system at a cost of $66 million or switching to the federal exchange because the state would have to rebuild its Medicaid system to sync with the federal exchange. That could be both costly and disruptive to current enrollees. “We think from a perspective of health, access to health care and fiscal management, that explains our decision,” he said.

Maryland's exchange suffered from management turnovers, missed deadlines and infighting between contractors.

Massachusetts’ planned fixes would cost about $120 million because the state wants to take an extra step that Maryland doesn’t and pay the added cost of switching to the federal exchange, which would require adopting significant changes to its Medicaid program to sync it with the federal system. The state would also adopt the platform used by Colorado, Kentucky and New York for the price of $56 million to salvage its state-based system. Massachusetts has $117 million left in its $174 million exchange grants, but $69 million of that is committed to the main contractor on the project -- money the state is suing to keep.

Massachusetts ranked 47th in sign-ups nationally and racked up a paper backlog of 50,000 applications at one point.

Experts and exchange officials have blamed Massachusetts’ struggles on several factors, one being that the state never made determinations about eligibility for subsidies to pay for insurance in real time, which became a requirement under the ACA. hat major technological change combined with a more complex health system, overly ambitious plans for its exchange and poor coordination between multiple state agencies have all been named as culprits.

"Comparing the old website we had to what we were aspiring to do under the ACA is really comparing apples to oranges," said Sarah Iselin, a Blue Cross Blue Shield executive appointed to fix the exchange.

The biggest downside to switching to the federal exchange is losing special features of Massachusetts’ exchange, such as higher subsidy levels for private insurance. But Iselin said ensuring some type of system works by the fall means considering the dual route.

“Because it’s not ‘no-risk,’ it seemed unwise to put all our eggs in one basket,” she said.

CMS said it’s still working out the details regarding Maryland and Massachusetts and that it’s too early to say how it will rule. However, according to Paul Hencoski, leader of health and human services for the consulting firm KPMG, the agency has a strong interest in ensuring the success of state-based exchanges, but it will need to feel fairly certain that their plans are feasible.

“My sense is the federal government of course wants to see as many states as possible operating a state-based exchange,” he said. “However, the federal government also does not want to continue to pour money into what might be called losing causes.”

**This story has been updated to reflect Nevada's decision to drop its health exchange contractor.

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