From Leaders to Laggards: Why Some States Are Giving Up on Exchanges

by Dan Diamond, California Healthline Contributing Editor

TOPIC ALERT:

On the morning of Feb. 13, snow was falling in Boston, a pile of 50,000 applications sat unprocessed in the state's insurance exchange office, and Jean Yang was crying.

It had been a rough week for Yang -- the head of the troubled Massachusetts Health Connector. The day before, she'd testified in front of a committee of skeptical state legislators, who demanded answers over why the exchange website wasn't working. And later that afternoon, the federal government released its latest enrollment report, finding that Massachusetts was basically lagging the rest of the nation: The state had enrolled just 3% of its potential eligible population. (In contrast, Mississippi had signed up nearly 6%, and Alabama close to 10%.)

So sitting in front of her exchange board that morning, Yang broke down in tears. Efforts to revamp the state's exchange website to comply with new federal regulations had ended up breaking the Connector, she confessed. And her staff was forced to resort to manual workarounds to enter applicants' information, feverishly working long hours and facing long odds to try to get all the work done.

"These people came here to lead and innovate," Yang said. Instead, "they are embarrassed to tell friends and family that they work for the Health Connector."

After months of attempted patchwork, Massachusetts announced last week that it would scrap its insurance exchange. That followed a similar admission by Maryland, and Oregon's decision to shut down its website and roll exchange operations into HealthCare.gov.

Writing at Politico, Jennifer Haberkorn and Kyle Cheney total up how much federal money was spent to build those three failed exchanges, plus Nevada: $474 million and counting.

It wasn't supposed to be this way. Ambitious states like Massachusetts and Maryland and Oregon -- and California, for that matter -- were going to lead the nation on Obamacare implementation. Massachusetts even had years of experience running an insurance exchange, dating back to its 2006 health reforms.

The federal exchange was intended as the fallback for states like Alabama and Mississippi, where local politicians resisted the health law and wanted no part in its implementation.

But somewhere along the way, the script flipped. On average, state-based exchanges spent significantly more to enroll people than the federal exchange ($1,503 and $647 per person, respectively). And California emerged as a rare exception; as "Road to Reform" has detailed, the state's early preparations helped it emerge as the nation's "lead car" on health reform implementation.

"The states that ran into the biggest trouble had the grandest ambitions," Harvard's John McDonough told Vox's Sarah Kliff. "In hindsight, that looks like the wrong strategy."

States Aimed High, Suffered Lows

McDonough's maxim applies in Oregon and Maryland, too. Both states -- which aimed high when rolling out the ACA -- have abandoned their exchanges in favor of other options.

Oregon: Opting for HealthCare.Gov

A few weeks before the insurance exchanges' go-live date of Oct. 1, 2013, Cover Oregon officials announced that they would postpone their website launch in favor of additional beta testing -- a much-scrutinized decision that was also applauded as a rational delay.

But as the weeks went by -- and the website remained offline -- the applause dimmed and the scrutiny cranked up. By Oct. 18, Cover Oregon was already "on its backup plan to its backup plan," as officials scrambled to patch functionality problems, the Oregonian reported.

The state's exchange website never launched. While 68,000 Oregon residents signed up for Obamacare's marketplace plans, it was by pen and paper or by relying on insurance brokers.

What went wrong? According to Oregon officials, their attempt to create a website that could enroll "everyone from individuals to businesses owners, Medicaid recipients and even children," was too ambitious, Kristian Foden-Venci reports for NPR's "Shots." Too many of the exchange's backend operations, such as linking payments with sign-ups, didn't end up working.

That's why Oregon officials in late April announced that -- rather than spend another $80 million to try and patch their exchange website -- they'd opt for HealthCare.gov, a $5 million transition.

Still, questions have swirled over how Oregon could have received dozens of millions of dollars in federal grants -- how Oregon's exchange director could have boasted of getting compliments from colleagues in other states -- and end up so far behind.

And reports of potential criminal wrongdoing have prompted the FBI to open at least a preliminary investigation, Nick Budnick reports for the Oregonian. According to one former state legislator who recently met with an investigator, the FBI is looking into allegations that "Oregon had shown the federal government a misleading website demonstration to ensure the continued flow of federal money," Budnick writes.

Maryland: Purchasing Connecticut's Exchange Software

Like Oregon's officials, Maryland leaders projected confidence that their insurance exchange was on track last summer.

But even as state officials were claiming that the exchange would serve as a "national model," fighting between the state and the contractors hired to build the exchange turned into lawsuits, the top information technology official quit, and the state rotated through three different project managers, Charles Ornstein writes at ProPublica.

The Maryland Health Connection website crashed within moments of its Oct. 1 launch, and the exchange's director ultimately resigned in December.

Like Oregon, Maryland's problems have also been well-documented -- and are being investigated, too, by HHS's Office of Inspector General.

Senior officials "failed to heed warnings that no one was ultimately accountable" and that the state "lacked a plausible plan for how it would be ready by Oct. 1," according to the Washington Post.

And per congressional testimony from Josh Sharfstein, Maryland's health secretary and head of the exchange board, the state made several decisions that helped lead to its problems: Maryland opted for off-the-shelf software that was difficult to customize and attempted to make several major changes to Medicaid eligibility and enrollment software at once.

As soon as the open enrollment period officially closed, Maryland's exchange board voted unanimously to spend at least $40 million to buy Connecticut's exchange software.

What's Looming Ahead

In the months between the end of Obamacare's first open enrollment period and the start of the second, there are several structural questions about the fate of the 14 remaining state-based exchanges -- a number that may further dwindle:

  • Will other states abandon their exchanges?
  • And how much does it really matter, in terms of reform implementation?

In at least several states, legislators are still uncovering what went wrong, and how much it would cost to fix it. "The full extent of MNsure's problems was hidden from the public for months," Elizabeth Stawicki reported for NPR's "Shots," investigating Minnesota's troubled insurance exchange. And Maryland's decision to go with Connecticut's exchange software isn't a sure thing; the aggressive timeline leaves no room for error, even as the project's funding remains unclear.

And for the exchanges that missed enrollment projections, officials are scrambling to figure out ways to make up the resulting revenue shortfall. Washington, D.C.'s insurance exchange is exploring a tax to cover its operations -- a move that may end up provoking a lawsuit.

Meanwhile, opting for the federal exchange isn't an immediate cure-all. States may need to invest dozens of millions of dollars to redesign their eligibility systems, for instance. And moving over to HealthCare.gov may cost a state some of the federal grant dollars it was awarded to run its own exchange.

But in terms of ensuring successful implementation of Obamacare, the federal exchange may offer the best hope of providing access to an insurance marketplace, legislators and analysts say.

"The market cannot wait and people need help," Yang told her board back in February. "That's what keeps me up at night."

Around the nation

Here's a quick look at what else is making news on the road to reform.

Are health insurers hiking or lowering rates on the exchanges? At the Washington Post's "Wonkblog," Jason Millman looks at early filings.

Arkansas and Michigan prove Republicans can compromise on Medicaid: Writing at Vox, Adrianna McIntyre explores how the two states took cues from the private sector when crafting their Medicaid expansion plans.


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