Failed Obamacare State Exchanges May Cost Taxpayers Millions More

by Alexander Hendrie, Americans for Tax Reform, August 17, 2015

In the coming months and years, several states are expected to abandon their Obamacare exchanges and move to the federal system. Oregon and Nevada have already done so and Hawaii is in the process of doing so. Already, these states have wasted millions of dollars constructing failed exchanges and transitioning back to the federal system could end with millions more down the drain. Given this possibility, it is clear that stronger oversight is needed over the use of taxpayer dollars. State and federal bureaucrats must be held accountable.

When Obamacare was implemented, about 15 states decided to develop the infrastructure for their own healthcare marketplace. State exchanges were financed almost entirely through federal grant money from the Centers for Medicare and Medicaid Services (CMS). In all, CMS distributed $5.4 billion in grant money. Unfortunately, most state exchanges have failed, or are on the brink of failure.

Hawaii, the latest failed Obamacare exchange, is currently transitioning enrollees to the federal system. The state received $205 million in federal grants but was unable to become financially viable and the system was abandoned by state officials who balked at the cost of upkeep--which ran in the tens of millions a year.

Now that the transition period is well underway, Hawaii is expected to receive new federal funds in order to move to Healthcare.gov. Reports on the cost vary, with estimates as low as $2 million and as high as $20 million. It is expected that the state will receive new federal funds, with CMS picking up as much as 90 percent of the cost to transfer.

From the perspective of federal taxpayers, this transition represent an opportunity to end the abysmal oversight over federal funds even amid the possibility that millions more will be wasted. Given taxpayers will now shell out millions more to bail out states that mismanaged the construction of their exchanges, what conditions and guidelines is CMS setting for a state to return? Will any funds be paid back from the hundreds of millions that was wasted on defunct state exchanges?

Already, there is precedent for the waste of taxpayer dollars amidst an environment of zero accountability. According to a report by the Wall Street Journal, Oregon received $41 million in mostly federal funds to transition to Healthcare.gov. This money was in addition to the$305 million that Oregon received to construct its abandoned exchange.

As Hawaii continues its transition to the federal system, the same story of bureaucratic incompetence and millions in wasted dollars that has permeated the implementation of Obamacare cannot be allowed to repeat itself. If the federal government finances state exchanges, it must also hold states accountable when funds are wasted or lost.