Federal Government Must Recover Billions Wasted on Obamacare State Exchanges

by Alexander Hendrie, Americans for Tax Reform, February 23, 2016

In a recent letter addressed to Senator John Cornyn (R-Texas), Obamacare chief Andy Slavitt said the federal government will “recover its fair portion” of funds in the event a failed Obamacare state exchange reaches a settlement with contractors.

Given that the federal government funded the overwhelming majority of state exchange projects with $5.5 billion in taxpayer funds, “fair portion” should be close to 100 percent.

Recently, Maryland reached a $45 million settlement with a contractor stemming from its state exchange debacle. But despite financing the Maryland exchange to the tune of nearly $200 million the federal government will receive only 70 percent of funds from the settlement. As the Slavitt letter explains:

“In Maryland, Noridian will pay back $45 million that it had received from the SBM, of which CMS (Centers for Medicare and Medicaid Services) will receive approximately $32 million. CMS is working with the Maryland SBM so that funds are returned to the federal government. If a SBM reaches a similar settlement with their vendor, CMS will ensure that the federal government will recover its fair portion.”

To date, recovery of the billions in wasted state exchange funds has been near non-existent, despite failed exchanges in Oregon, Hawaii, New Mexico, and Nevada costing taxpayers $733 million.

In fact, according to a recent report by the Government Accountability Office, these four states have returned ZERO dollars to the federal government, and state exchanges collectively have so far returned just $1 million.

But the waste doesn’t end there, as “working” state exchanges including Vermont, Minnesota, Maryland, and Massachusetts have each misused as much as hundreds of millions in taxpayer funds.

Further, an investigation led by House Energy and Commerce Oversight Subcommittee Chairman Tim Murphy (R-Pa.) found that federal officials were unable to provide information on the long-term sustainability of remaining exchanges, and were unable to defend the four failed state exchanges.

This investigation also raised concerns that failed exchanges may have improperly kept user fees even after transferring all functionality to the federally run Healthcare.gov.

Of all state exchange failures, the most alarming story is undoubtedly Cover Oregon. A recently uncovered email confirmed the accusations that the $305 million exchange was run by partisan political advisors focused solely on then-Governor John Kitzhaber’s 2014 reelection.

At the time the email was sent, the state had just announced it was shuttering Cover Oregon and transitioning to Healthcare.gov following much publicized criticism for failing to work by its scheduled November 2013 launch date – or for months after this deadline.

The eventual transition to the federal system cost an additional $41 million in mostly federal funds and it is believed that Kitzhaber’s aides shut down the exchange and spent this additional money moving to the federal system even as Cover Oregon's infrastructure was close to 90 percent complete.

More state exchanges may soon be following in Cover Oregon’s footsteps. Two and a half years since it first launched, Vermont’s exchange still lacks key functionality and stakeholders are fast running out of patience.

Given the numerous Obamacare state exchange failures across the country and the billions in wasted federal funds, Congress must move swiftly to ensure taxpayer interests are upheld. The bottom line is the American people financed the construction of state exchanges. Now that they have failed, taxpayers deserve their money back.