Skip to primary navigation Skip to main content

Obamacare’s Embarrassing and Costly State Exchange Flops

May 15, 2014

Obamacare mandates states have an online exchange where consumers can buy health insurance. The law gives states the option to build their own exchange, use the exchange built by the federal government, or create a hybrid of the two. Every state received a grant to determine what kind of insurance exchange it wanted to implement. States that decided to build their own exchange got additional grant money to cover the costs. According to a March 28, 2014 Congressional Research Service report, the Obama administration awarded $4.7 billion to states for planning, establishment, and early innovator exchange grants.

Everyone knows the federal exchange rollout on October 1, 2013, was an inexcusable train wreck. While the Obama administration scrambled to resolve HealthCare.gov’s numerous technical problems, many states struggled to make their own exchanges functional. In one state after another, exchanges have been collapsing – costing taxpayers a fortune. On April 25, Oregon announced plans to shutter its inoperable state exchange and use Obamacare’s federal exchange instead. Two weeks later, Massachusetts said it would decide whether to switch to the federal exchange or try to fix the disastrous software system behind its state exchange. These states may not be the last. Nevada, Maryland, Hawaii, Minnesota, and Vermont all encountered website challenges and failures.

Politico detailed the gravity of the problem in a May 5 article titled “$474M for 4 failed Obamacare exchanges.” The article talks about four states that embraced Obamacare – Massachusetts, Oregon, Nevada, and Maryland. Because these four state exchanges “are now in shambles,” some want more taxpayer money to fix what they got wrong in the first place.

According to the Congressional Research Service, Maryland was awarded $171 million to set up its own exchange. State officials may now scrap the whole thing and use software from Connecticut’s exchange. Massachusetts got $170 million. Politico calls that exchange “fatally crippled.” Nevada got $91 million. Politico says salvaging that exchange “would be a huge feat.” Oregon got $305 million to set up its own site. Of that, $60 million came in the form of “Early Innovator” grants, which CRS says were intended to allow the state “to develop exchange IT models that can be adopted and implemented by other states.” But it was such a spectacular failure that the Federal Bureau of Investigation, the HHS Inspector General’s office, the Government Accountability Office, and congressional oversight committees are reportedly investigating Oregon’s implementation.

While Oregon plans to use the federal exchange from now on, it comes at a hefty price tag – the state’s top technology official estimated the switch will cost the federal government another $5 million. Why are Democrats in Washington D.C. telling the American taxpayers that they have to foot the bill for the utter failure of officials in Massachusetts, Nevada, Maryland, Oregon, and other states? In April, two Senators sent a letter to HHS Secretary Sebelius asking why the administration spent millions on state exchanges clearly riddled with technical and other problems. Just this week, two Senators introduced legislation requiring states that received certain exchange grant funding to build a standalone exchange, but later decided to merge into the federal exchange, to pay the money back. States have 10 years to pay back the grants, but they must pay them back in full.

The failure of these exchanges, and the money squandered on them, was a side effect of the health care law. Democrats told states they could set up these exchanges and Washington would pay the bill. In fact, a Massachusetts Health Connector official said, “At this point, I don’t think anyone’s concerned about the price … They just think Uncle CMS is going to pay for it.”

All this ignores the fact that the federal HealthCare.gov isn’t even 100 percent built yet. While the administration worked desperately to improve HealthCare.gov’s “front-end” consumer experience, the “back-end” administrative components – such as the insurer payment systems – were put on the back burner. Today, critical system components remain unfinished – and the administration’s deadlines to fix them keep changing. How can HealthCare.gov be the fallback for failing state exchanges when the Obama administration can’t get the federal website to function properly either?

Health Care Headlines

Forbes: “First Obamacare Premium Notices For 2015 Show Double Digit Increases” The first Obamacare rate increases for 2015 have been posted on-line. The figures come from two states, Washington and Virginia, which posted the proposed rate increases for their exchanges on-line. In Washington, the enrollment-weighted average rate increase is 9.6 percent. In Virginia, it’s 11.7 percent.

Fox News: “ObamaCare contractor pays employees to do nothing, whistleblower says” Employees at an Obamacare processing center in Missouri with a contract worth $1.2 billion are reportedly getting paid to do nothing but sit at their computers. The facility in Wentzville is operated by Serco, a company owned by a British firm that was awarded $1.2 billion in part to hire 1,500 workers to handle paper applications for coverage.

New York Times: “More Insured, but the Choices Are Narrowing” In the midst of all the turmoil in health care these days, one thing is becoming clear: No matter what kind of health plan consumers choose, they will find fewer doctors and hospitals in their network – or pay much more for the privilege of going to any provider they want.

National Journal: “Several States Where Obamacare Could Still Go Badly” Despite Obamacare’s strong national enrollment numbers, several states are at risk for big premium hikes. Each state is its own insurance market, and they had wildly different experiences during Obamacare’s first open-enrollment window. So although nationwide statistics are important for judging the law’s political success, the substantive tests for the law’s future mostly lie with the states – and some of them aren’t looking so hot.