New York May Have Misallocated Obamacare Exchange Funds, OIG Says

By Sara Hansard

The findings of an inspector general report that New York may have misallocated almost $20 million in federal Obamacare exchange grants are “alarming,” a key House committee said.

The New York State Department of Health may have misallocated nearly $19.6 million in federal establishment grants to create its Affordable Care Act exchange, the Department of Health and Human Services Office of Inspector General said in a report Dec. 29. In addition, the state claimed unallowable fees of nearly $3.8 million paid to the state’s exchange contractor, Maximus Inc., it said. The NYSDOH “strongly” disagreed with the OIG’s conclusion, saying it “followed all federal rules and guidance,” which were approved by the HHS’s Centers for Medicare & Medicaid Services.

Most states didn’t form their own ACA exchanges to help consumers buy health insurance, and only 12 state-run exchanges are left standing after the federal government provided nearly $4.6 billion in grants to get them going, according to a critical 2016 report released by the House Energy and Commerce Committee’s majority staff. The OIG’s report is the second on New York’s exchange expenditures, and a staffer said the committee may continue its oversight of the exchanges.

More Than $20M in Refunds

The OIG recommended that New York refund the $19.6 million that may have been misallocated for the establishment grants or work with the CMS to determine the amount that should have been claimed for the grants. It also recommended the state refund more than $800,000 in unallowable fees paid to Maximus in contract costs or work with the CMS to determine the appropriate amount.

The OIG reviewed $39.8 million in contract costs for the period October 2014 through March 2015 that New York allocated to the establishment grants for its marketplace, New York State of Health. It also reviewed $17.6 million in fees to cover profits and administrative costs to Maximus for the period June 2012 through April 2014.

“New York did not always follow Federal requirements for allocating and claiming contract costs for its grants,” the Dec. 29 report said.

CMS’s Response

“CMS takes oversight of State-based Marketplaces seriously,” the CMS said in a Dec. 29 statement to Bloomberg Law.

The agency follows an established grant-making process “that has been successfully used for decades to ensure oversight and monitoring” of the grants, it said. States receiving the grants “are subject to post-award monitoring,” the agency said.

The Energy and Commerce staffer, who called the OIG report’s findings “alarming,” said the committee’s future oversight efforts could vary from more hearings to letter requests or transcribed interviews.

The Dec. 29 report says New York “over-estimated or used the wrong calculation to determine what share of people coming through the exchange were for Medicaid or for the exchange,” Chris Sloan, senior manager at health policy consulting firm Avalere Health, told Bloomberg Law Jan. 2. “By having a higher percentage in their calculation of people going on the exchange to buy [ACA qualified health plans], they were getting more money through the marketplace grants than they should have.”

Medicaid Should Have Handled More Enrollees

The state’s Medicaid agency should have handled more of the people who applied for coverage through the state’s exchange, Sloan said. Under the ACA, from 2014 through 2016 the federal government paid the full cost for states that expanded Medicaid for people at less than 138 percent of the poverty level. After 2016 the federal share drops, eventually falling to 90 percent in 2020.

The ACA was new when the exchanges opened in 2014, Trish Riley, executive director of the National Academy for State Health Policy, told Bloomberg Law Jan. 2. Further, Medicaid rules are “arcane [and] complicated,” she said.

Under the ACA’s “no wrong door” goal, people applying to exchanges for coverage were enrolled in Medicaid if they were eligible for the health-care program for the poor. Many people who applied for ACA coverage turned out to be eligible for Medicaid without the ACA expansion, meaning states would have to pay a higher share of costs for those beneficiaries.

But “people were moving at the speed of light to set these things up,” Riley said, referring to the exchanges. Some states had trouble correctly allocating funds between Medicaid and exchange enrollees, she said. “They were thinking they understood Medicaid allocation when they didn’t.”

The state-based exchanges are now self-supporting, Riley said. The exchanges levy fees on health insurers to help fund their operations.

To contact the reporter on this story: Sara Hansard in Washington at shansard@bloomberglaw.com

To contact the editor responsible for this story: Kendra Casey Plank at kcasey@bloomberglaw.com

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