(This post has been updated with a response from the CMS.)
State health insurance exchanges were required to be financially self-sustaining by Jan. 1 under the Affordable Care Act, but many have struggled to come up with viable funding sources. According to a new report by HHS' inspector general's office, some of them continue to rely heavily—and inappropriately—on federal grant dollars,
The CMS has indicated that they can continue using federal funds for design, development and implementation costs but not for ongoing operational expenses.
“We have concerns that, without more detailed guidance from CMS, SBMs might have used, and continue to use, establishment grant funds for operating expenses after January 1, 2015, contrary to law,” reads the report, which was sent to acting CMS Administrator Andy Slavitt on April 27. “This issue is a significant matter and requires CMS's immediate attention.”
States have received more than $5 billion in funding to establish exchanges. The bulk of that money has gone to the 13 states and the District of Columbia that opted to develop their own online marketplaces instead of relying on HealthCare.gov.
But most states still haven't figured out how to pay for operations once the federal funds run out. The OIG report cites two states—Rhode Island and Washington—as examples of the financing conundrum.
Rhode Island hasn't established any dedicated source of funding for its exchange and continues to rely primarily on federal grant dollars to keep HealthSourceRI running. It's considering raising revenue by selling technology that it has developed to other states and by selling advertising space on its web site.
In Washington, the exchange's budget for 2015 relied on $26.1 million in revenue generated from premium taxes and carrier fees based on 213,000 enrollees. But only 160,000 people signed up for coverage, which will translate into significantly less revenue than expected.
The OIG report criticizes the CMS for providing insufficient guidance to states on exactly what constitutes operational costs and therefore can't legally be paid for with federal grant dollars. For instance, the Washington Health Benefit Exchange's budget includes $2 million for printing and postage and $2 million for bank fees. It's unclear whether such costs would fall under the rubric of operations.
“Thus, we encourage CMS to consider developing and publishing clear guidance on what constitutes (1) operational costs and (2) design, development, and implementation costs to minimize the marketplaces' improper use of establishment grant funding for operational expenses after January 1, 2015,” the report concludes. “We further encourage CMS, in developing this guidance, to review SBM plans for using establishment grant funds to ensure that the guidance addresses real-world examples, such as call centers, in-person assisters, bank fees, and printing and postage expenses.”
A CMS spokeswoman said in an e-mailed statement that the agency reviews the proposed operating budgets of state-based exchanges to ensure the grand funds are allocated appropriately. "This is a preliminary report and should CMS find any misspent funds after review, we will use remedies available under the law and regulations to recover any such funds," she said. She added that forthcoming guidance for state-based marketplaces will further clarify the rules.