HHS: Maryland Misallocated $28.4 Million Intended for State Exchange

Published May 7, 2015

Maryland overbilled the federal government some $28.4 million while building the state’s health insurance exchange and should now repay the money, says a report from the Office of the Inspector General (OIG) for the U.S. Department of Health and Human Services (HHS).

Federal auditors reported they found no fraud or criminal wrongdoing, but they say the state lacked oversight and internal controls. OIG recommends Maryland refund what the federal government paid to subsidize the cost of signing people up for health insurance coverage or Medicaid through the state’s exchange.

The report concludes Maryland officials paid too many of the exchange’s bills with a federal grant in 2013 and 2014, instead of using the state’s Medicaid program, which is financed jointly by the state and federal government. As a result, the state received more federal money than it was entitled to and should now repay the excess funds.

Maryland was one of the first states to embrace Obamacare and eagerly went forward with building its own health care exchange, even as some three dozen states opted not to.

Opening Day Disaster

The site crashed on the first day it was open for business in October 2013 and was later plagued with numerous software glitches and feuding contractors, ultimately performing worse than the similar but much larger HealthCare.gov site.

Maryland’s exchange was finally scrapped and replaced with software borrowed from Connecticut’s exchange, considered the nation’s best-performing state exchange. This quick fix cost at least $40 million, and Maryland re-launched its exchange in 2014.

Marc Kilmer (R), a member of the county council in Wicomico County, Maryland who worked on health care policy for the Maryland Public Policy Institute from 2006 until 2014, says it was obvious much taxpayer money had been wasted and the state should have conducted an investigation but failed to do so.

“The project was supposed to be a showcase for Democrat Lt. Gov. Anthony Brown to demonstrate his ability to get things done and set him up to become the next governor,” Kilmer said. “He lost that race to a Republican, which was pretty surprising since Maryland is heavily Democrat.

“Prior to its completion, everyone in state politics was talking up the Maryland exchange,” Kilmer said. “And there was a lot of anticipation that the Maryland exchange would show that Obamacare was successful, so there was a lot of pressure on the state to deliver. But it turned into a colossal failure.”

Public opinion and the fear of losing future elections are the reasons failure was never admitted, Kilmer says.

“A lot of critics said the state should have held back and seen what kinds of problems the other states experienced as they went forward,” Kilmer said. “However, [liberals] wanted to show that Maryland could deliver, and Gov. Martin O’Malley was acting like it was a success, even before it was built. Afterwards, neither O’Malley nor Brown would mention it on the campaign trail because they didn’t want to be tarred with it. But if it had been a success, you can bet they would have taken full credit for it and spoke about it every chance they got.”

Government Blamed Contractors

Christopher B. Summers, president of the Maryland Public Policy Institute, says the state government oversold the project and its projections turned out to be way off.

“They did what politicians always do when things go south—they blamed it on somebody else,” Summers said. “In this case, they blamed it all on the contractors.

“Maryland Republican Rep. Andy Harris said that if the state had only done its job, it could have avoided this disaster,” Summers said. “But they didn’t, and when it failed and there was no investigation from the state, he requested one from federal auditors.”

Maryland has not detailed all the public funding used to develop its health insurance exchange, but estimates have put the tab at around $261 million by the end of 2015. More than 80 percent of the costs are expected to be paid using federal dollars.


Ken Artz ([email protected]) is managing editor of Health Care News.

Internet Info:

Daniel R. Levinson, Inspector General, U.S. Department of Health and Human Services (HHS), “Maryland Misallocated Millions to Establishment Grants for a Health Insurance Marketplace,” March 2015: https://oig.hhs.gov/oas/reports/region1/11402503.pdf