Some contractors continue to insist that fixes are possible. $474M for 4 failed ACA exchanges

Nearly half a billion dollars in federal money has been spent developing four state Obamacare exchanges that are now in shambles — and the final price tag for salvaging them may go sharply higher.

Each of the states — Massachusetts, Oregon, Nevada and Maryland — embraced Obamacare, and each underperformed. All have come under scathing criticism and now face months of uncertainty as they rush to rebuild their systems or transition to the federal exchange.


The federal government is caught between writing still more exorbitant checks to give them a second chance at creating viable exchanges of their own or, for a lesser although not inexpensive sum, adding still more states to HealthCare.gov. The federal system is already serving 36 states, far more than originally anticipated.

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As for the contractors involved, which have borne most of the blame for the exchange debacles, a few continue to insist that fixes are possible. Others are braced for possible legal action or waiting to hear if now-tainted contracts will be terminated.

The $474 million spent by these four states includes the cost that officials have publicly detailed to date. It climbs further if states like Minnesota and Hawaii, which have suffered similarly dysfunctional exchanges, are added.

Their totals are just a fraction of the $4.698 billion that the nonpartisan Kaiser Family Foundation calculates the federal government has approved for states since 2011 to help them determine whether to create their own exchanges and to assist in doing so. Still, the amount of money that now appears wasted is prompting calls for far greater accountability.

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Where has that funding left the four most troubled states?

Nevada, for one, is still trying to figure out its future. Oregon has decided to switch to HealthCare.gov. Maryland wants to fix its own exchange, maybe by incorporating what worked in Connecticut. Massachusetts actually wants to do both — build a portal from scratch while planning a move to the federal exchange as a backup.

Massachusetts’ dual-track approach could require more than $120 million on top of the $170 million it already has been awarded. That cost is nearly twice as much as if the state were to simply bail on its Connector, but officials seem to be banking in part on the Obama administration’s greater interest in helping the Massachusetts exchange — the once-pioneering model for Obamacare — survive.

Josh Archambault, a senior fellow with the right-leaning Foundation for Government Accountability, argued that the state’s efforts to salvage its exchange are just a face-saving exercise.

( Also on POLITICO: Full health care policy coverage)

“Instead of a quixotic sprint to rebuild the whole site in five months, state officials should instead pivot quickly to utilize the federal exchange, saving taxpayers tens of millions of dollars in the process,” he said.

State officials have warned that most of what is left of their initial federal award may be needed to end their contract with CGI, the vendor that built the Connector. They acknowledged Thursday they have no guarantees of additional federal funding.

“You have two choices,” Rep. Stephen Lynch (D-Mass.) said last week. “One is to expend even greater amounts of money on something that had limited success thus far or going to the federal exchange. … There’s simplicity in that, and I think that may be where some within the commonwealth would like to go.”

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By contrast, Oregon has already opted to give up on its website and use HealthCare.gov. The colossal failure of Cover Oregon — which so far has cost $248 million in federal money — has prompted a probe by the General Accountability Office. The state’s congressional delegation is taking keen interest.

“The next step is the federal investigation … and I’m anxious to get those results,” said Democratic Sen. Ron Wyden.

But Democratic Rep. Peter DeFazio has also called for litigation against Oracle, the vendor that was supposed to set up the site. What it has been paid is “ill-gotten gain on the part of Oracle, and we should sue to get the taxpayer money back,” DeFazio said Thursday.

Only 14 states and the District of Columbia developed their own health insurance exchanges for individuals to buy coverage under Obamacare, a far different scenario than the law’s authors envisioned.

Nevada, the only Republican-led state to run an individual exchange this year, expects to decide on the future of its struggling Nevada Health Link in the next several weeks. An outside report concluded that salvaging the major flaws in the exchange would be a huge feat. The system has spent $51 million of the approximately $90 million in federal grants that were authorized, according to a spokesman.

“The report seems overwhelming to me,” Lynn Etkins, vice chairwoman of the Health Link board, said last week. “And I really am not hearing anything that all of these issues are going to be resolved well before open enrollment so testing can be done.”

Senate Majority Leader Harry Reid blames Xerox, which constructed the exchange, for the many problems his state’s system has had. “They’re the ones that should be held accountable,” he said Tuesday.

The company, however, maintains that a fix is possible. “While the list may, in fact, look daunting … when you get under the covers and start to look at the outputs in terms of the progress that we’ve made over the last several months, I am actually less daunted,” David Hamilton, a Xerox official working with the state, told Etkins and other board members at their recent meeting.

Maryland is a state that aspired to be another national model but ended up spending $118 million in federal funds on a fatally crippled exchange. It is in the process of trying to transition to the technology used by Connecticut’s system. It’s still unclear whether the move will meet federal approval. If not, Maryland would default to HealthCare.gov.

“There’s got to be oversight on how public monies are spent,” said Sen. Ben Cardin (D-Md.). “But I’m not trying to say who is responsible yet. I’ve heard the state many times talk about the private contractors — so they’ve got to be part of the mix.”

Rep. John Delaney (D-Md.) is a strong supporter of Obamacare but has been calling on the state to go to the federal exchange since December. He says the move to the Connecticut exchange is a “political cover-up” and charges that officials have not been transparent about Maryland Health Connection or its repairs.

“If you stumble, you have a particular obligation to be upfront,” Delaney said.

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