When former Maryland governor Martin O’Malley signed the bill that created his state’s Obamacare exchange, he bragged that it was “being established using no state funds… due to federal grants.” Later, when the online “marketplace” exploded on the launch pad and a new IT company was hired to untangle the wreckage, O’Malley’s top health official assured Maryland voters that this would be paid for with “leftover federal grants.” Consequently, it surprised many when Maryland’s Attorney General announced a $45 million settlement with the original contractor the proceeds of which would be split between the federal government and the state.
The news release issued by Attorney General Brian E. Frosh phrased it thus, “The agreement, which is subject to regulatory approvals, will lead to the recovery of funds for both Maryland and the federal Centers for Medicare and Medicaid Services [CMS].” But why would the state receive any part of the settlement if, as O’Malley and his officials were at pains to point out, all the money used to build and repair the exchange came from Washington? Presumably, this question will come up during the “regulatory approval” process, which will involve negotiations between CMS, the U.S. Attorney’s office for Maryland, and various state insurance officials.
To help launch its ill-fated exchange, Maryland was given more than $179 million in federal grants. About $73 million was paid to Noridian Healthcare Solutions, the original contractor with which the state’s AG has purportedly reached the repayment agreement, and another $41 million was paid to the IT firm that cleaned up the mess. Even after its disastrous debut, then, Maryland still had about $65 million left in federal money. It’s difficult to believe that any state government, even one run by a profligate Democrat like Martin O’Malley, went through all that cash and still had to raid the state’s coffers to get its Obamacare “marketplace” up-and-running.
Nonetheless, Maryland’s officials are curiously reticent about discussing whether state funds were indeed used. The AG’s office, for example, is disinclined to answer questions on the topic. When I contacted Frosh spokesman David Nitkin, he indicated that such queries should be directed to the exchange. But when I called Andrew Ratner at the Maryland Health Benefit Exchange, he was reluctant to say how much the state itself had spent on the project or even if Maryland taxpayers had contributed any money. He suggested that all would be revealed after the AG’s office concluded its negotiations with CMS over how the settlement will be divided.
Those negotiations are likely to be complicated by a recently concluded investigation of the Maryland Health Benefit Exchange by the Department of Health and Human Services (HHS), under whose aegis CMS operates. In a report titled “Maryland Misallocated Millions to Establishment Grants for a Health Insurance Marketplace,” the HHS Office of Inspector General (OIG) demonstrated that the state exchange had “misallocated $28.4 million in costs to the establishment grants” because it failed to adhere to the terms and conditions of such grants. In the report, the OIG recommended that the state of Maryland refund all that money to CMS.
Thus, even if the state manages to show that it contributed some fraction of the start-up money for either the botched marketplace or the subsequent repair job, it’s difficult to imagine any legally sound claim it would have on the Noridian settlement. The company, according to the Maryland AG, has agreed to pay “$20 million upfront, and an additional $25 million in annual installments of $5 million.” In light of the $28.4 million the state overcharged CMS, it’s obvious that the federal government should get—for starters—the initial $20 million plus the first two installments. And, in a sane world, CMS would also take rest by way of penalties and interest.
A further complicating factor involves the confirmation of acting CMS Administrator Andrew Slavitt as permanent head of that immensely powerful and well-funded bureaucracy. Slavitt has a glaring conflict of interest. Before joining the Obama administration, he was a high-level executive at United Health Group, the nation’s largest Medicare Advantage contractor and a major player in Obamacare’s exchanges. Already on the hot seat for these conflicts, Slavitt probably won’t be anxious to sign off on a deal that rewards a state for incompetence and misallocation of CMS funds. Such a decision wouldn’t enhance his chances of confirmation.
Moreover, if he’s competent, he’ll understand that permitting Maryland to take a cut from the Noridian deal will provide the impetus for a spate of lawsuits against IT contractors from other states that will attempt to convert squandered Obamacare grants into undeserved windfalls. This has already begun in Oregon, which blew $303 million in federal money on an online marketplace it never tried to launch. The state sued Oracle over the website last year and has now filed a second lawsuit. But, even if Slavitt is unconcerned about unleashing a legal whirlwind against IT contractors, he may not possess the legal authority to approve the Noridian agreement.
The Obama administration would probably circumvent that minor obstacle by invoking the enormous amount of “discretion” Obamacare gives the Secretary of HHS, to whom Slavitt nominally reports. In other words, the deal Maryland’s Attorney General has worked out with Noridian would reward incompetence, misappropriate taxpayer funds, and probably violate the law. On the other hand, it is another opportunity to redistribute wealth in a way that provides political advantage for the Democrats. In the end, does anything else matter to these grifters?
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