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The Obama Administration has failed to conduct oversight over the $5.5 billion taxpayer funded Obamacare state based exchanges according to a report by House Energy and Commerce Committee Chairman Fred Upton (R-Mich.) and Oversight Subcommittee Chairman Tim Murphy (R-Pa.). The Centers for Medicare and Medicaid Services (CMS) has imposed zero consequences on state exchanges that have closed and has failed to say they will in the future.

Instead, CMS appears to be encouraging state exchanges to close and join the federal system without consequence. The federal government is even turning a blind eye to exchanges using taxpayer dollars in violation of federal law and is allowing failed exchanges to keep millions in user fees intended to fund the federal exchange.

Starting in 2010, the federal government awarded $5.5 billion to states to plan and construct state based Obamacare exchanges. In total, 17 states decided to proceed with construction and they received more than $4.5 billion of this total. Since then, exchanges have encountered numerous challenges including lower than expected enrollment, higher costs, and failed IT systems.

Despite this, the federal government has failed to conduct virtually any oversight over failed or failing state exchanges, a list that includes exchange Oregon, Hawaii, Vermont, Minnesota, Hawaii, Maryland, Massachusetts, Nevada, and New Mexico.

Failed to Conduct Oversight Over State Exchanges

As the report notes, CMS is responsible for conducting oversight over state exchanges. However, the federal government has failed to ensure state exchanges published operational costs as required by law, failed to enforce laws prohibiting improper use of federal funds, and has failed to implement recommendations from government watchdogs.

To date, the federal government has recovered just $1.6 million in federal funds. $1 million of this comes from construction costs that CMS failed to detect for more than one year.

Failed to Ensure State Exchanges are Self-Sustaining

Under federal law, Obamacare state exchanges were required to be self-sustaining after December 2014. The $4.5 billion in federal taxpayer dollars could only be used for “establishment” expenses, not operational costs (maintenance, rent, personnel costs etc.). Section 1311 of Obamacare is clear in this regard:

“In establishing an Exchange under this section, the State shall ensure that such Exchange is self-sustaining beginning on January 1, 2015, including allowing the Exchange to charge assessments or user fees to participating health insurance issuers, or to otherwise generate funding, to support its operations.”

In violation of this law, every state exchange is still using federal funds 20 months later. As the report notes:

“As of September 2016, every SBE still relies upon federal establishment grant funds—20 months after SBEs were to be self-sustaining by law.”

Allowing Failed Exchanges to Keep User Fees

States utilizing the federally run Healthcare.gov for their Obamacare exchanges are typically levied a 3.5 percent fee for operational costs. Instead of charging failed state exchanges this same fee to use the federal system CMS has allowed the four failed state exchanges – Oregon, Hawaii, New Mexico & Nevada – to use Healthcare.gov for free and keep user fees they have collected. In 2015, Oregon collected $10.5 million in fees, which the state is free to keep. 

Failed to Prevent Cover Oregon Debacle

As noted in a recent report released by House Oversight Committee Chairman Jason Chaffetz (R-Utah), the federal government failed to conduct any oversight over the failed $305 million taxpayer funded Cover Oregon Obamacare exchange. This absence of federal oversight occurred even as the state’s independent quality assurance manager, Maximus, flagged the state exchange as “high risk.”

In the months and years ahead of the October 1, 2013 launch date, CMS officials were glowing in their praise of Cover Oregon, even awarding the state additional funds. Concurrently, Maximus was raising red flags about the progress of the project. 

In hindsight, Maximus was right — the Cover Oregon exchange was in poor health as was proven when it failed to work by its scheduled launch date – or for months after this deadline.

At the time, Oregon officials believed they were close to a working product by April 2014 after months of hard work. However, political advisors for then-Governor John Kitzhaber wanted the problem to go away ahead of his November reelection. As that report found, these advisors quietly manipulated the project so it would fail, and the state would be forced to join the federal Obamacare system.

Misled Congressional Investigators on Recovery of Wasted Taxpayer Dollars

Earlier this year, congressional investigators released a report debunking Slavitt’s claim that his agency had recovered $200 million in wasted Obamacare state exchange funds. Slavitt made this claim while under oath during a December 8, 2015 hearing.

Congressional investigators could not verify this figure, and over a ten-week period, CMS staff were contacted seven times with requests for information verifying Slavitt’s $200 million claim. Many of these inquiries were ignored, and when documentation was finally received CMS could only account for the return of $21.5 million in “de-obligated” funds, money that was leftover from expired grants.

Contrary to Slavitt’s assurances, it appears that federal efforts to recover funds has been non-existent.