The federal government failed to track billions of dollars in grants given to states to create Obamacare exchanges according to a report by Reason Magazine’s Peter Suderman.  As a result, neither the federal government nor the states are able to say how much of the $2.78 billion in Medicaid matching funds were improperly used to construct state exchanges. In addition, the report finds these states have yet to complete an alarmingly high list of functions associated with their exchange websites.

These findings appear in a July 2015 draft report compiled by the nonpartisan Government Accountability Office (GAO) and obtained by Reason.

As Suderman notes, the Centers for Medicare and Medicaid Services (CMS) did not require states to track funding to exchange marketplaces with any specificity. As a result “[CMS] is not in a position to account for all federal funds that went toward the establishment and support of marketplace IT systems.” Instead, CMS requires states to categorize funding in five vague categories: IT contracts, IT consultants, IT personnel, IT equipment, and IT supplies. 

Despite this freedom and over $5.4 billion in grants from CMS, state exchanges encountered numerous problems. In fact, as the report notes, only one state based exchange has completed “development of hub services functions such as verifying an individual’s identity and citizenship, and retrieving tax information for evaluating taxpayer eligibility for insurance affordability program.”

Even worse, several state exchanges have already failed, and many face financial difficulties now that grant money is all but exhausted and states are required to finance without federal assistance.

In Hawaii, the exchange received $205 million in grant money, but was unable to become financially sustainable upon launch due to a lack of enrollees. Embarrassingly, the exchange enrolled zero individuals during a special enrollment period.

As bad as Hawaii was, Oregon’s exchange is undoubtedly the poster child for government waste. The state received $305 million in federal funding but failed to complete a workable exchange months after launch date.

The disaster prompted then-Gov. Kitzhaber to place a trusted campaign consultant, known as the “Princess of Darkness” in charge of the exchange, despite her having no IT or healthcare background. When the exchange was dismantled, it was supposedly due to being unworkable and unsalvageable. However, reports emerging since suggest that the princess dismantled the exchange based solely  on assisting the governor’s reelection campaign

It remains unclear how much of the millions in funds can be recovered from these failed exchanges, or whether the federal government has any contingency plan should more states return to the federal system. But given the revelations that millions more could have been improperly spent on constructing exchanges and key functionality remains unfinished, it is clear that stronger controls are needed immediately.