Obamacare: How much did taxpayers spend on clumsy state exchanges?

The 14 states that opted to build their own Obamacare heath exchanges used more federal money than the US spent on HealthCare.gov, by one tally. Some of those costly websites still don't work.

Brian Witte/AP
Lt. Gov. Anthony Brown, (c.), talks about problems with Maryland’s health care exchange in Baltimore in December 2013. Joshua Sharfstein, Maryland’s health secretary, is standing to the right, and Carolyn Quattrocki, the interim director of the exchange, is standing to the left.

For all its problems coming out of the gate last fall, the Obamacare federal website, HealthCare.gov, looks like a success story compared with the health insurance websites that some individual states have set up.

A handful of the state-run marketplaces for insurance shopping have emerged as costly technological messes, unable to function smoothly. Whereas a “surge” of tech support finally got HealthCare.gov rolling, these states are still stuck.

This tale of costly state exchanges is partly a story of government waste and flawed bureaucracy, and partly a story of a Congress that didn't put enough limits on state spending from the onset, some analysts say. The result is that more taxpayer money went to setting up individual exchanges for 14 states and the District of Columbia than for the federal Healthcare.gov that services the other 36 states, by one account.

“Much of the money going to state-run Exchanges has not been well-spent,” concludes Jay Angoff, a health policy expert at the law firm Mehri & Skalet in Washington, who has tracked the federal numbers. In a written analysis, he suggests that the Department of Health and Human Services (HHS) should avoid throwing more good money after bad.

The federal money used to set up the 15 stand-alone exchanges totals $3.9 billion, compared with $3.5 billion to build “federally facilitated marketplaces” for the 36 states that didn’t set up their own exchanges, according to Mr. Angoff's calculations.

So far, Oregon has moved to scrap its website, after drawing some $303 million from federal taxpayers. Despite the influx of money, the site still didn’t work.

Last week Massachusetts took a similar step for much the same reason, after reaping $180 million in federal funds for its exchange.

It’s possible that other states among the 14 that created their own websites under the Affordable Care Act (ACA), including Maryland, will also ditch their trouble-ridden websites.

Hawaii by one measure has the costliest ACA exchange. The state’s marketplace has cost $23,899 so far for each person enrolled – about double what any other exchange has cost per enrollee. And that compares with $647 per enrollee, on average, in the 36 states that relied on HealthCare.gov, according to Angoff’s calculation, which uses Congressional Research Service numbers.

Among states that set up their own exchanges, only heavily populated California came in with a cost per enrollee under $1,000 (at $758). The next lowest cost was New York State at $1,158 spent for each person who enrolled during the sign-up period for 2014, which ended in April.

HHS may "wish to focus not on making additional Exchange grants to states, but rather on continuing to upgrade the federal Exchange, … which provides substantially greater value to taxpayers,” writes Angoff, who served in that department as director of Consumer Information and Insurance Oversight during the early implementation of Obamacare.

Some policy experts say it’s important, when judging the states' exchanges, not to put too much stock in a single statistic, such as the cost per enrollee. That would be as unfair as judging a baseball pitcher just on his ratio of strikes to balls: It’s not an irrelevant number, but neither is it a complete gauge of effectiveness.

Some mitigating context: Costs per enrollee generally represent the one-time investment in setting up an exchange – so the cost per enrollee should fall in future years. Moreover, Obamacare's success should be measured by a variety of benchmarks related to its goals, including whether more Americans gain health insurance and how the law affects overall costs and quality of care.

“This whole enterprise is a really complicated and difficult one, [and a] website is just one small piece of this,” says Stan Dorn, a senior fellow at the Urban Institute who follows the ACA.

He notes, too, that the high price tags for setting up the marketplaces (whether state or federal) includes a lot of other things. Among them: expenses for contracting with health insurers to offer health plans, certification that those health plans meet exchange requirements, and off-line assistance to consumers by providing call centers and in-person “navigators.”

Flexibility for states to adapt Obamacare somewhat to their own markets was a central feature of the law, and that paved the way for granting federal money to states. Less-populous states such as Oregon would be expected to have higher per-enrollee costs than more-populous states that can spread start-up costs over a larger population.

Some states have done worse than others in the rollout year.

Hawaii brings up the rear. For all of its spending, the share of its eligible residents who enrolled is among the lowest in the nation – about half the national average. Another small state, Vermont, spent a lot per enrollee ($4,419) to launch its exchange, but then it led the nation by enrolling 85 percent of its eligible population in the first year.

Many policy experts on the left and the right like the general idea of state flexibility in health-care reforms.

“Federalism has its benefits” as well as its costs, Mr. Dorn says.

As states debate what to do about problematic health insurance websites, they are considering factors other than cost. Some Hawaii leaders hope to salvage the state’s website because they worry that merging with the federal site will void a state law requiring employer-sponsored health care.

In Massachusetts, another state that had enacted sweeping health-care reforms prior to Obamacare, the exchange’s board is trying to preserve distinctive features of its insurance market. The board hopes to retain its separate exchange by buying new software, but a vote last week pegs the federal website as a very possible Plan B.

Charlie Baker, a Republican candidate for governor and a former health insurance executive in Massachusetts, warned in a Boston Herald commentary that the state would be “drastically curtailing our ability to chart our own course” by merging onto HealthCare.gov.

Critics, however, argue against granting more federal money to states with wobbly websites. The Oregon debacle prompted Congress's Government Accountability Office to launch a review in early March of why that site and some others performed so poorly and what lessons to draw.

One problem may have been the challenges of linking various government agencies and private insurance firms in a complex network for sharing information, says Peter Schuck of Yale Law School, author of a new book, “Why Government Fails So Often, And How It Can Do Better.”

“I would also expect that there would be bureaucratic struggles as federal and state agencies seek BOTH greater control over the situation AND at the same time try to shift the blame for failures to others,” he says in an e-mail interview.

The ACA calls for the states' own exchanges to be self-supporting by 2015.

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