Scandal Sheet

Obamacare squandered $1.2 billion on failed exchanges

This article originally appeared on heartland.org.

Christopher Conover, Yevgeniy Feyman, and Katherine Restrepo try to figure out: So how much taxpayer money did Obamacare’s failed state exchanges squander?

We calculated a federal cost per enrollee consisting of a) the total amount paid to states in grants to set up and run Exchanges (including the federal dollars used to bankroll the federally-facilitated Exchange for the 29 states using it in 2014); b) premium subsidies used to encourage people to buy Exchange coverage; and c) the estimated amount of cost-sharing subsidies that will be available to low-income families who purchase Silver plans on the Exchange. Nationally, federal taxpayers have spent $4,633 per enrollee for each of the 8+ million who have signed up for Exchange coverage through April 19. But this ranges from a low of $3,038 in Tennessee to a high of $24,947 in Hawaii.

As shown in the chart, these costs were nearly $1,000 lower per enrollee in Republican-controlled states compared to those where the governor and legislature were controlled by Democrats. Most of this difference arises from the dramatic differences in administrative costs per enrollee across states. The amount of premium and cost-sharing subsidies actually is about $300 lower in states controlled by Democrats compared to their Republican-controlled counterparts principally because many of the latter are Southern states with lower incomes and higher poverty rates than the Blue states located disproportionately in the Northeast U.S.

What about the difference between federal and state costs?

Nationally, the amount paid by federal taxpayers to set up and operate Exchanges amounted to 19 cents per every premium dollar. Again, this does not mean federally-financed Exchange costs amounted to 19 percent of premiums paid. On federally-facilitated Exchanges, a 3.5 percent surcharge on premiums was permitted to help offset some of these costs, but in most states, the actual amount spent was well in excess of this amount. Florida (1 cent per dollar of premiums) and Texas (2 cents) had costs below the surcharge amount, but the median state, Kansas (ranked 26th) had federal costs (34 cents) nearly 10 times as large as the surcharge. And the worst-ranked state was again Hawaii, whose costs amounted to $6.11 per dollar of premiums.

Such costs were nearly 3 times as large in states controlled by Democrats (27 cents per dollar) as those controlled by Republicans (10 cents). This partially reflects another reality: administrative costs on the state-run Exchanges were more than double those on the federally-facilitated Exchanges. Since 13 of the 16 states controlled by Democrats ran their own Exchanges, the higher costs for SBM states translated into higher costs for these states. But this of course does not explain why costs were higher in states with their own Exchanges. As we’ll see shortly, mismanagement appears to be at least part of the explanation. While it might be tempting for partisans to assume that states controlled by Democrats are more prone to such mismanagement, we believe a simpler explanation may be at work: the perverse incentives arising from spending other people’s money.

The overall figure is even more incredible, according to Phil Kerpen, who notes the state exchanges haven’t all been honest about their failures yet. He looks beyond the three states – Massachusetts, Maryland, and Oregon – that have officially shut down:

Politico included Nevada in their “already shut down” list, and so did the initial version of this article. But we’re updating to move them into this second section, because even though the state’s Health Information Exchange shut down was back in January, the state’s Obamacare exchange, Silver State Health Insurance Exchange, is still in limbo. According to a report they commissioned [Deloitte] to issue the options are to “undertake significant remediation and enhancements,” license technology from another state, or move into the federal Healthcare.gov.

Hawaii’s “Health Connector” has signed up the smallest number of people of any state in the country and has no plans to finance their operations moving forward. Their current plan appears to be to all-but-close-up-shop and outsource all of the exchange functions to the state Department of Human Services. The state’s leading insurance company says it is time to pull the plug. Expect this one to be official any day now.

Minnesota’s exchange has been a disaster, and they recently brought in [Deloitte] on a nine-month $4.95 million contract to fix it. It is unclear whether they will be successful. Cheney’s Politico article notes Minnesota and Hawaii may be the next states to pull the plug.

Vermont, the tiny state with giant ambitions to use Obamacare as a stepping stone to single-payer, government-run health care is still facing enormous problems dealing with its tiny population. They are using CGI, the same vendor that failed on the federal healthcare.gov, and have given them a deadline of July 2 to get the site working. It is unclear what Vermont will do if they fail to deliver by that date.

So here’s the billion dollar question – how much of your federal taxpayer money went to these states for their failed and failing Obamacare exchanges?

Phil calculates the total at $1.2 billion. That’s a lot of money for a lot of nothing. And they’re not done wasting it, yet.

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