Why Did States Spend Millions To Create Tech That Healthcare.gov Had Already Developed?
By Scot K. Vorse
On May 16, 2012 the State of Washington announced it had been awarded a $127.9 million Federal grant to continue developing and implementing its Obamacare state-based healthcare exchange. This grant was in addition to the approximately $24 million in Federal grants the state had already received. These grants were part of the $4.8 billion of taxpayer money that the Department of Health and Human Services (“HHS”) handed out to help states establish their own exchanges such as Covered California, New York State of Health and Cover Oregon.
In the application related to this grant, Washington State provided significant details regarding its progress in developing a premium tax credit and cost sharing reduction calculator (a “tax credit calculator”). A tax credit calculator is an electronic calculator that allows individuals to view the actual cost of their coverage after premium tax credits have been applied to their premiums, as well as the impact of cost-sharing reductions. According to its applications, Washington State used a significant portion of both the early grants and the May 2012 grant to fund the development of its tax credit calculator.
Interestingly, the May 2012 grant application also claimed:
“The Exchange intends to use the model Premium Tax Credit/Cost Sharing Calculator developed by HHS to assist individuals in comparing the costs of coverage in available QHPs.”
Why would the State of Washington request and spend tax payer funds to develop electronic tax credit technology if it “intends to use” the technology already developed by HHS?
The italicized sentence above is the sole reference to a HHS tax credit calculator and inconsistent with the remainder of the application. None of the prior applications included any reference to a HHS tax credit calculator.
Washington was not the only state that included this contradictory language in its grant application. Nevada noted in its June 28, 2012 application that it had recently signed a $25 million contract to develop a tax credit calculator. Furthermore, the Nevada application included the exact same italicized sentence above (down to the punctuation) related to a HHS tax credit calculator that Washington State included in its application.
How could two applications submitted by two different states include the same precise language and punctuation? It is possible but unlikely that the two states communicated with each other. Or the more logical assumption is that HHS supplied both states the same language. If so, why?
- HHS developed and sent to states detailed guidelines mandating them to include a tax credit calculator with their exchanges.
- States realized developing a tax calculator was complicated, time demanding and expensive. The states immediately started working on developing tax credit calculators.
- HHS granted hundreds of millions of dollars to states to fund development of these tax credit calculators.
- HHS required states to collaborate with each other (but not with HealthCare.gov) as a condition to receiving the grants.
- The original HealthCare.gov developer contract did not require a tax credit calculator.
- Using Federal taxpayer funds, several states either started development or signed contracts to develop tax credit calculators.
- In early 2012 reports were surfacing that numerous states might not establish their own state-based exchanges.
On May 3, 2012, HHS modified its contract to develop HealthCare.gov (the actual contract was not signed until September 30, 2012). The modification resulted in a 60% increase in the contract price. The contract included four significant additions:
- A tax credit calculator conforming to detailed specs was now required; to my knowledge, this was the first time that HHS had discussed having a tax credit calculator in HealthCare.gov.
- A new approach of “collaboration” by HHS was declared – “From now through 2013, CMS will be working with States collaboratively, and will be continually evaluating how to develop federal IT systems and services”.
- CGI, the HealthCare.gov developer, was now required to “share” technology and “collaborate” with states.
- CGI was also required to “provide IT implementation support teams (multi-disciplined) that will travel to about 12 states, with purpose of providing a ‘jump start’ to their development”.
So why the changes and why did Washington and Nevada request and use tax payer funds to develop electronic tax credit technology if they “intended to use” the technology already developed by HHS?
There are two possibilities: Either HHS had decided it needed a tax credit calculator or it hadn’t. If it had – why didn’t it share this technology and collaborate with the states from Day One, which would have reduced the amount of tax funded grants? Also, a significant amount of the $4.8 billion awarded to states was allocated to develop tax credit calculator technology. Why had so much money been allocated to the states not only prior to May 2012 but also why did money continue to be awarded to the states? It doesn’t appear that awards were cancelled or award money returned because of a HHS developed tax credit calculator. Why not?
Also, what would have happened if HHS had asked the states to cancel their calculator development contracts and to return unused grant money? Would this have been a public admission that HHS had changed its interpretation of the law?
A logical and consistent narrative is now emerging.
- HHS and the Obama Administration knew the intent of the law was that only residents in states with state-based exchanges were entitled to premium tax credits.
- They assumed states would feel “squeezed,” as Jonathan Gruber suggested, and would eventually concede to establishing a state-based exchange.
- If most if not all the states established their own exchange, there was little or no need for HealthCare.gov to have a tax credit calculator.
- Although the Federal government would not be directly involved, HHS made sure the states had strict guidelines, “collaborated” with each other and had necessary development money related to establishing exchanges.
- However, when numerous states signaled they were unlikely to establish a state-based exchange, the Obama administration was forced to redefine a “state-based” exchange and “jump start” a tax credit calculator for the HealthCare.gov.
- To accomplish this, HHS had to modify the original contract by significantly increasing the contract amount and changing the narrative to one of “collaboration” and sharing HHS developed technology with the states.
The biggest question is – why would HHS want the states to claim they were using a HHS tax credit calculator and that HHS was going to help states “jump start” their technology development when it fact it was the HealthCare.gov contract that did not have a tax credit calculator and it was the Federal Exchange that needed the “jump start”? Perhaps because HHS knew that under the law only state-based exchanges were entitled to premium tax credits. And, unless HealthCare.gov could both legally and functionally provide premium tax credits, Obamacare was doomed. Only after that possibility became clear did HHS decide to change its interpretation of the law.
Oblimination™ – hoping for change and the reversal of Obama’s failed policies.
Scot K. Vorse is a retired investment banker having spent much of his career at Goldman, Sachs & Co. and is a graduate of Harvard Business School. Mr. Vorse is currently the President of Vorsetrade, a software company based on patent pending technology which uses barter logic and technology used by government entities to reallocate excess assets.