HHS gave billions to states to “collaborate” with each other in developing their insurance exchanges — but then why didn’t health.gov “collaborate” with them?
By Scot K. Vorse
On July 22nd a federal appeals court panel dealt a potentially major blow to the Affordable Care Act (the “ACA” or “Obamacare”) by ruling in the case of Halbig v. Burwell. That ruling held that individuals in the 36 states who receive their insurance through the health exchange run by the federal government (Healthcare.gov) are not eligible for billions of dollars in premium tax credits. Since that time, several additional facts (such as the videos of Dr. Jonathan Gruber, the “architect” of Obamacare) have emerged which further support the argument that it was the intent of the ACA to limit premium tax credits to only state-run exchanges.
Within the past two weeks it has been discovered that the original contract to develop Healthcare.gov did not include any functionality that would allow for individuals to enroll in health insurance with premium tax credits. It has also been learned that Health and Human Services (“HHS”) required states to include this same functionality in their own state-based exchange websites. These discoveries add further support to the claim that HHS knew that under the law only insurance obtained through state-based exchanges were entitled to premium tax credits, as has been argued in the Halbig case and confirmed by Dr. Gruber.
This raises the question: How did HHS and the state exchanges collaborate to develop this crucial premium tax credit functionality and what does this collaboration suggest about the intent of the law?
1. In November 2010 HHS distributed an initial “IT Guidance” document – On November 3, 2010, HHS produced “Guidance for Exchange and Medicaid Information Technology (IT) Systems”. The stated purpose of the document was “to assist states as they design, develop, implement, and operate technology and systems projects in support of the Affordable Care Act relating to the establishment and operation of Health Insurance Exchanges as well as . . . premium tax credits and cost-sharing reductions under the Affordable Care Act.”
This reference guide was one of the initial documents sent to the states. HHS referred to this document as the “IT Guidance” – effectively the governing document for states to develop their own exchange IT. There is no mention of a Federal Exchange in this document. Why?
2. The first principle in the IT Guidance was “Collaborative IT Development” – The very first principle listed (and logically one of the most important principles) was the need for “collaborative IT development”. Specifically, the document stated:
“Improving the availability of high-quality health care coverage to families and individuals will be achieved through a collaborative, intensive partnership between CMS, OCIIO, and states responsible for implementation of the Exchanges and Affordable Care Act’s Medicaid and CHIP provisions. This collaboration must occur within states (between the Exchanges and Medicaid, and CHIP as well as stakeholders more generally). We further encourage states to work together and with federal agencies to develop and deploy shared services to minimize the expense and reduce the risks associated with individual state, end-to-end IT development and implementation . . . We intend to promote and foster the development of IT components and models that will drive the delivery of intended business results. We will promote standards and foster the development of shared business process models, requirements, specifications, technical architecture, and programming to the maximum extent feasible. We also intend to communicate and provide access to, at the earliest possible point, those IT capabilities or components developed and maintained at the Federal level on which the states will rely. We expect that, in this highly collaborative atmosphere, the best and most efficient solutions will emerge from the efforts of private-sector vendors, business partners, and governmental projects funded at both the state and federal levels.” There is no mention of “collaboration” with the Federal Exchange. Why?
3. HHS awarded $4.8 billion to individual states to establish state exchanges – According to a July 28, 2014 report from Congressional Research Service titled Federal Funding for Health Insurance Exchanges “HHS has awarded a total of more than $4.8 billion to states and DC in planning, establishment, and early innovator grants.”
Furthermore, the IT Guidance declared that “States receiving funding . . . should pay close attention to and comply with this guidance.” Therefore, states were required to collaborate with each other. – The Federal Exchange and the states weren’t required to collaborate. Why?
4. Early Innovator states were required to “collaborate” and to include premium tax credit eligibility and enrollment functionality – On February 16, 2011, HHS “announced the award of seven cooperative agreements to help a group of ‘Early Innovator’ states design and implement the Information Technology infrastructure needed to operate Health Insurance Exchanges.”
The release also noted that “The seven grantees offer a diversity that will be valuable to all states as they work to set up their Exchanges. The grantees represent different regions of the country, as well as different Exchange governance structures and Information Systems. This diversity will help ensure that a wide range of IT models are developed, and every state will benefit.” The Federal Exchange was not represented in this group. Why?
Importantly, the press release also stated that “To ensure the Exchange IT systems are comprehensive, they must handle eligibility and enrollment in the Exchange as well as premium tax credits and cost-sharing reductions for eligible consumers.” This functionality was crucial to the success of the ACA. HHS relied on the states but not the Federal Exchange to develop this crucial functionality. Why?
States were also required to complete a detailed application to become an Early Innovator. The application stated “This competitive ‘Early Innovators’ grant announcement will reward States that demonstrate leadership in developing cutting-edge and cost-effective consumer-based technologies and models for insurance eligibility and enrollment for Exchanges. These ‘Early Innovator States will develop Exchange IT models, building universally essential components that can be adopted and tailored by other States.” The application specifies consumer-based technologies. There is no mention of sharing this consumer-based technology with Healthcare.gov. Why?
Lastly, states were chosen as Early Innovators based on a 100 point scoring system for the applications. 15 points or 15% of the score was solely related to collaborating with other states. Specifically:
- “Inclusion of letters from other States expressing an interest in using components of Exchange IT systems developed by the applicant State(s). States that apply as a consortium with three or more States are considered to have fulfilled this criterion.
- Extent to which applicant includes commitment to include other States in an advisory panel or other consultative roles.
- Extent to which the program may be broadly applicable to and/or replicable in other States.
- Extent to which applicant expresses commitment to share architecture with other States.”
There are no points given for sharing technology with Healthcare.gov. Why?
5. The states did “collaborate” with each other – Below are a few excerpts from a State of Washington funding request to HHS. Other state grant applications and updates to HHS detail other state collaboration. These excerpts demonstrate the “highly collaborative atmosphere” between states as mandated in the Guidance IT. Specifically:
“The leadership of the exchange’s information technology project met with the Health Information Exchange project and interviewed Early Innovator Grant awardees in Oklahoma, Oregon, and Wisconsin.”
“Furthermore, HCA reviewed the early innovator grant applications from Wisconsin, Oklahoma, and Oregon. HCA talked to these state’s representatives to understand the factors that influenced the development of goals, milestones and timeframes for each function of the exchange.”
“HCA also reviewed the “Wisconsin Health Insurance Exchange 2010 Report – A Starting Point” that provided valuable insight on the major issues and considerations that would impact the IT systems to support the exchange. The state is continuing to further galvanize the IT Gap Analysis and has assertive plans to develop early requirements in parallel with this and to leverage other state’s requirements (particularly Wisconsin’s).’
“Leveraging models from Early Innovator States: The state realizes it is not unique in approaching the exchange and has plans to review and analyze the artifacts and systems that come out of the Early Innovator states, namely Wisconsin, Oregon, and Oklahoma.”
“Washington will use an “Early Requirements Development Facilitation” consultancy to investigate, analyze and pursue leveraging and applying Early Innovator state’s requirements (specifically Wisconsin who’s shown to be one of the more mature in development).” – Again, the Federal exchange wasn’t included in this collaboration. Why?
6. The original 2010 Federal Exchange contract didn’t include any premium tax credit functionality related to individual enrollment – The original Federal Exchange contract with CGI that was signed on September 30, 2011 did not include any of the premium tax credit functionality language outlined by HHS as required for exchanges and as included in the individual state exchange developer contracts. The original Healthcare.gov contract did not contain any premium tax credit functionality related to individual enrollment. Why?
Perhaps the answers to all the above questions are the same: HHS knew that under the law only state-based exchanges were entitled to premium tax credits.
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.