Analysis: Health Benefit Exchange gets a budget pass, and many questions remain

Analysis: Health Benefit Exchange gets a budget pass, and many questions remain

By Charlie Hayward


Maryland Health Connection illustration

The Maryland Health Benefit Exchange came under intense scrutiny by legislators after its disastrous start implementing the Affordable Care Act two and half years ago.

Now that the exchange and its technology seems to be working, legislators seem less anxious to probe its working and finances. That’s the conclusion from watching hearings in Annapolis over the exchange’s proposed fiscal 2017 budget testimony last month. (Video of the House and Senate hearings is available online.)

Complex operations

The exchange has a complex mission, with a large array of dissimilar business processes that management must harmonize for the sake of an arguably controversial public purpose — expanding health insurance coverage in Maryland under Obamacare, as ACA has become known.

Gov. Hogan wants $122 million to run the exchange for fiscal 2017.

This budget is just for administration to run the exchange, and excludes big-ticket items like medical claims and administration costs borne by other state entities.

The exchange has 66 employees, but well over half its budget goes to contractors and grantees, who provide vital resources in every area and who manage a distinct “busy season” when contractor rolls can swell to perhaps eight times the exchange’s core size—and dwindle as quickly as possible after open enrollment.

The exchange is a public entity with a mostly commercial mission. It’s most important business partners are its customers, but operation of the exchange demands a heavy mix of technocratic business activity with several key departments in the state’s sprawling health and social-service bureaucracy.

An exasperating partner, passive legislators

The exchange also partners with another entity that can be unfriendly, even ornery — the U.S. Department of Health and Human Services (HHS) and its offshoots.  Too often, HHS is the exchange’s most exasperating business partner. That federal agency arguably caused many of the dislocations leading to the failure of the first health exchange website.

Key management at the exchange seems to be doing a credible job. Indeed, the annual Department of Legislative Service (DLS) briefing prepared independently of the exchange described remarkable progress by the exchange in several areas.

But none of the above warrants a free pass in legislative hearings. After all, the exchange’s adjusted fiscal 2017 budget is 23% higher than the cost estimate by Wakely Consulting in December 2012.

Legislators during budget hearings have ample opportunities to ask critical questions if they do their homework. During last month’s hearings, however, legislators missed several such opportunities.

Since exchange operations are paid with federal Medicaid funding and an excise tax levied on health insurance, maybe the best posture is to avoid uncomfortable challenges because the exchange “pays for itself.”

Questions that need answers

The following questions are meant to show some of the areas that warranted answers during these hearings.

Several other questions are apparent from the exchange’s oral and written testimony, or from the DLS report. The exchange undoubtedly could provide reasonable answers in most cases and, having done so, would have earned their budget:

Too successful at core mission — enrolling the ineligible?

  1. What’s the risk the exchange has been too successful at its core mission to enroll the uninsured?
  2. The exchange appears to have attained steady, strong progress to sign up customers, including Maryland’s large population of difficult-to-reach uninsured people. Aggressive enrollments are the legal mandate.

However, there’s a big difference between aggressively enrolling the uninsured and controlling enrollments so they are limited to the eligible population of the uninsured. Many state exchanges are experiencing major difficulties with this distinction. What about Maryland?

Minnesota’s Obamacare health exchange has never been functionally capable of enrolling people according to the law. Auditors said many enrollees signed up via the state website (MNsure) last year might not have qualified, driving as much as $271 million in overpayments during a five-month period.

Several other states have similar problems because their enrollment-related internal controls or computer systems can’t distinguish eligible prospects from among the larger population of uninsured: New York, Vermont, Hawaii, Virginia. Audits in these states and others are reporting hundreds of millions of improper payments for medical claims due to errors originating with enrolling ineligible customers.

  1. States must demonstrate to the federal government the accuracy of their Medicaid eligibility determinations. HHS has a substantial pilot program requiring state exchanges to self-test the accuracy of their eligibility determination.

Legislators recognize every social-service program will have a certain degree of tolerable error. Is 3% of a $1 billion program — $30 million — tolerable?

Too many ineligible beneficiaries?

The legislature’s budget hearings should have included at least the following two questions:

  • Is the exchange in jeopardy of enrolling too many ineligible beneficiaries?
  • Will the exchange share its experience from its compliance with the federal program for self-testing its own enrollments? If the exchange is not participating in this program, why not?

Legislators also should consider a pre-emptive audit similar to Minnesota to examine enrollment controls in the Maryland exchange.

Trustees don’t evaluate budget

  1. The Board of Trustees doesn’t evaluate or approve the Exchange’s budget. Why not?

The Maryland Health Benefit Exchange Act of 2011 requires the Board of Trustees to “Ensure [the exchange’s] sound operation and fiscal solvency….” and stipulates the board’s members must act in a manner consistent with a “…prudent person in a like position in similar circumstances.”

The board, however, neither evaluates nor approves the exchange’s annual budgets or its budget overruns (deficiency appropriations). Legislators should have asked the exchange why its board isn’t involved with exchange budgets.

True state of the website

  1. What’s the true state of the Connecticut-built website re-purposed by the Maryland exchange? What are its economic and financial costs compared to alternatives?

The Connecticut website put in service by the Maryland exchange in an expeditious manner in 2014, is considerably short of the functionality the O’Malley administration promised the legislature and everybody else. The re-purposed application was re-named HBX, an acronym that stands for the exchange eligibility system.

In a December 2015 report to the legislature, Integrated Eligibility Services: “One Door” described “fractured” enrollment processes in the wake of HBX’s hasty implementation creating waste, unneeded burdens on state resources and hardship on those needing state assistance.

This report was not comprehensive because it didn’t reflect any collaboration with three other stakeholder agencies, DHMH, the Maryland Department of Human Resources (DHR) and Department of Information Technology. It was not current because much of the information in the report was known a year or more ago.

Now would be a good time to revisit the “Business Requirements” envisioned in the original exchange website’s specs, to identify any opportunities for improving current functions of the HBX application.

The window for generous federal funding (up to 90%) for enhancing information technology will close after two years. A reliable cost-benefit analysis is overdue, and could help with aligning stakeholders about the scope of a better health exchange website.

Legislators should have asked for a comprehensive and current report during the hearing or the legislature should require the exchange to prepare a responsive report, to include the true cost and funding source for an adequate website having a functional fit with Maryland’s needs.

Asking for a waiver

  1. Why would the exchange ask HHS for a waiver from the requirement to prepare revenue and expense statements and get them audited annually? What’s the status?

The exchange is required by federal regulations to prepare a financial statement showing receipts and disbursements for each plan year (ending December 31). A recent outside audit required by HHS found the exchange failed to comply.

Worse, the exchange disagreed with the audit and indicated it shouldn’t need to comply because its financial information is covered in the statewide audit, and its budget submissions capture all the information needed to assure integrity of operations. Statewide financial statements, audits, and budget submissions are prepared on the basis of the state’s fiscal year ending June 30, so this information is incompatible with the HHS requirement for plan year audits. For this reason and others, the exchange’s rationale for being excluded from the HHS requirement is weak, and reflects poorly on its understanding of the federal integrity requirement.

The DLS was unaware of this audit, although legislators might have discovered it simply by browsing the exchange’s website. The subject wasn’t discussed at either hearing. Legislators should have asked the exchange to justify its departure from federal integrity requirements.

Identifying cost savings  

  1. Cumulative spending for the call center and “Connector Entities” is about $200 million in the first enrollment periods. What are the top three opportunities for cost savings?

Legislators should have asked detailed questions, particularly about call-center costs. The call center contract, for example, is a cost reimbursable type–one where the government, not the contractor, bears significant risk of performance.

Sketchy enrollment data

  1. Enrollment data seems sketchy. Is that because the data are unavailable, too hard to capture, or simply not reported?

The exchange reports enrollment data in what might be characterized to be within self-serving boundaries. Since the exchange testifies as advocates for their budget, puffery about their performance is natural and proper. If the exchange doesn’t present a balanced picture, however, legislators can’t objectively evaluate the budget. So the exchange should be reporting many more enrollment statistics if reliable data can be captured even if it takes cooperation from carriers.

Charlie Hayward spent more than 30 years performing Government Accountability Office audits and served as a partner in two accounting firms. He retired in 2007 from Cotton & Company LLP, where he was a partner and principal financial auditor of the firm’s audit practice group. Since retiring, he has been a contributing writer for

Analysis: Health Exchange Mess Part I: Failures in leadership
Analysis: The Health Exchange Mess Part II: Assigning blame, recouping money
Analysis: State in no hurry to file suit over health exchange, faces disclosure of improper actions

About The Author

Charlie Hayward

Charlie Hayward spent more than 30 years performing Government Accountability Office audits and served as a partner in two accounting firms. He retired in 2007 from Cotton & Company LLP, where he was a partner and principal financial auditor of the firm’s audit practice group. Since retiring, he has been a contributing writer for and Bloomberg BNA. He can be reached at

Support Our Work!

We depend on your support. A generous gift in any amount helps us continue to bring you this service.