Massachusetts ObamaCare Website Transition To Cost Taxpayers Over $1B

The transition to the Affordable Care Act (ACA) in Massachusetts has been a bumpy one, to say the least. The state still lacks a functional website and currently has almost 300,000 individuals on a newly created “transitional” Medicaid (MassHealth) program – a program with almost no integrity checks, due to the virtually nonexistent eligibility verification protocols. This highly questionable financial arrangement for the transitional Medicaid program is unique to Massachusetts.

The taxpayer tab is growing as the 2-year cost of transitioning to an ACA state-based website will exceed $1 billion. For some history, review my previous pieces on the ongoing train wreck covered here at Forbes.

All Taxpayers Paying for Massachusetts’ Incompetence

To be clear, both state and federal taxpayers will now pay more to transition to the ACA than they would have if the state website had worked the first time and significantly more than if the state had decided to switch to healthcare.gov either in 2014 or 2015.

The Governor of Oregon bravely pulled the plug on his state website after it failed the first time, but this did not stop Massachusetts officials from returning to the federal well a second time to the tune of hundreds of millions of additional dollars.

As the Commonwealth has moved forward with new contractors following its first failed attempt at launching an ACA-compliant website, there has been little transparency about the full taxpayer cost of the state-based exchange (called the Connector). Estimates often have been released piecemeal, and they never examine the full cost of the project across multiple agencies involved in the work. As a result, the public is unaware of the total expense to both federal and state taxpayers.

Candidates for federal office could benefit from picking up this banner and pushing for greater accountability to protect their states’ taxpayers from future bailouts .

Understanding the Cost Drivers

Below is an attempt to compile an accounting of the money that has been committed to the MA Connector so far, both from the state and federal governments. The estimates do include the cost of medical claims due to the newly created transitional Medicaid population, which was created out of thin air when the first website failed and will conservatively cost taxpayers well over $400 million dollars for the year.

While some of these individuals would have had coverage on another public program, an unknown number are receiving benefits fraudulently. It appears that thousands may be gaming the system. The number currently enrolled in the CommCare extension (RomneyCare subsidized exchange coverage) and transitional medicaid coverage combined exceeds the state’s highest estimate of those who would be eligible for an exchange tax credit by almost 90,000 enrollees, which suggests fraud.

The final bill for the ACA in Massachusetts will not be known for months as the state and federal governments “reconcile” who will cover what costs. But the state has already drawn down additional funding from cigarette tax revenue and allocated additional state funds to fill early shortfalls. This money could have been spent on other priorities (like smoking cessation programs) if the website had not failed. In addition, the cost overruns will spread as the Connector plans to draw $10 million from its reserve fund next year.

Little Oversight and Accountability in Massachusetts

It is time for heightened transparency and accountability for how taxpayer money is spent. The cost of getting the ACA exchange up and running will be over $600 million in Massachusetts – all of which will pay for systems to administer health care, not provide care.

When you add in the cost of temporary coverage and healthcare claims paid on those programs under the ACA, you are looking at a price tag closer to $1 billion just in Massachusetts. (This excludes the billions spent on “regular” Medicaid coverage for close to 1.4 million residents, the extra cost of insurance premiums due to the ACA, and the cost of ACA taxes, all of which are over and above the costs related to the state-based exchange and its failure.)

These budget numbers are a call to action. Unlike in other states with faulty exchanges where multiple investigations have been opened by the FBI, the Office of the Inspector General at HHS, and the Government Accountability Office (GAO), none have looked at the Bay State. In addition, Massachusetts elected officials have been surprisingly quiet given the website’s failure and harm to their constituents.

How Much Does The ACA Cost?

Column 1 of Chart 1 includes all the administrative and other costs associated with running the Connector for FY 14 and FY15 (July 1, 2013-June 30, 2015), the time period of the most concentrated effort to ramp up and implement the ACA in Massachusetts. Column 2 includes the cost so far of paid claims for the Medicaid program created due to the failed website; it also includes an estimate of the cost for the rest of the calendar year. Column 3 is the amount of state and federal money that has been committed to be spent on ACA exchange-related activities.

Despite relatively flat or declining enrollment due to ACA-related changes, the Connector’s administrative budget has grown significantly from before the ACA passed.

Chart 3. Connector Costs in Relation to Other Public Priorities (Millions)

Dollars spent on administration are dollars that are unavailable for other public projects, borrowing, or tax relief. (Source: Budget data taken from MassBudget.org, the FY 14 numbers are adjusted for inflation.)

Is the ACA Website Becoming Gov. Deval Patrick’s Big Dig?

Governor Patrick has repeatedly put his foot in the door to keep it open for a future run for the White House. Yet he seems to be acting more and more like President Nixon, trying to cover over multiple scandals that have been brewing, including the cost overruns at the Connector.

During a recent trip to Europe, he attacked the cost estimate released above and tried to erase any notion of a growing taxpayer tab, similar to how politicians tried to deal with the boondoggle Big Dig project.

Jet forward a decade and the media has been asleep at the switch on the question of how much Health Connector 2.0 has cost. Massachusetts started with a Connector, developed after the passage of the 2006 health law, which cost under $10 million to build and was working. Then the state decided to run an ACA website. With that, Governor Patrick wanted to rebuild the website and charted out a path.

The administration promised the moon and the stars with the new site for residents, bragging that Massachusetts would lead the nation in innovation. Yet behind the scenes, the reality was not so rosy. CGI, the primary contractor, turned out to be not only expensive, but also non-compliant as a partner and produced reams of shoddy work. (For example, they repeatedly submitted old code as “updates.” It often took the state weeks to notice.)

But the state was equally to blame (if not more) as the project manager and steward of taxpayer funds. Independent audits documented the numerous ways the state was over its head, agency infighting, and how they repeatedly changed the project scope and goalposts on the contractor mid-project.

Recently, Ed Lyons, a software developer, helped the public understand the human cost of the failure to launch a successful website by telling to story of how his close friend was adversely impacted. Ed also laboriously documented how the Governor and senior staff repeatedly misled the public about the state of the project during development, and continued to do so even after open enrollment began and problems were on full display.

Now, left with a website that’s not working, the question is: how much did taxpayers spend and was it worth it?

The Governor’s office has objected to a few points in my cost estimate.

First, the administration doesn’t believe administrative costs to run the exchange should be counted. That’s odd. Not including administrative costs is like a company excluding the cost of running the headquarters and advertising for a new product when reporting to investors. Such a standard would be widely panned.

In addition, if the state had decided to default to healthcare.gov instead, the administrative budget would have been wiped out almost completely.

It’s understandable why the Secretary of Administration and Finance, Glen Shor, and the Governor want to ignore this argument. The administration has released reports that severely downplay the skyrocketing costs associated with administration of the Connector. Before the ACA was signed into law, the Commonwealth was spending $29 million annually on administrative costs, by FY14, that number had quadrupled to $117 million. Again, we understand why they want to ignore those costs.

Secondly, the administration objects to a reporting of total cost – both state and federal funds. They believe one should focus only on the state share.  But as taxpayers, we fund both the federal and state governments. We have a right to know the total cost, not just the state share. When we talk about the Big Dig, we talk total numbers. We should here, too.

Thirdly, the administration contends that a portion of the costs for customer service, outreach, and personnel are really “revenue” because the federal government will pay for these functions. Once again, read the point above: we are all federal taxpayers.

Finally, the administration contends that my calculation double counts funds. Turns out, that happens when cost data is rarely released. At issue is roughly $100 million, less than 10 percent of the estimate. I readily acknowledge that the figure is an estimate. Yet I balanced that by being overly conservative on many big line items. For example, when calculating the cost of the transitional Medicaid program I used paid claims instead of the more accurate incurred claims, as the state has thus far refused to release this data. I also assumed no enrollment growth in this program, which is unlikely as the program has no open enrollment restrictions, and there have been tens of thousands of additional sign-ups in each of the last few months.

The total estimate is, in fact, on the lower end of the likely costs of this project. It should also be noted that I identified numerous costs that we know of, but cannot calculate (given the state’s lack of transparency) that will only add to the cost of this project.

Even John E McDonough – former Democratic chair of the health committee in the Massachusetts House of Representatives, former Senator Kennedy health staffer, former head of the liberal Health-Care-for-All group, and current Harvard professor – was quoted in the Globe saying that my cost estimates engender, “…a legitimate criticism concerning the overall lack of transparency and accountability with this matter.”

Given these limited objections, it appears over time the Administration will have to agree that the cost of the transition will be over $1 billion. In addition, recent revelations about a massive ($500M) outstanding Medicaid liability in the Commonwealth should further call into question the transparency of the Patrick Administration. After first denying the shortfall, the Administration had to confess to the facts dug up by Craig Douglas at the Boston Business Journal, which he pulled directly from the state's own letters in various borrowing agreements with bond investors about the shortfall.

It is time for transparency and accountability. Without it, taxpayers will be fleeced again while money is wasted on Big Dig-style IT projects, instead of spent on actual healthcare, education, public safety, or tax relief.

NOTE: For a full line-by-line accounting of the costs associated with the transition, see this report.

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