Skip to main content

Advanced Search

Advanced Search

Current Filters

Filter your query

Publication Types



Newsletter Article


What's the Matter with Blue State Exchanges? Experts See a Pattern

By John Reichard, CQ HealthBeat Editor

April 2, 2014 -- Maryland ... Oregon ... Massachusetts ... Hawaii ... Minnesota ... it's hard to think of a group of states with a politically stronger commitment to expanding coverage under the health law.

But the marketplaces they set up to get that accomplished either malfunctioned mightily, underperformed, or didn't work at all.

This despite the fact that the federal government has poured hundreds of millions of dollars into establishing state-based exchanges. And now, the federal government is being asked to spend more to bail out the floundering state efforts.

Overly ambitious website designs, tangled lines of authority and incompetence and bad luck in picking contractors are among the reasons.

The freshest example of Blue State website woes is in Maryland. Officials aspired to be national leaders in exchange design almost since Congress enacted the health law in September 2010. But recently, the board of Maryland Health Benefit Exchange voted to follow the lead of Connecticut by adopting its simpler website design and hiring its IT vendor, Deloitte LLP.

"Our administration has not succeeded at every first try, but we have never given up," Maryland Democratic Governor Martin O'Malley said after the board acted. "The vendors we hired failed to build us the platform they promised." O'Malley expressed confidence that the state's new partner will have the website upgraded by the time the next open enrollment period begins in November.

The state also released a memo from its top officials that ruled out dropping the state marketplace altogether and letting the federal government handle enrollment through

Switching to the federal exchange "does not adequately support our business model or Medicaid," said the memo written by Isabel FitzGerald, secretary of the Department of Information Technology, Joshua M. Sharfstein, secretary of the Department of Health and Mental Hygiene, and Carolyn Quattrocki, acting director of the Maryland exchange.

At the same time, the existing IT system despite hundreds of fixes is still "deeply flawed," they said. Fixing it would take a year and cost more than $66 million. Even then, the site probably wouldn't be stable.

Using the Connecticut IT platform allows Maryland to be ready for the fall. And it "maximizes re-use of existing software licenses and allows us to re-use hardware components of a value that exceeds $8 million," the officials said.

But it also means spending another $40 million to $50 million, they noted. Although that's about what Maryland would have to spend to develop a Medicaid eligibility and enrollment system that would work with the federal exchange, that option would cede management control and the ability to customize IT. Choosing the Connecticut model would permit "an effective foundation for future growth," the officials said.

Federal officials appear willing to cough up the extra cash, according to the Maryland memo.

"CMS [the Centers for Medicare and Medicaid Services] will review this plan, and, we anticipate, approve the plan, which would then make Maryland eligible for continued funding for IT development in 2014," the memo stated. "Maryland would also share costs recovered through litigation." Maryland terminated its contract with the original vendor it hired to set up its exchange, Noridian Healthcare Solutions, earlier this year.

Ambitious Plans

Other Democratic states such as Oregon and Minnesota also got very ambitious in their exchange planning. Oregon never was able to launch the website enrollment process it designed and had to rely heavily on outside brokers and paper applications.

In a glowing December 2010 report to the state legislature officials said they would build a "high value" exchange offering consumers apples-to-apples comparisons of plans, easy shopping and choice, smooth enrollment processing and easy payment processing, along with customer service, and "clear value for the premium dollar." Insurers "will have access to easy enrollment, billing and payment processing," the report stated.

But news reports and an independent audit chronicled what turned out to be an overly ambitious project hampered by feuding state agencies, lax contracting and a lack of authority and accountability in project oversight.

"Though it has spent more than $200 million on its exchange, Oregon's is the only exchange in the country where the public cannot self-enroll in a single sitting," the news website Oregonlive reported March 20.

A March 19 independent analysis of the state's website fiasco noted that it was a "complex, multi-agency project."

"There was no single point of authority," said the report prepared for Oregon Gov. John Kitzhaber (D) by FirstData. That "slowed decision making and contributed to inconsistent communication."

The project relied on a commercial, off-the-shelf product from Oracle, rather than a more customized approach. To save money, Oregon decided it would serve as its own systems integrator.

The decision not to hire an outside integrator "departs from best practices," according to the independent report and caused a lack of accountability on the project. That, in turn, contributed to more trouble, including a delay in requirements definition, and unrealistic delivery expectations. The report noted that one state official described Oregon as having "the most robust scope of any exchange."

The report also found poor communication with Kitzhaber's office about problems. Kitzhaber was told on July 31 that a "staged launch" may be needed on Oct. 1 but that the project remained on track. But on Sept. 30 Kitzhaber's office was told the website would not be up and running on Oct. 1. Oregon is now weighing whether to scrap its marketplace and switch to the federal exchange.

Officials in Massachusetts, Hawaii, and Minnesota ran into similar problems.

More Money Needed

Joel Ario, a consultant with Manatt Health Solutions, sees a couple of common threads in the five troubled Blue State exchanges. Ario ran exchange development efforts at HHS early in the Obama administration.

"One, they were too bold," Ario said in an interview last week. "They tried to do too much in year one." He added another variable was some contractors performed much better than others.

"I think if we've learned one lesson here it's that large IT projects are very difficult," he said. It's why in the literature on such efforts the advice is "test, test, test."

Maryland and Oregon both planned aggressive integration of the Medicaid and exchange programs, and added more bells and whistles to the IT system as they went. The states also mounted ambitious outreach campaigns, Ario said.

Connecticut and Kentucky kept things simpler and had fewer problems. Kentucky "started a little bit later, but they outsourced as much of this as they could, they did it all out of one agency," he said.

On the contractor side, "Deloitte and Accenture showed up as success stories in several places and CGI showed up as a problem in several places," Ario said. Accenture did well in California, while CGI had trouble not only on the federal level but in Massachusetts and Hawaii, Ario noted.

He predicted that the troubled states eventually will "come back into leadership on ACA implementation" as they fix their exchanges. The first enrollment period showed that demand is strong for exchange plans and persists despite exchange malfunctions, he added.

But to get things fixed requires more money and that's going to stir controversy.

Republicans Seek Cutoff

States such as Maryland must convince CMS to keep funding them despite growing pressure from House Republicans to cut off funding. Subcommittees of the House Oversight and Government Reform Committee plan a joint hearing probing the difficulties in Maryland, Oregon, Hawaii, Massachusetts and Minnesota and looking at what worked in California. The notice for the hearing notes that the federal government has spent $4.7 billion to set up state exchanges.

Maryland's Sharfstein emphasized in a recent interview that the exchange and the website are two different things.

"The exchange is how we structure the policies in order to get rates, it's the community assistance workers, it's the call center, it's our relationship with carriers—there are so many aspects to running the exchange beyond the website," he said.

For all its problems, Maryland beat its combined private plan and Medicaid enrollment projections "because the exchange is more than a website," he said.

Sharfstein disputes critics' contention that the $125 million Maryland has spent on its exchange—$90 million of which was federal money—has gone for naught. He said the sum spent for the development of its troubled website with its prime contractor was about $55 million.

Republicans lie in wait, however.

"The Maryland exchange is a disaster," Rep. Andy Harris, R-Md., told Health and Human Services Secretary Kathleen Sebelius during a March 13 appropriations subcommittee hearing.

He pressed Sebelius on whether her agency would approve more money for an exchange the HHS inspector general had agreed to inspect and audit.

Sebelius was noncommittal.

"We have all of the IT funding for IT that isn't working under specific restrictions and we will look at their proposal," Sebelius replied.

Publication Details