A Maryland agency misspent nearly $30 million in federal funding when it set up and ran its flawed Obamacare exchange, the Health and Human Services Department’s internal watchdog said Friday, although state officials balked at paying the money back.
The inspector general’s report cast an even greater shadow over the state’s ill-fated exchange, which had to be overhauled after a rocky first year. It also played into Republican fears the Obama administration spent billions on balky state portals to carry out its signature health law.
Maryland, among the handful of states that set up they own exchanges under Obamacare, developed ways to allocate federal grant funds in line with anticipated enrollment into exchange plans and Medicaid.
But the state’s health agency misallocated some of the money in April-June 2014 by using enrollment estimates that a contractor made during 2010 and 2012, even though it had fresh data in hand as of March 2014, according to HHS Inspector General Daniel R. Levinson.
“Consequently, the costs allocated to Medicaid and to the establishment grants did not correspond to the relative benefits received,” his report said.
Actual data put exchange use at 21 percent of the enrollment population — 37 percentage points less than what the contractor estimated — so officials misallocated $15.9 million from the Centers for Medicare and Medicaid Services (CMS), according to the report.
In February 2014, the state’s contractor acknowledged an error in its Medicaid projections from 2012.
The state, though, did not amend its reporting to reflect this “material defect,” the inspector said, resulting in an unfair gain of $12.5 million.
The inspector said the state should repay the total $28.4 million in misallocated funds.
Maryland officials agreed with some of the inspector’s recommendations in their written response, but not calls to refund the money, saying it followed CMS guidance on the frequency of its reporting.
The inspector general’s office said it stood by its findings.
Meaghan Smith, a spokesman for the Health and Human Services Department, said “CMS appreciates the OIG’s work examining cost allocations and will review the findings and issue clarifying guidance to state-based marketplaces as needed.”
The administration noted the state did not spend money on unallowable purposes, and that the inspector general’s finding were not directly related to well-documented tech glitches the exchange experienced in fall 2013.
All told, Maryland received $182 million in federal grants from September 2010 to December 2014 to build its exchange during Gov. Martin O’Malley’s tenure in Annapolis.
Mr. O’Malley, a Democrat, is said to be mulling a 2016 presidential bid.
Term-limited out of the governor’s seat, Mr. O’Malley was succeeded by Republican Gov. Larry Hogan, who defeated Anthony Brown, the lieutenant governor who oversaw the flawed exchange program during the O’Malley administration.
Rep. Andy Harris, the Maryland Republican who requested HHS’s audit, has been a frequent critic of his state’s Obamacare implementation.
“This audit was critically important,” he said, “and I believe the state will have to return the appropriate amount of money to the federal government.”