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VT Agency Wrongly Allotted $13M for Health Insurance Marketplace

More reforms may need to be implemented in order to strengthen state health insurance marketplaces and keep payers participating in the exchanges.

By Vera Gruessner

The Department of Vermont Health Access went against federal laws when it failed to allocate funds to establishment grants in order to create a public health insurance marketplace, the Office of the Inspector General (OIG) found in a new report. The OIG claims that as much as $13.9 million in costs were not allocated from April to September 2014 with regard to the benefits each grant program was required to receive.

Affordable Care Act

The problems that the Office of the Inspector General found associated with the Department of Vermont Health Access may impact the overall management of the state’s health insurance marketplace as the organization attempts to repair the dilemma of improper payments.

The issues related to the establishment of a health insurance marketplace are also linked to the finding that the Department of Vermont Health Access drew down the grant funds that went beyond the total costs of the program by a total of $736,330 from January to September 2014. Additionally, the organization used a cost allocation methodology that was defective when the agency allocated $10.5 million from July 2012 to September 2013, the OIG stated.

The Office of the Inspector General recommends for the state agency to change its Cost Allocation Plan from July 2012 to September 2013 as well as refund $10.5 million to the Centers for Medicare & Medicaid Services (CMS) allocated to establishment grants. Along with this suggestion, the OIG advises to work with CMS to define what part of $13.9 million was appropriately allocated to the establishment grants for the health insurance marketplace.

The Office of the Inspector General conducted this audit to determine if the Vermont health insurance marketplace has complied with all federal requirements. Originally, state health insurance marketplaces were established under the Patient Protection and Affordable Care Act across the nation.

READ MORE: 2017 ACA Open Enrollment Data Shows 12.2M Marketplace Signups

The potential reason for why the state agency may not have followed federal requirements and improperly allocated $13.9 million may be due to Vermont’s inability to gather accurate enrollment data for the health insurance marketplace, the OIG stated in its report. Additionally, the state agency lacked the protocols and policies needed to position the development of a Cost Allocation Plan.

“The State agency improperly allocated $10.5 million using a cost allocation methodology that included a material defect because it used a population-based methodology that assumed the entire population of Vermont would use the marketplace to enroll in health insurance,” according to the OIG report.

“The State agency may seek CMS approval to claim a portion of the $10.5 million through Medicaid at the Federal financial participation rate up to 90 percent. The State agency may have improperly allocated $13.9 million to the establishment grants because the Vermont marketplace could not generate accurate, actual enrollment data to ensure that the State agency allocated costs in accordance with the relative benefits that each grant program received.”

Since the report was filed and reviewed by the Department of Vermont Health Access, the state agency has stated that it would work with CMS to decide on their next steps for proper funding allocation and enhance its policies for a Cost Allocation Plan. Additionally, the state agency has returned funds to CMS as advised by the OIG.

While Vermont needs to work through the issues related to its state health insurance marketplace, Blue Cross and Blue Shield of Tennessee has also made some changes to the plans they’ll be offering on Tennessee’s insurance exchange in 2017, according to its website. Blue Cross and Blue Shield of Tennessee will stop participating in three of the state’s biggest markets, which includes Knoxville, Memphis, and Nashville.

READ MORE: BCBS Moves into Vacant TN Health Insurance Exchange

However, the health payer will continue serving the populace of five other locations of the state including the West, West Central, Chatanooga, East Central, and East. In order to alleviate any further losses on the health insurance exchange, Blue Cross and Blue Shield of Tennessee had to take this step to remain competitive on the health insurance marketplace.

Earlier this year, the national payer Aetna also took steps to reduce its participation in the health insurance exchanges and UnitedHealthcare previously announced stepping down from the exchanges completely. In an interview with, Merrill Matthews, a resident scholar at the Institute for Policy Innovation, discussed how UnitedHealthcare’s actions may affect the future for the health insurance exchanges and the steps other payers may take.

“UnitedHealthcare doesn’t feel like it can stay profitable in that group of business and it would indicate that others might be struggling as well,” said Matthews. “Several insurers came out and said that they’re still committed to being here, but it might indicate the death spiral that we’re concerned about in the exchanges. There’s been a long-running concern that what the exchanges will ultimately be is the place where the people who are the sickest and need subsidies from the federal government will reside.”

“The question comes about – would even some of those people be able to buy cheaper insurance, even considering the subsidies, outside of the exchange if a death spiral initiates. If so, does that ultimately make the exchanges unworkable?” Matthews questioned.

The health insurance marketplace under the Affordable Care Act may be facing some serious challenges with more payers seeing revenue downfalls and some state agencies such as in Vermont experiencing problems. More reforms and policies may need to be implemented in order to strengthen the ACA exchanges.

READ MORE: Industry Groups Express Concerns Over Proposed ACA Repeal Bills


Dig Deeper:

How Payers Could Succeed in ACA Health Insurance Exchanges

Lawmakers Push for Public Option on Health Insurance Exchanges


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