Health Reform WK-EDGE Old data, flawed methods led Kentucky exchange to misallocate millions
Thursday, February 9, 2017

Old data, flawed methods led Kentucky exchange to misallocate millions

By Kathryn S. Beard, J.D.

When Kentucky set up its health insurance exchange, the costs for its establishment grants were not allocated in accordance with federal requirements because the state agency used a flawed methodology and later did not update that methodology using updated, better data. The HHS Office of Inspector General (OIG) worked with CMS to determine what portion of establishment grants was misallocated, refund unallowable amounts, and issue a written policy on developing and performing cost allocations including processes for reassessments and revisions (OIG Report, No. A-04-14-07050, February 3, 2017).

Under the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148), states received grants from CMS’ Center for Consumer Information and Insurance Oversight (CCIIO) to establish and operate health insurance exchanges. Exchanges provide eligibility determinations and enrollment services for both qualified health plans (QHPs) from private insurers and state-based public health care programs such as Medicaid and the Children’s Health Insurance Program (CHIP). Kentucky originally created its own exchange, but later transitioned to, the federal government-operated exchange. The OIG limited its review to Kentucky’s systems and procedures for claiming costs to establishment grants and to Medicaid from November 2010 through December 2014.

The OIG found that Kentucky did not allocate costs to its establishment grants in accordance with federal requirements because it used a flawed methodology from October 1, 2013, through April 15, 2014. After April 15, 2014, the state misallocated further costs because it continued using the flawed methodology but also failed to update its cost-allocation methodology using updated, better data. According to the OIG, the misallocations occurred because the state used a cost-allocation methodology that did not allocate costs to particular cost objectives relative to the benefits received.

The Kentucky state agency did not fully concur with the OIG’s recommendations regarding its cost allocations methodologies, for which it had CMS approval, but agreed to continue working with CMS to ensure proper allocation and issue an exchange-specific written policy for cost allocations.

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