Some states may be misusing Obamacare grants in order to keep their state insurance exchanges operating—potentially flouting a provision in the law requiring them to cover the costs of the exchanges themselves starting this year.
That’s the concern of the Department of Health and Human Services Inspector General Daniel Levinson which sent a letter this week reminding health officials that they can't use ACA exchange "establishment" grants for overhead costs—like staffing—as some states like Washington have been doing.
Related: Obamacare Sign Ups Lose Momentum in State Exchanges
The Affordable Care Act provided about $4.8 billion in grants to help states build and promote their insurance exchanges. Before this year, states could use that money on overhead costs.
But a provision in the law states that after January 2015, states can no longer use these grants on things like maintenance and staffing. They can still spend the grant money, but it must be used exclusively on “design, development, and implementation,” the auditor said in the report.
The idea is that eventually the exchanges are supposed to be self-sustaining, so the government is slowly weaning them off federal funding.
However, the IG said some states are struggling to keep their exchanges afloat. Washington State already spent $10 million this year on operating costs, according to the audit. The IG said other states like Rhode Island are at "high risk" of misusing these grants.
Related: Obamacare’s Fate Rests on an Argument on States’ Rights
The auditor’s report, which came as a result of an investigation into states’ budgets and Obamacare implementation, paints a potentially concerning picture of how states are struggling to take on the costs of the insurance exchanges as funding from Washington slowly dries up.
One of the worst examples comes from California, where the state’s exchange has been touted the most successful in the country for enrolling thousands of people. Covered California has already used up about $1.1 billion in federal funding to get its exchange up and running and is now expected to run a nearly $80 million deficit by the end of the year, according to the Orange County Register. The state has already set aside about $200 million to cover that, but the long-term sustainability of the program is very much in question.
This isn’t a surprise to anyone. In 2013, the state’s auditor said once federal funding goes away, the exchanges “future solvency” will be “uncertain.” At the time, the auditor dubbed Covered California a high-risk issue for the state.
Related: Why Obamacare’s Portal Still Needs a Brand Makeover
Likewise, Hawaii’s state exchange is also running into funding issues. Earlier this month, the federal government warned the state that if it can’t prove that its exchange will be self-sustainable this year, it may have to shift to the federal portal, HealthCare.gov. Hawaii’s exchange had serious website problems last year and was forced to pay for a costly repair effort.
“This is a contingency that is being imposed on any state-based exchange that doesn't have a funded sustainability plan in play," Jeff Kissel, CEO of the Hawaii Health Connector, told the Honolulu Star Advertiser.
As some states consider shifting to the federal exchange to deal with financial issues, another major concern looms—the Supreme Court decision in King v. Burwell. Expected in June, the ruling could be disastrous for all Obamacare enrollees receiving subsidized coverage on the federal exchange. If more people get shifted to the federal exchange, even more people will be affected by an adverse ruling from the Court.
Top Reads from The Fiscal Times: