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Auditors say ACA exchange broke federal grant rules

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Federal auditors want Colorado’s public health insurance exchange to give back about $9.7 million in start-up grant money, or about 5.3 percent of the $184 million in start-up money it received from the U.S. Department of Health and Human Services.

The auditors, at the U.S. Department of Health and Human Services Office of Inspector General, say Connect for Health Colorado, a state-based Affordable Care Act exchange, engaged in a number of practices that broke federal grant rules, including requiring employees to use personal credit cards to buy equipment, supplies and services; allowing inadequate disclosures of possible conflicts of interest; and failing to properly document equipment inventories.

The auditors say the exchange provided inadequate documentation for $4.4 million in start-up spending; used $4.5 million in start-up grants to pay expenses after the initial one-year start-up period; and used $463,054 in an “inefficient and ineffective” way.

In a new report, the auditors list a number of examples of problem spending, including:

          • $3.1 million paid for vendor contract invoices that did not say what work the vendor had done.

          • $4.2 million spent on pre-paid information technology support contracts for the period after Dec. 31, 2014, when the exchange was supposed to be using sources of cash other than federal start-up grants to pay for IT services.

          • $86,061 spent on “unallowable promotional giveaway items,” such as sunscreen and water bottles.

          • $350 spent on a tip for movers who billed the exchange for $833. (Inspector general’s office officials say the exchange should have given the crew a 5 percent tip.)

          • $166 spent on baby shower supplies.

          • $113 spent on a cake, cider and decorations for a December 2012 holiday party. 

In one case, the exchange allowed use of start-up grant money “to purchase equipment for a previous chief executive officer who kept it for personal use when the CEO left the organization,” according to officials at the HHS inspector general’s office. 

“These findings were caused by a lack of adequate stewardship of federal funds,” inspector general’s office officials say.

The auditors note that they are still working on other Connect for Health Colorado audit reports.

Connect for Health Colorado has agreed with inspector general’s office recommendation for procedural changes but disagreed with the recommendation that it pay back $9.7 million in grant money.

An exchange spokesman said in an email interview that the report deals with spending decisions the exchange made while it was starting up and learning about federal grant rules.

“Our processes and procedures have improved as our organization matures,” the spokesman said. “They are better developed now than they were for the period covered in this audit. Our work with auditors, which is on a continual basis, assists that improvement process, even when we do not agree with every finding. 

An operating profit

Drafters of the Affordable Care Act called for states to set up a system of health insurance exchange programs, or web-based supermarkets for health coverage. The exchange system is supposed to help consumers shop for coverage on an apples-to-apples basis and distribute ACA premium tax credit subsidies and cost-sharing reduction subsidies.

HHS set up its own ACA public exchange system,, to provide exchange services in states that are unwilling or unable to operate their own exchange systems.

HHS also supervises the state-based ACA exchanges operating in states like Colorado that decided to run their own exchanges.

The exchanges began selling plan coverage to consumers, for 2014, on Oct. 1, 2013.

Related: ACA exchanges push back Jan. 1 coverage signup deadline

The HHS inspector general’s office is an agency that monitors many different HHS operations, including ACA-related programs.

The agency’s new Colorado exchange audit report covers grants awarded from Oct. 1, 2011, through Sept. 30, 2015, and exchange financial reports for the period from Oct. 1, 2011, through Dec. 31, 2014.

Connect for Health Colorado has posted extensive information about its operations, including enrollment activity figures, financial statements and board meeting report packets, on its website.

The exchange says has received plan selection information for coverage starting Jan. 1, 2017, for about 112,000 people. 

The exchange recently reported that it earned an operating profit for the first five months of its current fiscal year, in part because exchange plan enrollment has been higher than it expected.


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