Mass. Health Care Financing Report

8/12/2019 Mass. Health Care Financing Report

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HIX-IES Cost Report for the Joint Committee on Health Care FinancingAs Required by Outside Section 237 of the GAA

July 31, 2014

INTRODUCTION

Pursuant to Chapter 165, Section 237 of the Acts of 2014, the Executive Officefor Administration and Finance and the Executive Office of Health and Human Servicessubmit the following report on the financial impact of challenges associated with thelaunch of an updated state health insurance website in connection with theimplementation of the Affordable Care Act.

Massachusetts enacted landmark health reforms in 2006 designed to expandhealth insurance coverage to virtually all of its residents. These reforms have resultedin nation-leading coverage levels for the Commonwealth, with 97 percent of ourresidents insured. Our citizens now have better access to the care they need and areenjoying better health. They also have greater financial protection in the event ofillness. Health reform has been affordable for the Commonwealth – the state hasmaintained balanced budgets and secured its highest-ever bond ratings during itsimplementation – and has witnessed growth in the percentage of employers offeringcoverage to their employees.

The Affordable Care Act (ACA) provides the Commonwealth with the opportunityto build on the success of our state reforms. It expands subsidized health insurancecoverage through MassHealth and the Health Connector to populations who did notpreviously qualify under Massachusetts reforms, making it easier for many of ourfamilies to afford coverage. It also provides the state with significant additional federalresources to cover populations we had already insured through state health insuranceprograms. The ACA makes prescription drug coverage more affordable for seniors,provides more affordable access to preventive care, and strengthens theCommonwealth’s ongoing health care delivery system reforms designed to promotebetter care at lower costs.

Because the ACA was based in significant part on Massachusetts’ 2006coverage reforms, the Commonwealth was well-positioned to implement and secure thefederal law’s many benefits. Nonetheless, we have had to make some changes to

DEVAL L. PATRICK

GOVERNOR

THE C OMMONWEALTH OF M ASSACHUSETTS E X E C U T I V E O FFICE FOR

A D M I N I S T R AT I O N A N D F I N A N C E

&

E X E C U T I V E O F F I C E O F

H E A LT H A N D HU M A N S E RV I C E S GLEN SHORSECRETARY

JOHN POLANOWICZSECRETARY



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comply with the ACA. Most of these changes have been fully implemented throughcollaboration between the state, insurers, consumer advocates, providers, employersand other health care stakeholders. They include the transfer of the lowest-incomeportion of the Health Connector’s Commonwealth Care population to MassHealth;alignment of Health Connector and small employer/individual market health benefits

with federally prescribed categories of insurance plans (metallic tiers), which differbased on how subscribers and insurers share the costs of care; and the implementationof revised health insurance rating rules and a state-based risk adjustment program forthis segment of our market.

The Commonwealth has, however, encountered challenges with one aspect of its ACA implementation efforts. The ACA required us to create a new online system foraccessing individual and family coverage through the Health Connector andMassHealth by interacting with federal databases to validate eligibility and determinethe program for which an applicant is qualified. Previously, any Massachusetts residentseeking help paying for health insurance was in a purely paper-based system, applyingthrough a paper application that was manually reviewed, with notices and otherdocuments being mailed to the applicant.

In order to comply with new federal rules and make it quicker and easier forpeople to shop for and enroll in health coverage through “one-stop ” shopping forMassHealth and Health Connector programs, the Commonwealth launched the HealthInsurance Exchange- Integrated Eligibility System (“ HIX-IES”) project in 2011. Thisgateway to health coverage was also intended ultimately to enable eligibleMassachusetts residents to secure access to other state programs, including cashassistance and supplemental nutrition assistance.

To date, due principally to challenges with our former information technologyvendor, we have deployed an incomplete and imperfect web-based portal for state

health insurance programs. While small employers have still been able to shop forcoverage through the Health Connector, they have had to do so through a legacywebsite. We were able to launch a new website for shopping and enrolling inunsubsidized individual health coverage, but system performance was unreliable for anumber of months – inconveniencing consumers and requiring manual workarounds.This same website also allowed people for the first time to submit electronic applicationsfor subsidized coverage; however, it could not make eligibility determinations or allowapplicants to shop for and enroll in subsidized coverage.

Notwithstanding these challenges, the Commonwealth worked with insurers,consumers, providers and others to achieve the core objective of our reforms and the

ACA – protecting health coverage for those who have it and expanding access to thoseseeking it for the first time.

To protect and advance coverage for Massachusetts residents, the HealthConnector maintained Commonwealth Care for enrollees who were not qualified totransition to MassHealth. MassHealth received authority from the Centers for Medicareand Medicaid Services (CMS) to create a temporary Medicaid coverage for thoseapplying for subsidized health insurance whose applications could not be processedthrough the website. Consumer call center hours were expanded, and both



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organizations collaborated on other member assistance efforts to work throughchallenges people were experiencing accessing coverage through the website. Withthe help of technology and operations support from Optum, the information technologyfirm that help put the federal healthcare.gov project back on track, the Commonwealtheliminated a backlog of more than 70,000 paper applications in March and has been

able to keep up with processing demands ever since. The Health Connector alsoinstituted a “Fast Path” to re -enroll members in unsubsidized individual coverage by theend of the federal open enrollment period.

As a result of these efforts, more than 300,000 people have newly enrolled instate-subsidized health insurance programs. This suggests that the Commonwealth ismaking major progress on one of the last frontiers of coverage expansion – enrollinglow-income populations who have been the hardest to reach and make up the majorityof the remaining uninsured. Whether newly qualified for state health coverage or newlyaware of their options, these individuals now have access to affordable, high-qualitycoverage and the improved health and financial security it brings. There are also nearly33,000 people enrolled in unsubsidized individual health plans and 3,200 newly enrolledin individual dental coverage through the Health Connector.

Governor Patrick has underscored that health care reform is not just a websiteand has appropriately focused our efforts foremost on protecting and expandingcoverage. At the same time, he has taken strong and effective action to rectify websiteproject challenges and put the Commonwealth on a path to deliver a functioning websitefor the federal open enrollment period beginning in November 2014. He created asingle point of authority and accountability for project delivery that reports directly tohim, and brought in Optum to provide additional information technology expertise andcritically needed operational support.

These efforts have already enabled us to enroll more people in coverage and to

improve the performance of the existing website. Moreover, under this revised projectmanagement structure – and with Optum now serving as the Systems Integrator for theproject – the Commonwealth is pursuing a “dual track” strategy to ensure we have aworking website this Fall.

Our goal is to maintain a state-based marketplace by successfully deploying acommercial off-the-shelf product called hCentive, which has proved to be a successfulsolution for a number of other states. At the same time, the Commonwealth has beenlaying the groundwork to temporarily migrate to the Federally Facilitated Marketplace(FFM) for one year in the event the hCentive product cannot be successfully deployedin time for the upcoming open enrollment. In collaboration with the CMS, theCommonwealth intends to decide in early August on its final solution for standing up afunctioning website.

As required, this report discusses state coverage, website and other costsassociated with the HIX-IES project. The information included in this report isconsistent with legislative testimony provided by the Administration before the JointCommittee on Health Care Financing, briefings during monthly Health Connector Boardmeetings and other public updates provided by the project team over the past sixmonths. It principally highlights that:



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People are enrolled in different state health coverage categories thanoriginally anticipated, but aggregate coverage costs have not to date beenhigher than original budget assumptions.

Federal funds have been the principal resource for project and relatedadministrative costs. An updated estimate of project costs will be determinedupon the completion of contract negotiations with Optum, with theCommonwealth continuing to prioritize federal funds for new project costs.The project team will provide an addendum to this report when the Optumcontract is complete.

HEALTH INSURANCE COVERAGE COSTS

Due to the previously mentioned challenges with the website, people are enrolledin different ACA-related coverage categories than originally anticipated. Mostimportantly, as discussed above:

The Health Connector has had to maintain Commonwealth Care for peoplewho were enrolled in that program prior to January 1 and did not becomeeligible for MassHealth as of that date. Had the website functioned properly,this population would likely have been enrolled instead in ConnectorCare – asuccessor program under the ACA operated by the Health Connector.

MassHealth has had to create temporary Medicaid coverage for people whoare newly applying for subsidized coverage and cannot be enrolled inpermanent Health Connector or MassHealth coverage categories due to ourwebsite challenges.

This means that in the most recently completed fiscal year, relative to originalbudget assumptions, there was less enrollment (by member months) in ConnectorCareand permanent MassHealth coverage categories, and more enrollment inCommonwealth Care and temporary Medicaid coverage.



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However, even though people are enrolled in different ACA-related coveragecategories than originally anticipated, total spending on Health Connector andMassHealth coverage for fiscal year 2014 was closely aligned with original budgetprojections. Additionally, aggregate spending specifically on the Health Connector andMassHealth coverage categories most affected by ACA implementation also closelyapproximated original budget assumptions.



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This is because the budget provided resources at MassHealth and the HealthConnector for new enrollment, and aggregate per-member monthly spending was in therange of fiscal year 2014 budget projections. Specifically, total enrollment in member-months in the Health Connector and MassHealth coverage categories most affected by

ACA implementation was slightly greater than original budget assumptions (13.9percent increase). At the same time, total per member monthly spending for thesecoverage categories was slightly less than original budget assumptions (9.6 percentgross, 3.6 percent net less).



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The Commonwealth has the authority to operate Commonwealth Care andtemporary Medicaid coverage through the end of this calendar year. With the HIX-IESproject on track to launch on November 15, 2014, the Administration is concurrentlyfocused on successfully transitioning members in legacy or temporary coverageprograms to their permanent, ACA-compliant plans. Because member transitions

cannot begin until the website goes live, there will be costs for Commonwealth Care andtemporary Medicaid coverage in the first half of fiscal year 2015.

Commonwealth Care

Anticipated fiscal year 2015 spending on Commonwealth Care will continue tocost the state, on a net basis, more than budgeted assumptions for Health Connectorspending on ConnectorCare subsidies during the first half of the fiscal year. The federalcontribution to Commonwealth Care is less generous than that for ConnectorCare,leading to net additional state costs over this period of about $10 million per month.

It is premature, however, to make any estimates about aggregate additional netcosts for Health Connector-related coverage for the entirety of fiscal year 2015. This

will be dependent on enrollment in and rates for ConnectorCare once memberstransition out of Commonwealth Care and temporary Medicaid into permanent programsfor calendar year 2015.

Moreover, experience in fiscal year 2014 underscores that Health Connectorspending on coverage is a relatively small piece of overall state spending on subsidizedcoverage (and even ACA-related coverage) – and thus should not be considered inisolation in quantifying ACA-related coverage costs or determining whether theCommonwealth is living within, or exceeding, all relevant budgeted resources for fiscalyear 2015.

Temporary Medicaid

Based on information about the income distribution of the pre-ACA uninsured inMassachusetts and a preliminary automated and manual review of income data fromapplicants, the vast majority of temporary Medicaid enrollees are likely to be under 400percent of the federal poverty level and thus eligible for subsidized coverage. Also,there is no indication that coverage through the temporary Medicaid program is anymore costly on a per member basis than insurance through permanent coveragecategories. Accordingly, temporary Medicaid costs should not automatically be treatedas incremental to the Commonwealth. Instead, they should be viewed largely as coststhat the state would otherwise incur – but appearing in a different place than originallyexpected.

Temporary Medicaid is like other state-subsidized health insurance programs inanother respect. Cumulative spending on the program grows over time becauseenrollees will use care at some point over the course of their coverage. Also, in thiscase, total enrollment has increased over time. As of July 19th, there are approximately251,000 individuals enrolled in temporary Medicaid.



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Total paid claims through July 19th are $173 million on a gross basis (beforefederal match). Given claims lag, each successive report on paid claims typicallyindicates some additional payments for the most recent months of service.

As is the case for Commonwealth Care, spending on temporary Medicaid is partof a larger picture of spending on subsidized coverage by the Commonwealth. TheMassHealth program in its entirety in the fiscal year 2015 General Appropriations Acttotals $13.5 billion. The Commonwealth will be working to actively manage theMassHealth budget to seek to live within its means – and the Commonwealth’s recenttrack record on this has been strong. For example, even with the unanticipated creation

78,040

168,720 175,032200,772

221,757240,806 251,280

0

50,000

100,000

150,000

200,000

250,000

300,000

Jan Feb Mar Apr May Jun Jul

Temporary Medicaid Enrollment*(member months by coverage effective date)

updated:6/10/14

*Reflects retroactive eligibility determinations.

updated:7/19/14

*Reflects disenrollments, and retroactive enrollments. Figures represent only those individuals forwhom Temporary Medicaid is the richest aid category.

5.9 13.4 23.0 34.6 42.7 41.012.3

172.8

$0

$25

$50

$75

$100

$125

$150

Jan Feb Mar Apr May Jun Jul TotalDate of Service

Temporary Medicaid Paid Claims*by Date of Service

($millions)

updated:7/19/14

*Due to claims processing lag time, recent-month figures do not reflect total cost incurred.



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of temporary Medicaid coverage in fiscal year 2014, the Commonwealth did not need asupplemental appropriation for MassHealth during that fiscal year.

PROJECT COSTS

System CostsOriginally envisioned costs for the HIX-IES project totaled $174 million. The

largest individual component of these costs was a contract with CGI, the project’s initialSystems Integrator, for $89 million (including change orders). Other componentsincluded anticipated expenses for federally-required independent verification andvalidation services, ongoing software licenses, hardware, state and contractedpersonnel, and indirect and other costs.

The Administration sought and received federal grants and reimbursement tocover the vast majority of these project costs. Federal grants have included:

a $44.5 million Early Innovator grant (awarded to the University of MassachusettsMedical School, which held the contract for CGI until it was assigned to thestate’s Massachusetts Office of Information Technology (MassIT) as part of the

Administration’s efforts to enhance MassIT oversight of the project)

$20.3 million in Level 1A Establishment Grant funds (a portion of the Level 1Agrant awarded to the Health Connector)

$17.6 million in Level 2 Establishment Grant funds (a portion of Level 2Establishment grants awarded to the Health Connector)

The federal government also provided enhanced federal matching funds for adesignated $92.1 million of spending on this project. Under this formula, the federal

contribution totaled $76 million, and the state share (to be funded through the state’scapital budget) was $16 million. In combination with the federal grants describedabove, these amounts covered the entire anticipated project costs of $174 million.

Original HIX/IES Funding Sources

(Dollars shown in Millions)

Federal State Total

Early Innovator Award 44.5 44.5

Level 1A Establishment Funds 20.3 20.3Level 2 Establishment Funds 17.6 17.6

Total Exchange IT Grants Awarded 82.3 82.3

Total Enhanced Federal Matching Funds 76.1 16 92.1

Total HIX/IES Funding Approval 158.4 16 174.4



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As of July 25, 2014, the Commonwealth has spent $108 million on the HIX-IESproject since February 2011. These costs are described in the table below.

HIX/IES Expenditures

February 2011 through July 25, 2014

Expenditures

Vendor ContractsCGI 53,624,664BerryDunn 8,968,086Other 629,919

State Personnel 7,520,117Contracted Personnel 17,765,775Hardware/Software 12,556,358Indirect 6,624,121Leases 397,629Other* 267,711

Total 108,354,380* Other includes items such as cabling and electrical.

A large portion of the spending has supported vendor contracts. Through

November of 2013, the Commonwealth had paid CGI $17 million for specified projectmilestones delivered on time and to our satisfaction. Based on CGI’s pastunderperformance and our future project needs, we determined in March that it was theCommonwealth’s best interest to part ways with CGI and secure a careful transitionagreement to keep us on course towards a functioning website for this Fall.

On June 20, 2014, the Commonwealth finalized a transition agreement that willthoughtfully end CGI’s services in connection with this project. The transitionagreement is critical to delivering a working health insurance website for the Fall. Itsecures the Commonwealth key staff migrations and comprehensive knowledgetransfer that is currently under way. It solves intellectual property issues and keeps ourcurrent systems up and running to avoid disruptions that could negatively impact

consumers and the market.The agreement commits to paying CGI for work of value received or

subsequently required, including accepted contractual milestones, other deliverables,and operations and maintenance support and knowledge transfer as theCommonwealth transitions to Optum as its new Systems Integrator. These transitionservices must be delivered to the satisfaction of the Commonwealth to qualify forpayment under this agreement. Under the agreement, the state’s Attorney General alsomaintains the right to pursue a state False Claims action against CGI for up to $12



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million in damages. As of July 25, 2014, the Commonwealth had made $36 million inadditional payments under this agreement, for a total of $53.6 million in payments toCGI to date.

The Commonwealth has also made payments to BerryDunn, the project’sIndependent Verification and Validation (IV&V) vendor, which is a federally mandatedfunction. To date, BerryDunn has provided support to the project by identifying risks andissues, supporting testing performed by subject matter experts, and assessing thereusability and integration of the original HIX-IES software.

There have also been payments for contracted and Commonwealth employeesworking on the HIX-IES project, including business analysts, project coordinators,developers, quality assurance managers, finance staff, an information security officerand other project-related positions.

In addition, the Commonwealth has purchased hardware and software and haspaid other expenses (such as leases) to support the project. For example, theCommonwealth purchased Oracle software which was critical to the development of the

original HIX-IES system. Furthermore, as part of the project turnaround efforts, theCommonwealth set up a command center in Boston to streamline decision-making,strengthen oversight and improve operations.

MassIT is currently leading state efforts to finalize an at-risk, deliverables-basedcontract with Optum in connection with its role as our new Systems Integrator for theproject. This contract will cover the costs of website development and improvements aswell as operations and maintenance through the end of calendar year 2015. Thesenegotiations are ongoing at this time; when complete, the project team will provide anupdated estimate of overall project costs.

In turn, the Commonwealth will continue to focus on leveraging federal funding tosupport this project. It has identified $40 million from unspent portions of previouslyreceived federal grants for HIX-IES and other ACA implementation activities to partlyoffset an anticipated request for additional federal funding for this project. Other unspentHIX-IES federal funds will be used to pay for resources that are likewise critical to thesuccess of the project (such as ongoing IV&V costs).

Administrative Costs

Apart from expenditures on the HIX-IES project (which are included in thespending totals discussed above), the Health Connector has made other expendituresto maintain its ongoing operations as an eight-year-old state-based health insuranceMarketplace, conduct a wide range of activities to implement the Affordable Care Act,and support members facing challenges seeking coverage due to website difficulties.

The Health Connector’s administrative spending is discussed in detail in periodicpublic updates to its Board (for example, see the July 10, 2014 FY14/FY15

Administrative Budget briefing and the July 11, 2013 FY13/14 Administrative Budgetbriefing in the Appendix). Through fiscal year 2014, there have been select categories



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of higher-than-originally-anticipated administrative spending attributable to websitechallenges. These include:

$25.8 million obligated to Optum for its work between February and June tostabilize the website, support efforts to enroll new applicants in health insurance,and develop the dual-track strategy (the Health Connector is the signatory to thecontract with Optum for this phase of its work on behalf of the Commonwealth).In June, the Commonwealth secured federal matching funds for $17 million ofthis amount. The remaining portion of these costs will be supported by $8.8million from previously awarded federal Exchange Establishment grant funds. Asof July 25, 2014, the Health Connector had made $744,120 in payments usingEstablishment grant funds against the total $25.8 million cost of this phase of theOptum engagement.

$4.6 million in additional customer service and other administrative costsattributable to the need to extend Commonwealth Care. These costs were paidthrough an extension of the Commonwealth Care administrative fee charged to

the state for the continued operation of the program. $1.5 million in additional customer service and business operations costs

necessary to support small groups purchasing ACA-compliant health coveragethrough the Health Connector. These costs included system development andimplementation costs for the administration of small group business through anexisting vendor, Small Business Service Bureau (SBSB). The majority of thesecosts were funded with federal grant dollars.

The Health Connector’s administrative budget for fiscal year 2015 is provided inaccompanied materials. The budget proposes $97 million in total spending for fiscalyear 2015, a $20 million decrease from fiscal year 2014 levels. About 60 percent of thisamount constitutes federally funded ACA transition costs (half of which is the HealthConnector’s contribution towards HIX-IES project costs). Apart from federal funding,the Health Connector’s administrative revenue sources in fiscal year 2015 include $19.5million in state funding (a $1.3 million increase over fiscal year 2014), $10.7 million fromreinstating carrier administrative fees for the second half of the fiscal year and a $10.1million contribution from the organization’s reserves.

In response to HIX-IES project challenges, MassHealth has also implementedadministrative workarounds to enroll members into coverage. These workaroundsincluded the establishment of temporary Medicaid coverage and the processing of over191,000 paper applications. During fiscal year 2014, these workarounds resulted insome additional administrative costs such as $1.1 million in staff overtime costs for

application processing and $773,000 for the MassHealth Customer Service Center.MassHealth was able to manage these costs by prioritizing spending within its existingfiscal year 2014 budget and did not require supplemental funding. Projectdevelopments over the coming months will determine whether additional funding isrequired in fiscal year 2015 to support MassHealth administrative needs in connectionwith this issue.



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CONCLUSION

Together with our partners in the Legislature, the Administration has made stateand federal health care reforms work for Massachusetts ’ residents. We fullyacknowledge that our transition to the ACA has not been without challenges. We willcontinue to keep the Legislature fully informed of the progress of our efforts to move thenew system forward and the financial impact of these efforts. We appreciate theLegislature ’s continuing commitment to protecting and expanding access to affordable,quality health care to deliver better health and economic security to our residents.

Mass. Health Care Financing Report

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