On September 14, 2015, the Department of Health and Human Services Office of Inspector General (OIG) issued a highly critical report reviewing the work of the Centers for Medicare and Medicaid Services (CMS) in overseeing contractor performance for the Federally Facilitated Marketplace (FFM) during the time between the enactment of the ACA and the end of the first open enrollment period in 2014. The auditors reviewed 62 contracts with 35 contractors involved in the development, implementation, and operation of the FFM, focusing on the 20 most critical. In total $1.7 billion was spent under the contracts, $558 million of which was spent in support of FFM projects.
The OIG found that contracting officers and representatives failed to manage and oversee all elements of contractor performance to some of the contracts as required by federal contracting requirements and contract terms. In 13 of the 20 contracts, the contractor did not provide all required deliverables, deliverables were provided after the due date, the contractor provided deliverables but CMS did not use them to monitor the contract, or deliverables were missing from the contact file. CMS did not in some instances complied with contracting regulations requiring written designation and authorization of contracting officer representatives and did not ensure that contracting officer representatives had proper certification. CMS contracting offices did not in 11 of the 20 contracts reviewed prepare contractor past-performance evaluations. Finally CMS could not in a number of instances locate routine contract documents that should have been available.
While the report identifies numerous instances where contracting practices were sloppy and compliance with federal contracting rules was incomplete, the OIG failed to identify the extent of harm resulting from these practices. The OIG found one instance in which an unauthorized and inexperienced contracting officer modified a contract. The additional work resulted in a cost overrun of $28 million. The report does not indicate, however, whether or not the cost overrun would have been incurred had the contract been properly supervised.
In another instance a participant in a panel that awarded a contract had worked for a subcontractor of the contractor before being hired by CMS ten months before the contract was awarded. Standards of Ethical Conduct require an individual who has had a “covered relationship” with a contractor within a year before serving on a contract panel to recuse him or herself. In this case, CMS could not document whether or not the individual recused himself. Finally, the report states that some performance or technical deliverables were delayed or not provided, but it does not show that the absence of these deliverables affected the implementation of the FFM. Again, the report documents carelessness, but nothing like the massive scope of waste that have been identified in other areas of government contracting.
The OIG made seven recommendations to CMS as to improving performance. CMS concurred in each of these recommendations. As to each recommendation, CMS had already taken steps to improve performance during the year and a half since the audit period ended or earlier and as to several recommendations it is taking further steps.
CBO Estimates Costs Of ACA Changes
Changing The Definition Of “Small Employers”
On September 15, 2015, the CBO also released a cost estimate for H.R. 1624, the Protecting Affordable Coverage for Employees Act. This bill, which has bipartisan support, would amend the definition of small employer in the Affordable Care Act (ACA) so that it would only cover groups with 50 or fewer employers, unless states chose to define the market otherwise. Currently the definition would require states to define small employer to include groups of 100 or fewer employees as of January 1, 2016.
The CBO estimates that the change would increase federal revenues by $400 million over ten years. The CBO projects that increasing small group coverage to groups of 100 or fewer employees would increase the generosity of small group plans and thus their premiums. As employee benefits are exempt from taxation, increased premiums would mean increased compensation not subject to taxation and reduced taxable compensation, and thus would reduce tax revenue to the federal government.
The CBO recognizes that expanding the definition might expand the Small Business Health Options Program (SHOP) participation, which could lower premiums through greater competition among insurers for SHOP business, but increases in premiums in the non-SHOP market will more than offset these premium decreases if the small group definition moves to groups of 100 or fewer. The CBO projects that under the proposed legislation fewer individuals would be enrolled in SHOP coverage but that the number insured in the small group market would not substantially change overall.
This legislation has widespread support and probably has the best chance of any ACA amendments to pass both houses and be signed by the President. But this will only happen if it can pass as a clean bill and not get caught up in all of the other health care issues that are currently tying up Congress.
Eliminating The Individual Mandate
Also, on September 15, the Congressional Budget Office released a preliminary estimate of the costs of eliminating the ACA’s individual mandate. The CBO estimated that eliminating the mandate would save the government $311 billion over the ten year period from 2015 to 2025. The savings would result from decreased Medicaid, CHIP, and premium tax credit expenditures.
On the other hand, repeal would increase the number of uninsured by 14 million compared to current projections, 8 million of whom would have been covered by the nongroup market and 5 million by Medicaid. Presumably because young healthy people would be the first to leave the nongroup market, the CBO estimates that premiums in the nongroup market would increase by 20 percent compared to current law in all years between 2017 and 2025.
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