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Challenge 1: Implementing, Operating, and Overseeing the Health Insurance Marketplaces

Why This Is a Challenge

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The new Health Insurance Marketplaces, also known as Health Insurance Exchanges, (Marketplaces) are critical components of the health insurance market reforms enacted through the Affordable Care Act. In 2014, The Centers for Medicare & Medicaid Services (CMS) operated Marketplace functions on behalf of 36 states. Implementation, operation, and oversight of the Marketplaces were among the most significant challenges for the Department of Health and Human Services (Department or HHS) in fiscal year (FY) 2014 and will continue to present a top management and performance challenge in FY 2015, (see the OIG 2013 Top Management Challenges, for more information.)

In 2015, CMS and the Health Insurance Marketplaces face new and ongoing challenges including, for example, ensuring accurate eligibility determinations; processing enrollments, re-enrollments, and qualifying life change events; and communicating timely and accurate information to health insurance issuers (issuers) and consumers. Marketplaces must also facilitate Medicaid enrollment for those who qualify. In coordination with states, CMS will implement premium-stabilization programs. To carry out these complex Marketplace functions, the Department must ensure effective communication and coordination between and among all internal and external parties with Marketplace responsibilities, including within HHS and with contractors, issuers, and partners in state and federal government. Effective coordination with, and timely provision of accurate data to, the Internal Revenue Service (IRS) will be particularly important for sound administration of the premium tax credit program. In addition, CMS will need to be attentive to state Marketplace operations to ensure state compliance with requirements, including transmitting accurate and timely data used for federal payments. Key focus areas for the federal and state Marketplaces should include:

Payments. Ensuring sound expenditure of taxpayer funds for intended purposes poses a substantial management challenge, especially given the use of manual systems. The Department must implement financial management and payment systems that produce accurate and timely payments to issuers of advance payment of premium tax credits, cost-sharing reduction amounts, and premium-stabilization payments. In addition, CMS must validate information received from issuers to ensure that it is timely, complete, and accurate for payment purposes. Given the substantial federal funds involved, the Department should undertake a thorough risk assessment and, where appropriate, develop error rates to measure the integrity of program payments.

Eligibility. Ensuring accurate eligibility determinations is critical. Recent Office of Inspector General (OIG) work addressing eligibility verification systems during the first open enrollment period found that not all internal controls at reviewed Marketplaces were effective and that Marketplaces were unable to resolve most inconsistencies between applicants' self-reported information and data obtained by the Marketplaces from other sources. Moreover, for the second open enrollment period, Marketplaces must add functionality for processing re-enrollments. Effective internal controls and timely and accurate resolution of inconsistencies are, and will continue to be, critical to ensure that eligible consumers receive appropriate benefits and that ineligible individuals are not enrolled.

Management and Administration. Following the October 1, 2013, launch of the Marketplaces, the Department acknowledged the need for improved management and oversight, including clear leadership, disciplined operations, and better communication across the Department. Challenges include selecting capable contractors and providing appropriate oversight to ensure successful operation of the federal Marketplace, including both public-facing and administrative systems. The Department must ensure, to the greatest extent possible, that the Government obtains specified products and services from its contractors on time and within budget. In addition, problematic operations at some state Marketplaces have prompted questions regarding the use of Federal establishment grant funds, and the Department must ensure that these grants have been properly managed. (For general information about challenges associated with grants management and contract administration, see Management Challenge 9.)

Security. Protecting and ensuring the confidentiality and integrity of consumers' sensitive personal information and Marketplace information systems is paramount. Effective operation of the Marketplaces requires rapid, accurate, and secure integration of data from numerous federal and state sources, issuers, and consumers. It also requires an established large-scale means of communication among many federal and state systems. The Department must vigilantly guard against intrusions and continuously assess and improve the security of Marketplace related systems, including, among others, the Data Services Hub. OIG work found that selected Marketplaces generally protected personally identifiable information, but could improve some information security controls. The Department also must ensure that non-automated systems used to process consumer enrollment information, such as the call center and paper application processes, incorporate effective security measures.

Progress in Addressing the Challenge

Since October 1, 2013, the Department has reported improvement in the operations of the federal Marketplace, as well as substantial enrollment figures. Key progress reported by CMS includes:

  • changes to CMS's management of the federal Marketplace, including closer oversight by CMS leadership, designation of a systems integrator, use of cross-functional teams, and procurement of a new contractor for federal Marketplace construction and maintenance;
  • establishment of (1) an interim process for resolving data inconsistencies pending automated functionality, (2) an interim process for paying issuers that are owed financial assistance payments pending automated functionality, and (3) functionality for reporting life change events;
  • an improved application on a redesigned intended to streamline the eligibility process and improve the consumer experience;
  • actions taken to address OIG recommendations to improve information technology (IT) security; and
  • screening of call center representatives and focused training on protecting sensitive information.

CMS also reported regular communications with the IRS to validate payment information and the provision of technical and other support to the state Marketplaces.

What Needs To Be Done

The Department must continue to improve the federal Marketplace, including the public-facing consumer functions, as well as the back-end administrative and financial management functions. The Department must ensure that alternate pathways for enrollment operate with integrity and that consumers' personal information is secure. The Department must operate a well-run second open enrollment period for individuals and small businesses, employing lessons learned, taking all steps practicable to avoid problems that marred the first open enrollment period and rapidly and effectively addressing any problems that arise. Vigilant monitoring and testing and rapid mitigation of identified vulnerabilities are essential. In addition, attention must be paid to sound operation of financial assistance and premium-stabilization programs. The Department must ensure that consumers and issuers receive accurate Marketplace information, including information relevant for tax purposes, such as Form 1095A tax forms.

As with other new programs, the Department must continue to work with its partners to develop program integrity measures and processes. It must monitor for and address fraud, waste, and abuse risks to protect the federal investment in health care reform. If fraud schemes are identified, the Department must respond quickly and effectively, working jointly with partners at the federal and state level to ensure program integrity and hold those involved accountable. Further, the Department must continue to coordinate closely with states and others in federal government to monitor the operations and security of the Marketplaces and to implement Marketplace programs.

Key OIG Resources

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