Colorado Did Not Correctly Expend Establishment Grant Funds for Establishing a Health Insurance Marketplace

Connect for Health Colorado (Colorado marketplace), the health insurance exchange established by the State of Colorado under the provisions of the Patient Protection and Affordable Care Act, did not expend $9.7 million of Federal establishment grant funds in accordance with Federal requirements. Specifically, the Colorado marketplace (1) did not adequately document costs that it charged to the establishment grants ($4.4 million); (2) charged costs to the establishment grants for unallowable contract costs whose periods of benefit occurred after December 31, 2014 ($4.5 million), which was contrary to Centers for Medicare & Medicaid Services guidance regarding the expenditure of establishment grant funds; (3) improperly transferred costs from one establishment grant to another without demonstrating that the transfers were performed to correct bookkeeping or clerical errors ($312,000); and (4) did not efficiently and effectively administer establishment grant funds including improperly awarded bonuses, overpayments to subgrantees, unallowable promotional giveaway items, excessive and unreasonable tips, vendor rebates that were not credited to the establishment grants, and unallowable social activities ($463,000).

The Colorado marketplace also (1) drew down establishment grant funds it did not immediately use, (2) entered into contracts with consultants and other contractors that did not conform to Federal and State requirements and the Colorado marketplace's own policies, and (3) engaged in a number of procedures and practices that did not conform to Federal requirements and cost principles and to the marketplace's own policies.

These findings were caused by a lack of adequate stewardship of Federal funds. Specifically, the Colorado marketplace had not developed, finalized, and implemented policies and procedures to ensure that it expended and accounted for establishment grant funds in accordance with Federal, State, and Colorado marketplace requirements.

We recommended that the Colorado marketplace (1) refund $9.7 million to the Federal Government and (2) develop, finalize, and implement policies and procedures to ensure that it expends Federal grant funds in accordance with Federal, State, and Colorado marketplace requirements.

The Colorado marketplace concurred with our second recommendation, described procedures that it said it had in place, and added that it did not currently have any Federal awards. The Colorado marketplace did not concur with our first recommendation. We maintain that all of our findings and recommendations remain valid.