Vermont Did Not Properly Allocate Millions to Establishment Grants for a Health Insurance Marketplace

The Department of Vermont Health Access, part of Vermont's Agency of Human Services (State agency) did not always follow Federal requirements for (1) allocating costs to its establishment grants for implementing a health insurance marketplace and (2) drawing down establishment grant funds. Specifically, the State agency:

• allocated $10.5 million from July 2012 through September 2013 using a cost allocation methodology that included a material defect,
• may not have allocated $13.9 million in costs from April through September 2014 in accordance with the relative benefits that each grant program received, and
• drew down establishment grant funds that exceeded actual program costs by $736,330 from January through September 2014.

These errors occurred because the State agency did not have adequate policies and procedures to follow Federal requirements.

We recommended that the State agency (1) amend its Cost Allocation Plan (CAP) for July 2012 through September 2013 and either refund $10.5 million to CMS that was allocated to the establishment grants using a methodology that included a material defect or work with CMS to determine the appropriate allocation to the establishment grants; (2) use the actual enrollment data for April through September 2014 to determine the appropriate allocation to the establishment grants, work with CMS to determine what portion of $13.9 million was properly allocated to the establishment grants, and refund any portion that was not properly allocated; (3) reduce establishment grant drawdowns after our audit period or refund $736,330 to CMS that was overdrawn in establishment grants as of September 30, 2014; (4) develop policies and procedures that explain how to develop a CAP based on the relative benefits received and when to reassess and revise the CAP and related allocations on a retroactive or prospective basis; and (5) ensure that procedures are in place and the updated policies are followed for the reconciliation of reported grant expenditures and drawdowns to cumulative actual spending.

In written comments on our draft report, the State agency did not fully address our first recommendation but stated that for the first and second recommendations it would work with CMS to determine the appropriate allocation and action. For the fourth recommendation, the State agency stated that it would enhance its policies and procedures accordingly. For the third and fifth recommendations, the State agency stated that it had returned the funds to CMS and implemented procedures to reconcile draws and Federal reporting to cumulative expenses. We maintain the validity of our first finding and recommendation.