Colorado Did Not Always Comply With Federal Requirements When Expending Federal Establishment Grant Funds Allocated for Its Shared Eligibility System Costs

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 always comply with Federal requirements when expending Federal establishment grant funds allocated for the Shared Eligibility System (SES) costs. (This audit focused on the allocation of SES costs to the Colorado marketplace by the Colorado Department of Health Care Policy and Financing (HCPF), the State Medicaid agency, for the development and implementation of the SES, which is an automated system modified from HCPF's existing Medicaid eligibility system.) Specifically, the Colorado marketplace allowed (1) SES costs to be allocated to it on the basis of an arbitrary, 50/50 cost allocation ratio, contrary to Federal requirements and to Centers for Medicare & Medicaid Services (CMS) supplemental guidance that the methodology for allocation be based on expected transactions and expected program population and not be arbitrary; and (2) SES costs totaling $2.1 million that were incurred, either entirely or in part, during the initial Cost Allocation Plan (CAP) period to be improperly allocated to it because the marketplace used the cost allocation ratio in effect for the revised CAP period.

SES costs were not always properly allocated to the Colorado marketplace because it did not have written policies that explained how to develop a CAP based on relative benefits received and because it did not maintain documentation for the cost allocation ratio. In addition, the marketplace did not have adequate internal controls to ensure that these costs were properly allocated to it by HCPF using the cost allocation ratios in effect for the appropriate CAP period.

We recommended that the Colorado marketplace develop and implement a cost allocation methodology and written policies, reinforced by adequate internal controls, that explain how to develop a CAP, how to provide formal input to HCPF and CMS during the development of cost allocation ratios, and how to adequately document the development of those ratios. We also recommended that the Colorado marketplace develop and implement written policies and procedures to ensure that future Federal grant award costs are allocated to it in accordance with Federal requirements.

The Colorado marketplace neither agreed nor disagreed with our recommendations but described corrective actions that it had implemented or planned to implement to address those recommendations. These comments dealt primarily with descriptions of the development of processes that the Colorado marketplace said it had undertaken with both HCPF and CMS for the allocation of costs.