The states also  reported spending federal funds designated for Medicaid eligibility and  enrollment systems on marketplace-related IT projects, although the  actual amount spent was uncertain, as only a selected number of states  reported on our survey that they tracked or estimated this information. In  this regard, from April 2011 through December 2014, states reported  spending $2.78 billion in combined federal and state Medicaid funds, a  portion of which was spent to support the marketplaces. States Spent Most Federal Marketplace Grant Funds to Develop Systems Supporting State-Based Marketplaces and Used Medicaid Funds to Connect to Marketplaces

States reported to CMS spending approximately $1.45 billion in federal  grant funds on IT projects to establish, support, and connect to health  insurance marketplaces from September 2010 to March 2015. Following through on these efforts to  collect more detailed information on states’ IT contract costs would  increase CMS’s insight into states’ IT spending. Generally, the states used federal funds (both marketplace grant and  Medicaid matching funds) for various IT projects, including the  establishment and operation of their marketplaces and their connection to  the federal marketplace. States Are Continuing to Improve the Development and Operations of Their Marketplace Systems, but Not All IT Functions Are Complete

As of February 2015, the 14 states with state-based marketplaces had  developed and were operating systems to support their marketplaces;  however, not all IT functions were complete. According to CMS documentation regarding marketplaces using the  federal marketplace IT solution, as of November 2014, 7 of 37 states  using the federal marketplace IT solution could not transfer applications  for health insurance coverage between their state Medicaid systems and  the federal data services hub or had not completed testing or certification  of these functions. As previously described, CMS provided oversight and technical  assistance to states in establishing their marketplaces. CMS Reviews of State Marketplace IT Projects Did Not Fully Ensure State Systems Were Ready for Operation

As part of its marketplace oversight, CMS established a process to review  states’ progress on related IT projects. Existing state agencies included state  departments of health or Medicaid agencies, which coordinated directly  with CMS. As of the second  enrollment period, states had largely established these systems, although  some of their functions remain to be implemented. Specifically, because roles and  responsibilities were not always clearly defined, documented or  communicated, as recommended by leading practices for project  management, a number of states faced hurdles in communicating with  stakeholders and receiving timely CMS guidance. In addition, although  called for by leading practices in investment management, relevant senior  executives in the agency were not always involved in overseeing  decisions to fund states’ marketplace IT projects, resulting in less  accountability for such decisions. CMS has taken various actions to  facilitate the sharing of these challenges and lessons learned, as well as  best practices among the states, and it will be important for CMS to  continue these efforts as states work to complete the remaining functions  for their marketplace systems. Recommendations for Executive Action

To improve the oversight of states’ marketplace IT projects, we  recommend that the Secretary of Health and Human Services direct the  Administrator of the Centers for Medicare & Medicaid Services to take the  following three actions:  clearly document, define, and communicate to all state marketplace  officials and stakeholders the roles and responsibilities of those CMS  officials involved in overseeing state marketplaces in a  comprehensive communication management plan; ensure that all CMS senior executives from IT and business units who  are involved in the establishment of state marketplace IT projects  review and approve funding decisions for these projects; and ensure that states have completed all testing of marketplace system  functions prior to releasing them into operation. Appendix I: Objectives, Scope, and Methodology

Our objectives were to (1) determine how states have used federal funds  for IT projects to establish, support, and connect to health insurance  marketplaces, including amounts spent, and the overall status of their  development and operation; (2) determine CMS’s and states’ roles in  overseeing these state IT projects; and (3) describe IT challenges that  states have encountered in developing and operating their marketplaces  and connected systems, and lessons learned from their efforts. State- based marketplace challenges were divided into five areas in the survey  (project management and oversight, marketplace IT solution design,  marketplace IT solution development, resource allocation and distribution,  and marketplace implementation and operation), while federally facilitated  challenges were divided into two areas (project management and  oversight and system design and development) based on the IT work  each marketplace performs. We also interviewed CMS and state officials responsible for the  oversight and implementation of the state marketplaces to determine  what the agency did to identify and share states’ challenges, best  practices, and lessons learned.
Why GAO Did This Study

The Patient Protection and Affordable Care Act required the establishment of health insurance exchanges—or marketplaces—to allow consumers and small employers to compare, select, and purchase health insurance plans. States can elect to establish a state-based marketplace, or cede this authority to CMS to establish a federally facilitated marketplace. To assist states in establishing their marketplaces and supporting IT systems, federal funding was made available, including grants and Medicaid matching funds. CMS has responsibilities for overseeing states' use of these funds and the establishment of their marketplaces.
The objectives of this study were to (1) determine how states have used federal funds for IT projects to support their marketplaces and the status of the marketplaces, (2) determine CMS's and states' roles in overseeing these projects, and (3) describe IT challenges states have encountered and lessons learned. To do this, GAO surveyed the 50 states and the District of Columbia, reviewed relevant documentation from the states and CMS, and interviewed CMS officials.

What GAO Found

States reported to the Department of Health and Human Services' (HHS) Centers for Medicare & Medicaid Services (CMS) that they spent about $1.45 billion in federal marketplace grant funding on information technology (IT) projects supporting health insurance marketplaces, as of March 2015. The majority of this spending was for state-based marketplaces (i.e., marketplaces established and operated by the states). These marketplaces reported spending nearly 89 percent of the funds on IT contracts, and CMS has ongoing efforts to track states' IT spending in more detailed categories. States also reported spending, as of December 2014, $2.78 billion in combined federal and state funds designated for Medicaid eligibility and enrollment systems—a portion of which was used for marketplace IT projects. However, the specific amount spent on marketplace-related projects was uncertain, as only a selected number of states reported to GAO that they tracked or estimated this information. Regarding the status of states' marketplace IT projects, 14 states with state-based marketplaces had developed and were operating IT systems to support their marketplaces, but, as of February 2015, not all system functions were complete. In addition, as of November 2014, 7 of 37 states using the federal marketplace system could not transfer health insurance applications between their state Medicaid systems and a key component of the federal marketplace or had not completed testing or certification of these functions. According to CMS officials, states operating their own IT systems and states using the federal marketplace system were continuing to improve the development and operation of their marketplaces in the enrollment period that began in November 2014.
CMS tasked various offices with responsibilities for overseeing states' marketplace IT projects. However, the agency did not always clearly document, define, or communicate its oversight roles and responsibilities to states as called for by best practices for project management. According to some states, this resulted in instances of poor communication with CMS, which adversely affected states' deadlines, increased uncertainty, and required additional work. CMS also did not involve all relevant senior executives in decisions to approve federal funding for states' IT marketplace projects; such involvement, according to leading practices for investment management, can increase accountability for decision making. Further, while CMS established a process that required the testing of state marketplace systems to determine whether they were ready to be made operational, these systems were not always fully tested, increasing the risk that they would not operate as intended. For their part, states oversaw their IT projects through state agencies or quasi-governmental entities, depending on marketplace type, as well as using other oversight mechanisms.
States reported a number of challenges in establishing the systems supporting their marketplaces. These fell into several categories, including project management and oversight, system design and development, resource allocation and distribution, and marketplace implementation and operation. States also identified lessons learned from dealing with such challenges, including the need for strong project management and clear requirements development. CMS has taken various actions to respond to state challenges, identify lessons learned, and share best practices with states; continuing these efforts will be important as states work to complete their marketplace systems.

What GAO Recommends

GAO is recommending that CMS define and communicate its oversight roles and responsibilities, ensure senior executives are involved in funding decisions for state IT projects, and ensure that states complete testing of their systems before they are put into operation. HHS concurred with GAO's recommendations.