Health Insurance Exchanges and Related Grants

PPACA mandated the establishment of exchanges—new health  insurance marketplaces in each state through which qualified individuals  and small businesses can compare, select, and purchase standardized  health coverage from among participating issuers of health coverage. To assist states in developing exchanges, PPACA authorized HHS to  award grants to states for the planning and establishment of insurance  exchanges. Oversight of premium rates charged by insurance issuers historically has  been primarily a state responsibility; however, PPACA established a role  for HHS by requiring the Secretary of Health and Human Services to work  with states to establish a process for the annual review of unreasonable  premium increases in the individual and small group insurance markets. The regulations also establish criteria  and a process by which HHS will determine whether a state has an  effective rate review program and thus meets HHS’s standards for  conducting the rate reviews. PPACA  appropriated $250 million for HHS to award grants to states from fiscal  years 2010 through 2014. This includes reviewing grant applications and evaluating  whether the projects funded by the grants are on schedule and meeting  goals. HHS Follows a Multistep Process to Award PPACA Exchange and Rate Review Grants to States

HHS’s process to award PPACA exchange and rate review grants to  states involves soliciting, screening, and evaluating applications and  making official grant awards. These include the program eligibility criteria,  the amount of funding available for award, the types of activities that may  be funded under the grants, the instructions for completing applications,  and the process and criteria for evaluating applications. Internal Reviews and Budget Negotiations

Questions or concerns flagged during this review, as well as those identified during the  objective review, can also help inform HHS officials’ future oversight of states’ use of grant  funds. HHS Has Awarded about $3.8 Billion in PPACA Exchange and Rate Review Grants, Which States Are Using for Activities Related to Exchanges and to Enhance Rate Review Capabilities

As of March 27, 2013, HHS had awarded nearly $3.7 billion in exchange  grants to states, much of which will be used to fund activities related to  developing IT systems for states’ exchanges. HHS also awarded about  $159 million in rate review grants to states, which to date has been used  for five key activities related to enhancing states’ rate review processes,  including enhancing the transparency of issuers’ rate review filings. HHS Awarded nearly $3.7 Billion in Exchange Grants to States, Much of Which Will Fund Activities Related to Developing Information Technology Systems

Between September 2010, when exchange grants were first awarded,  and March 27, 2013, HHS awarded 132 exchange grants totaling nearly   These awards included Exchange Planning,  $3.7 billion to 50 states.Early Innovator, and Level 1 and 2 Establishment grants. HHS’s Process for Overseeing PPACA Exchange and Rate Review Grants Consists of Several Key Mechanisms

HHS oversees states’ use of grant funds by reviewing and analyzing  state-reported information and conducting some limited verification of  state data. Regular Oversight of Exchange and Rate Review Grants to Date Is Primarily Based on Review of State- Reported Information and Some Limited Independent Verification

CCIIO’s regular oversight process for exchange and rate review grants  consists of a variety of mechanisms through which project officers  regularly review information reported by grantees as well as communicate  with grantees. As part of  this progress report, CCIIO requires exchange program grantees to  provide information on the amount of grant funds spent over the life of the  grant across key budget categories. CCIIO officials indicated that exchange grant site visits are in  their early stages and have been utilized to provide technical assistance  to help grantees establish their exchanges. Further, OAGM  officials said that so far they had not identified any misuse of grant funds  on the basis of established program criteria. Agency Comments

We provided a draft of this report to HHS for its review and comment. HHS provided technical comments, which we incorporated as  appropriate. Award amount  $0-1 million; depends on states’  proposed activities and budget  (along with the Department of  Health and Human Services’   assessment of the  proposal). States preparing to support  federally facilitated exchanges are eligible to  use grant funding for a subset of these  activities, as outlined in the funding opportunity  announcement. Funding is awarded to  help states undertake all exchange activities.
Why GAO Did This Study

PPACA required the establishment of health insurance exchanges and a process for the annual review of unreasonable increases in insurance premiums charged by issuers of health coverage in each state. To assist states in establishing exchanges and in enhancing their ability to review issuers premium rate increases, the law established new grant programs under which HHS is authorized to award grants to states through 2014. The law appropriated an unspecified amount of funds for exchange grants, and appropriated $250 million to HHS for rate review grants. GAO was asked to provide information on HHSs processes to award and oversee these grants. In this report, GAO describes (1) the process HHS uses to award exchange and rate review grants to states; (2) the amounts of grants and key activities states funded through the grants; and (3) HHSs process for overseeing states use of the grants.
GAO reviewed laws, regulations, and HHSs procedures that established the processes for awarding the grants. GAO obtained and analyzed data on all exchange and rate review grants awarded from August 2010 through March 2013. GAO also reviewed HHSs procedures for overseeing the grants, and interviewed officials responsible for grants oversight. HHS provided technical comments on a draft of this report, which GAO incorporated as appropriate.

What GAO Found

The Department of Health and Human Services (HHS) has a structured process for awarding Patient Protection and Affordable Care Act (PPACA) exchange and rate review grants to states. These grants are designed to help states establish exchanges--new health insurance marketplaces through which individuals and small businesses can obtain insurance--and review issuers' proposed rate increases. The grant award process consists of a series of steps during which the agency solicits, screens, and evaluates grant applications, and then makes funding awards. Once HHS deems that applications meet program eligibility criteria, applications go through various reviews, including a review by independent experts and HHS officials. On the basis of these reviews, HHS determines whether states' proposed activities are allowable, and if so, whether the associated requests for grant funding are reasonable. Based on recommendations from the reviews, HHS determines whether to award grants to states, and if so, the amounts of any grants to be awarded.
As of March 27, 2013, HHS had awarded about $3.8 billion in PPACA exchange and rate review grants that states have used or plan to use to develop exchanges and enhance rate review capabilities. This includes nearly $3.7 billion in exchange grants awarded to 49 states and the District of Columbia. Among states that have received exchange grants, the amount of funding provided to states ranges from $0.8 million (Wyoming) to about $911 million (California). Approximately half the states were awarded under $30 million in exchange grant funding, while 10 states were awarded over $100 million. As of February 2013, states had drawn down approximately $380 million of their exchange grant funds. GAO's review of a subset of exchange grantee financial reports indicated that nearly 80 percent of expenditures have been for contracts and consulting services, much of which states spent on key activities for developing exchange information technology systems. HHS also awarded about $159 million in rate review grants to 46 states and the District of Columbia, much of which has funded five key activities, including expanding the scope of rate review programs and enhancing the transparency of the rate review process.
HHS's process for overseeing states' use of PPACA grant funds consists of several mechanisms. The agency regularly monitors states' grant activities though its review of program and financial information reported by states, as well as ongoing communication with grantees. HHS's process also includes mechanisms to periodically verify state-reported information, including its analysis of states' withdrawal of grant funds and site visits. To date, however, use of site visits has been limited. HHS has a number of mechanisms it can utilize, such as restricting a grantee's access to funds, if its monitoring identifies concerns or compliance issues, but agency officials indicated they have not identified any misuse of grant funds or compliance issues to date.