Oregon’s Failed ObamaCare Exchange Is A Warning For Other States

By Grace-Marie Turner

Forbes, March 31, 2015

Governors in 37 states are weighing their options should the Supreme Court conclude the IRS acted illegally in allowing their citizens to receive tax subsidies for health insurance through the federal government’s healthcare.gov website.

The Supreme Court will decide, likely by late June, in King v Burwell whether the subsidies are allowed through exchanges established by the federal government after the states either declined or failed to create their own state portals.

Some states are considering setting up their own exchanges so billions of dollars in tax subsidies can continue to flow to their citizens, even though leaders in Congress have pledged to provide them other options.

These states might want to study Oregon’s experience with its state exchange before taking further action to establish an exchange.

Oregon, under then-Gov. John Kitzhaber, aspired to create a shining model for other ObamaCare exchanges, but instead, it became its poster child of dysfunction. After spending more than $300 million in federal taxpayer dollars, Oregon pulled the plug last year and decided to default to the federal exchange.

The state is now embroiled in lawsuits with its primary vendor, Oracle, and current and former Oregon officials are the subject of congressional and other federal investigations. Depending upon the outcome of those investigations, Congress could demand that the state to pay back the $300 million it spent on a project that numerous reports show was fraught with mismanagement and political maneuverings.

Oregon began with an ambitious agenda: Flush with federal grants, it not only planned to create its own state health care exchange – the “Cover Oregon” portal through which people could shop for and purchase subsidized health insurance – but also to fully modernize the information technology infrastructure for all of its health care programs.

But the scope of the management project overwhelmed state officials from the beginning. Partly to blame: The Kitzhaber administration put health policy experts rather than IT specialists in charge of the complex technology project. Further, there were poisonous internal bureaucratic battles over control of the high-profile project.

One after another, Cover Oregon directors were fired and replaced, but never with anyone who had IT experience or expertise. Deadlines were missed, directives were repeatedly changed, and state officials ultimately refused to meet with the Oracle contractors who were trying to, and ultimately did, salvage the project.

Memos were sent to Gov. Kitzhaber warning him that “This project is in substantial jeopardy of being Oregon’s next multi-million dollar I.T. project fiasco,” then-State Rep. Dennis Richardson wrote in September of 2012, a year before the site was due to go live. “[J]ust hoping for the best while ignoring good business practices and the recommendations [of] your experts in project management is irresponsible.” (Richardson subsequently was the Republican gubernatorial nominee in 2014 and lost to Kitzhaber.)

The October 1, 2013, launch date came and went.

The Oregonian was pounding on Kitzhaber for the website’s failure and for failing to lead the project that would define his administration as much as ObamaCare defines the president’s. Yet, astonishingly, Kitzhaber said that the first he heard of the website’s troubles was several weeks after it was due to launch. “In late October [2013] was when I first learned about the problems,” Kitzhaber told Oregon’s KATU television. That was after two years of red flags about the problem-prone site.

In 2014, Gov. Kitzhaber was in a battle for re-election. To rescue his gubernatorial campaign and the failing exchange, Gov. Kitzhaber quietly put campaign consultants in charge of making key decisions about Cover Oregon.

Emails show his advisors felt that the failure of the website was so politically thorny that they decided hit the eject button. They would kill the state website and default to the federal exchange for 2015 enrollment. There went $300 million in federal tax dollars down the drain. It would cost at least $40 million more for Oracle to transition to the federal website.

Rather than taking responsibility for documented mismanagement, the state decided to sue Oracle, apparently to deflect the blame, contemporaneous email records show.

The U.S. House Committee on Oversight and Government Reform recently asked for records to investigate whether campaign staff were involved in key decisions to protect Kitzhaber from embarrassment over the Cover Oregon fiasco. A grand jury also is investigating Cover Oregon, as are the federal Government Accountability Office and the inspector general of the U.S. Department of Health and Human Services.

While Oregon clearly tried to do too much, it had nearly four years to get its exchange up and running. States considering setting up their own exchanges would have months, not years, to get it done. This is not a turnkey operation, no matter what armies of management consultants surely are telling officials in the 37 states in efforts to win huge contracts going forward.

While every failed state exchange has its own tale of woe, similar intrigue unfolded in other states that struggled mightily with the extraordinary complexity of creating a state exchange. Maryland, Nevada, Massachusetts, and others faced expensive fiascos, even bringing some exchange officials to tears. And even those that have relatively functional exchanges are now struggling with the problem of how to pay for their continued and expensive operation.

Politico reported after the first year of exchange fiascos that “Nearly half a billion dollars in federal money has been spent developing four state Obamacare exchanges that are now in shambles — and the final price tag for salvaging them may go sharply higher.

“Each of the states – Massachusetts, Oregon, Nevada and Maryland – embraced Obamacare, and each underperformed. All have come under scathing criticism and now face months of uncertainty as they rush to rebuild their systems or transition to the federal exchange.”

In Maryland, The Washington Post reported: “More than a year before Maryland launched its health insurance exchange, senior state officials failed to heed warnings that no one was ultimately accountable for the $170 million project and that the state lacked a plausible plan for how it would be ready by Oct. 1.

“Over the following months, as political leaders continued to proclaim that the state’s exchange would be a national model, the system went through three different project managers, the feuding between contractors hired to build the online exchange devolved into lawsuits, and key people quit, including a top information technology official because, as he would later say, the project ‘was a disaster waiting to happen,’” the Post reported.

In Nevada, CBS Las Vegas reported that, “Nevada’s Obamacare Program Called ‘Full Failure,’ ‘Catastrophe’… officials [are] consumed with replacing top officials, cancelling contracts with software companies, dealing with state or federal investigations, and spending tens of millions of dollars on fixes and new contractors.”

In Massachusetts, the commonwealth previously had a functional website for its RomneyCare coverage, but it failed completely in trying to create an ObamaCare-compliant exchange. “The head of the state’s beleaguered health insurance marketplace, which was once a national model, broke down in tears Thursday, as she described how demoralizing it has been for her staff to struggle with a broken website that has left an unknown number of people without coverage,” The Boston Globe reported. “Jean Yang, the executive director of the Massachusetts Health Connector, wept at a board meeting, where it was disclosed that 50,000 applications for health insurance are sitting in a pile, and have yet to be entered into a computer system.”

Other states experienced their own particular brand of exchange fiascos. Add Hawaii, Minnesota, New Mexico, Idaho, and Vermont to the list.

The Obama administration says it does not have contingency plans should the Supreme Court decide the IRS acted illegally and the subsidies must stop. But Chairman Joe Pitts (R-PA) of the House Energy and Commerce Health Subcommittee has information that suggests otherwise.

He said during a recent congressional hearing that he has learned of a 100-page document showing the Obama administration is preparing contingency plans should the Supreme Court invalidate the federal subsidies in King v Burwell.

HHS Secretary Sylvia Burwell repeatedly denied the existence of such a document, and says she has no legal way around the Supreme Court. “That’s why you’re not hearing plans” from the administration, Burwell told Pitts. “Because we don’t have the authority.” States should not count on a simple – or legal – solution from the administration.

Instead, governors would be well advised to work with members of Congress who are developing contingency legislation that would allow people to continue to get subsidies legally so they don’t lose their coverage – clearing through the jungle of bureaucracy created by ObamaCare and restoring decisions over health coverage to citizens.

Republican Sens. Orrin Hatch (UT), Lamar Alexander (TN), and John Barrasso (WY) penned an op-ed for The Washington Post on March 2 in which they described their “plan to protect Americans harmed by the administration’s actions” and also to give “states the freedom and flexibility to create better, more competitive health insurance markets offering more options and different choices.”

The chairmen of the three committees with jurisdiction over the issue in the House – Reps. Paul Ryan (WI), Fred Upton (MI), and John Kline (MN) – wrote about their reform plans in The Wall Street Journal the following day. “What we will propose is an off-ramp out of ObamaCare toward patient-centered health care,” they write.

Finally, Oklahoma Gov. Mary Fallin, who chairs the Republican Governors Association’s policy committee, wrote in an op-ed for the Washington Times, saying, “We understand that Congress is working on legislative solutions to provide other options to the states should the Court decide the IRS acted illegally in allowing health insurance subsidies in the federal exchanges. We are eager to have other options.”

Based upon Oregon’s experience – and that of at least half of the other states that tried establishing their own exchanges – working with Congress to craft post-King solutions would seem the wiser course.

Originally posted on Forbes, March 31, 2015

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