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States Spend $28M, Then Leave Exchanges To The Feds

Late last year, Arizona Gov. Jan Brewer announced that her state would not build its own online insurance marketplace, a pillar of the Affordable Care Act, because there were too many unknowns.

What Brewer didn’t say was that her state had spent $9 million in federal money to reach that conclusion.

Arizona was one of 10 states that received federal grants over the past two years to help establish a state exchange only to decide later to let the federal government handle it. Two of those — Maine and Pennsylvania — used none of the federal money.  But the other eight  spent a total of $28 million hiring information technology vendors, consultants, travel and other expenses, according to a KHN review of state exchange spending.

Of course, that’s a drop in the bucket compared to $4.4 billion the Obama administration expects to spend on grants it has approved to 17 states and District of Columbia to build their own marketplaces, also known as exchanges. Another seven states are partnering with the federal government to set up the marketplaces, and 26 have defaulted to the federal government to do all the work.

Of the states that took the so-called “establishment grants,” and then decided not to go ahead, Arizona drew down the most. The state used the money to conduct months of research, public hearings and to solicit suggestions from patient advocates and the health care industry.

“We needed to spend the money to enable the governor to make an informed decision on what is best for Arizona,” said Don Hughes, Brewer’s top health advisor.

John Poelman, a senior director at consulting firm Leavitt Partners, which contracted with many states to help them make decisions, said the money was well spent even if officials chose not to go ahead.

“Everyone has learned that building an exchange is harder than expected,” he said.

He said the work could prove useful if states choose to build their own marketplaces in the future.

Tom Miller, a resident fellow with the conservative American Enterprise Institute, said states wasted less money by opting not to build their own marketplaces. “When you are in a hole, stop digging,” he said.

Here’s how much the other states spent, according to information they supplied:

Mississippi — $7.5 million;

North Carolina — $3.5 million;

Wisconsin — $3.3 million;

Alabama — $2.5 million;

Tennessee –$1.2 million;

Nebraska — $1 million;

New Jersey — $3,400;

Arizona spent most of its federal exchange grants on private vendors. Social Interest Solutions of Oakland Calif., received $8.3 million for information technology work. Mercer, based in New York, was paid $599,000 to set up plan management functions and determine rules for certifying plans. Stamford, Ct.-based Xerox received $440,000 to help design the marketplace website.

Mississippi spent the bulk of its $7.5 million on information technology vendors and consultants, said Aaron Sisk, senior attorney with the state Insurance Department. The state pursued building the exchange for 18 until Gov. Phil Bryant refused to let it go forward in a dispute with the state insurance commissioner. Mississippi officials are considering sharing the work that was done with New Mexico or Idaho, which just recently started building their own marketplaces, Sisk said

Tennessee officials said they spent most of their $1.2 million paying consultants, including Gorman Actuarial of Marlborough, Mass., and Public Consulting Group of Boston. The state also spent $13,000 sending state employees to meetings and conferences.

Spokeswoman Sarah Tanksley said the money helped the state decide whether to build its own marketplace ”in as sound a way as possible.”