States Mull Legal Action Against Insurance Exchange Contractors

March 31, 2014 in News

Officials in states that have experienced ongoing technical issues that have hampered enrollment in their online health insurance exchanges are considering taking legal action against the contractors hired to develop their exchanges, the Los Angeles Times reports.

In response to the problems, Maryland, Massachusetts and Oregon are considering transitioning from their state-run exchanges to the federal health insurance exchange or purchasing exchange technology from states with successful sites, such as Connecticut, the Times reports.

In the meantime, each state has allocated grant funding to salvage their existing exchanges and help residents enroll in coverage before the March 31 open enrollment deadline.

David Friedman, a professor of business law and dispute resolution at Willamette University College of Law in Oregon, said the circumstances are ripe for lawsuits. He said, “There are a lot of dollars on the table. There is reputation risk on the table for the companies that are involved. And there’s probably a lot of opportunities for these companies to point the finger back at the people who employed them” (Reston, Los Angeles Times, 3/29).

Maryland’s Insurance Exchange

In February, the Maryland Health Benefit Exchange board announced that it fired Noridian Healthcare Solutions as the primary contractor for the state’s exchange after the vendor missed a series of deadlines to repair it.

The state’s exchange site crashed shortly after its Oct. 1, 2013, launch and has continued to have technical problems. The problems have cause Maryland to fall behind of its goal of enrolling 260,000 people before the March 31 enrollment deadline (iHealthBeat, 2/25).

Meanwhile, Maryland officials said the IBM Curam software that was used by Noridian to determine whether state residents were eligible for federal tax credits to offset premiums for coverage purchased through the exchange has led to:

  • Lost applications; and
  • Incorrect subsidy calculations for about 4,000 consumers.

However, IBM said that the state did not give Noridian proper instructions during the development and testing phases of the exchange.

Massachusetts’ Insurance Exchange

Officials say that issues with the Massachusetts insurance exchange website could have led to an increase in the rate of uninsured state residents. As a result, the state moved more than 125,000 residents into its Medicaid program to help prevent a gap in coverage.

Microsoft conducted an independent review of the Massachusetts exchange and found that:

  • “Every critical milestone to date” was missed;
  • There was not a “single, integrated master plan” to manage all of the subcontractors working on the exchange; and
  • There were no metrics to gauge “how much of the website is even completed.”

Oregon’s Insurance Exchange

Oregon Gov. John Kitzhaber (D) recently said that the state “retained all of our rights to pursue legal action” against vendors over the technical failures of Oregon’s health insurance exchange, which is still unable to enroll residents in coverage.

The Times reports that the state withheld $25.6 million of the total $69.5 million owed to Oracle America, the vendor responsible for creating the exchange.

Two recently released reports — one commissioned by Kitzhaber and one conducted by the federal government — showed issues that could be used by both sides in a legal argument:

The federal review concluded that Oracle “‘threw bodies, rather than [a] skill set’” at exchange issues, while noting that the state’s contract failed “to make [Oracle] accountable” for the exchange; and

The independent review order by Kitzhaber showed disorganization, mistrust and what Kitzhaber called an “unrealistically high sense of optimism by key leaders” that Oracle would meet its goals (Los Angeles Times, 3/29).

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