Obamacare's Failed State Exchanges

The federal government spent more than $1.2 billion on state-based online insurance portals that remain broken.



The federal government spent more on broken state-run exchanges than it did on its own troubled system. Of the 14 states, plus the District of Columbia, that established their own health insurance coverage under Obamacare, seven remain dysfunctional, disabled, or severely underperforming. Development of those exchanges was funded heavily by the federal government through a series of grants that totaled more than $1.2 billion—almost double the $677 million cost of development for the federal exchange.

Here's a rundown of the troubled state exchanges and the federal grants they qualified for. 


No exchange failed more fully or more spectacularly than Cover Oregon. The site was touted as an ambitious, expansive vision for what a state-run exchange could be, with The Washington Post declaring that it could be the White House's favorite exchange. The project received a $48 million "early innovator" grant from the federal government, which hoped that the exchange would be a model for other states State officials announced early on that the exchange's launch would be delayed by a few weeks in order to get every detail right. But months later, the exchange remained offline and unusable. Reporting by The Oregonian later revealed that independent consultants paid to monitor the project had warned early on that it was headed for disaster, but that leadership in the Oregon Health Authority attempted to silence criticism by withholding payment. The state official in charge of building the exchange has stepped down, and a group of Republican congressional representatives have called for a federal investigation.

Total Federal Grants: $303 million (a $1 million planning grant, a $48.1 million early innovator grant, an $11.8 million technology grant, and $233 million worth of establishment grants to support marketing, testing, implementation, and other operating expenses)


Days before the October launch of Obamacare's health exchanges, President Obama chose Largo, Maryland as the backdrop for a speech touting the law's benefits. In the speech, he praised state legislators for their work and suggested that state-run exchanges were ahead of the curve. But Maryland's exchange quickly turned out to be one of the worst in the nation. The site failed almost immediately at launch, and despite repeated promises from state authorities that fixes were on the way, it has continued to struggle. Earlier this week, the state announced that it was terminating a $193 million contract with Noridian Healthcare Solutions, its IT contractor. Officials now say that the existing system is so flawed that they might discard it entirely.

Total Federal Grants: $157.2 million (a $1 million planning grant, a $6.2 million early innovator grant, a $27 million establishment grant to collect data necessary to build the exchange, and a $123 million establishment grant for ongoing operations).


Massachusetts' 2006 reform, which included health insurance subsidies and the creation of an online insurance exchange, helped inspire the design of Obamacare. Yet when it came time to rebuild the state's existing exchange to meet Obamacare's standards, the effort failed completely. Prior to the launch of Obamacare's exchanges, signing up for subsidized coverage was a slow process handled via pen, paper, and mail-in forms by the state's Medicaid office. Massachusetts hired CGI, the same contractor tasked with building the federal exchange system, to upgrade its exchange to the real-time, online application processing called for by Obamacare. But as with the federal system, technical glitches plagued the rollout from day one. By January, the state lagged further behind its original enrollment target than any other state. Just 5,428 people signed up for coverage during the first three months  of enrollment—about 0.8 percent of the state's first year goal. Unlike the federal government, Governor Deval Patrick has decided to retain CGI as its tech vendor when the company's current contract expires this month, despite an outside consultant's report concluding that CGI had "insufficient rigor in project planning."

Total Federal Grants: $135.6 million (a $1 million planning grant, an $11.6 million establishment grant to gather background data necessary for building the exchange, a $41.7 million establishment grant to pay for IT work, and an $81.3 million grant to pay for marketing, operations, and risk adjustment program development; in addition, the state also was a partial recipient of a joint early innovator grant given to a group of New England states)


Vermont has always had a problem with Obamacare: The health law isn't progressive enough. Following the passage of the federal law, state officials said they were pursue a state-based single-payer program under an exemption beginning in 2017. But in the meantime, they would build their own exchange. Like the federal government and several other states, they relied on tech contractor CGI to do the bulk of the work. The state's exchange failed on launch day, and months later, some functionality, including small business insurance options, remains offline. A February article in Newsweek reported that prior to the failed launch, CGI created a dummy demo site in order to pass inspection, and state legislators are calling for an investigation.

Total Federal Grants: $165.2 million (a $1 million planning grant, three level one establishment grants of $18 million, $2.2 million, and $42 million, and a second level establishment grant of $102 million for ongoing operations; like Massachusetts, the state also received a share of the joint early innovator grant given to a consortium of New England states.)


The state's exchange was glitchy on rollout, and problems persisted over the next few weeks. By mid-December, the project's director, April Todd-Malmlov, had resigned after a furor erupted when she took a tropical vacation as the site continued to struggle. The Minneapolis Star Tribune also reported that 14 exchange officials had received bonuses prior to launch. A new exchange director promised that fixes would quickly be put in place, but technical troubles continued into the new year, with state officials and contractors casting blame on each other. An outside assessment warned that problems could not be fully fixed by the end of open enrollment on March 31.

Total Federal Grants: $153.7 million (a $1 million planning grant, for initial establishment grants of $4.2 Million, $26 million, $42.5 million, and $39 million, plus a second level establishment grant of $41 million for operations and quality assessments)


In a February review of the state's progress, one exchange board member described the failure of its exchange as "catastrophic." The system, built by Xerox, had enrolled just 16,000 of the 118,000 individuals expected during Obamacare's open enrollment period. In response, the state has cut sign-up projections by more than half, down to just 50,000. The state's health insurance has said that he plans to resign as of mid-March, and state officials are said to be contemplating ditching their own exchange in order to join the federal system. 

Total Federal Grants: $83.7 million (a $1 million planning grant, four level one establishment grants of $4 million, $15.3 million, $4.4 million, and $9 million, and a $50 million establishment grant for further operations)


Hawaii's health exchange was taken down almost immediately after the October launch, and didn't go back online until October 15. But even after the site was finally live, enrollment remained exceedingly low. In December, the state's exchange director stepped down. Technical problems persist, according to a report this week in the Los Angeles Times, and so does low enrollment. The state has signed up just 4,300 people for coverage, the lowest out of all the states.

Total Federal Grants: $205 million (including a $128 million level two establishment grant, as well as a $1 million planning grant, a $14.4 million exchange creation grant and a $61.8 million establishment grant for IT development)

Some of these exchanges may end up being repaired before Obamacare's open enrollment window ends in March. Others may eventually choose to link up with the federal exchange system. But given the scope of the technical turmoil, it's unlikely that all of the problems in all the of the exchanges will be fixed in short order. This means that as Obamacare moves forward, its performance will at best be spotty, with technical troubles largely resolved in some places, but ongoing in others.