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HIX-IES Cost Report for the Joint Committee on Health Care Financing
As Required by Outside Section 237 of the GAA
July 31, 2014

INTRODUCTION

Pursuant to Chapter 165, Section 237 of the Acts of 2014, the Executive Office
for Administration and Finance and the Executive Office of Health and Human Services
submit the following report on the financial impact of challenges associated with the
launch of an updated state health insurance website in connection with the
implementation of the Affordable Care Act.
Massachusetts enacted landmark health reforms in 2006 designed to expand
health insurance coverage to virtually all of its residents. These reforms have resulted
in nation-leading coverage levels for the Commonwealth, with 97 percent of our
residents insured. Our citizens now have better access to the care they need and are
enjoying better health. They also have greater financial protection in the event of
illness. Health reform has been affordable for the Commonwealth the state has
maintained balanced budgets and secured its highest-ever bond ratings during its
implementation and has witnessed growth in the percentage of employers offering
coverage to their employees.
The Affordable Care Act (ACA) provides the Commonwealth with the opportunity
to build on the success of our state reforms. It expands subsidized health insurance
coverage through MassHealth and the Health Connector to populations who did not
previously qualify under Massachusetts reforms, making it easier for many of our
families to afford coverage. It also provides the state with significant additional federal
resources to cover populations we had already insured through state health insurance
programs. The ACA makes prescription drug coverage more affordable for seniors,
provides more affordable access to preventive care, and strengthens the
Commonwealths ongoing health care delivery system reforms designed to promote
better care at lower costs.
Because the ACA was based in significant part on Massachusetts 2006
coverage reforms, the Commonwealth was well-positioned to implement and secure the
federal laws many benefits. Nonetheless, we have had to make some changes to

DEVAL L. PATRICK
GOVERNOR


THE COMMONWEALTH OF MASSACHUSETTS
EXECUTI VE OFFI CE FOR
ADMI NI STRATI ON AND FI NANCE
&
EXECUTI VE OFFI CE OF
HEALTH AND HUMAN SERVI CES

GLEN SHOR
SECRETARY

JOHN POLANOWICZ
SECRETARY

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comply with the ACA. Most of these changes have been fully implemented through
collaboration between the state, insurers, consumer advocates, providers, employers
and other health care stakeholders. They include the transfer of the lowest-income
portion of the Health Connectors Commonwealth Care population to MassHealth;
alignment of Health Connector and small employer/individual market health benefits
with federally prescribed categories of insurance plans (metallic tiers), which differ
based on how subscribers and insurers share the costs of care; and the implementation
of revised health insurance rating rules and a state-based risk adjustment program for
this segment of our market.
The Commonwealth has, however, encountered challenges with one aspect of its
ACA implementation efforts. The ACA required us to create a new online system for
accessing individual and family coverage through the Health Connector and
MassHealth by interacting with federal databases to validate eligibility and determine
the program for which an applicant is qualified. Previously, any Massachusetts resident
seeking help paying for health insurance was in a purely paper-based system, applying
through a paper application that was manually reviewed, with notices and other
documents being mailed to the applicant.
In order to comply with new federal rules and make it quicker and easier for
people to shop for and enroll in health coverage through one-stop shopping for
MassHealth and Health Connector programs, the Commonwealth launched the Health
Insurance Exchange-Integrated Eligibility System (HIX-IES) project in 2011. This
gateway to health coverage was also intended ultimately to enable eligible
Massachusetts residents to secure access to other state programs, including cash
assistance and supplemental nutrition assistance.
To date, due principally to challenges with our former information technology
vendor, we have deployed an incomplete and imperfect web-based portal for state
health insurance programs. While small employers have still been able to shop for
coverage through the Health Connector, they have had to do so through a legacy
website. We were able to launch a new website for shopping and enrolling in
unsubsidized individual health coverage, but system performance was unreliable for a
number of months inconveniencing consumers and requiring manual workarounds.
This same website also allowed people for the first time to submit electronic applications
for subsidized coverage; however, it could not make eligibility determinations or allow
applicants to shop for and enroll in subsidized coverage.
Notwithstanding these challenges, the Commonwealth worked with insurers,
consumers, providers and others to achieve the core objective of our reforms and the
ACA protecting health coverage for those who have it and expanding access to those
seeking it for the first time.
To protect and advance coverage for Massachusetts residents, the Health
Connector maintained Commonwealth Care for enrollees who were not qualified to
transition to MassHealth. MassHealth received authority from the Centers for Medicare
and Medicaid Services (CMS) to create a temporary Medicaid coverage for those
applying for subsidized health insurance whose applications could not be processed
through the website. Consumer call center hours were expanded, and both
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organizations collaborated on other member assistance efforts to work through
challenges people were experiencing accessing coverage through the website. With
the help of technology and operations support from Optum, the information technology
firm that help put the federal healthcare.gov project back on track, the Commonwealth
eliminated a backlog of more than 70,000 paper applications in March and has been
able to keep up with processing demands ever since. The Health Connector also
instituted a Fast Path to re-enroll members in unsubsidized individual coverage by the
end of the federal open enrollment period.
As a result of these efforts, more than 300,000 people have newly enrolled in
state-subsidized health insurance programs. This suggests that the Commonwealth is
making major progress on one of the last frontiers of coverage expansion enrolling
low-income populations who have been the hardest to reach and make up the majority
of the remaining uninsured. Whether newly qualified for state health coverage or newly
aware of their options, these individuals now have access to affordable, high-quality
coverage and the improved health and financial security it brings. There are also nearly
33,000 people enrolled in unsubsidized individual health plans and 3,200 newly enrolled
in individual dental coverage through the Health Connector.
Governor Patrick has underscored that health care reform is not just a website
and has appropriately focused our efforts foremost on protecting and expanding
coverage. At the same time, he has taken strong and effective action to rectify website
project challenges and put the Commonwealth on a path to deliver a functioning website
for the federal open enrollment period beginning in November 2014. He created a
single point of authority and accountability for project delivery that reports directly to
him, and brought in Optum to provide additional information technology expertise and
critically needed operational support.
These efforts have already enabled us to enroll more people in coverage and to
improve the performance of the existing website. Moreover, under this revised project
management structure and with Optum now serving as the Systems Integrator for the
project the Commonwealth is pursuing a dual track strategy to ensure we have a
working website this Fall.
Our goal is to maintain a state-based marketplace by successfully deploying a
commercial off-the-shelf product called hCentive, which has proved to be a successful
solution for a number of other states. At the same time, the Commonwealth has been
laying the groundwork to temporarily migrate to the Federally Facilitated Marketplace
(FFM) for one year in the event the hCentive product cannot be successfully deployed
in time for the upcoming open enrollment. In collaboration with the CMS, the
Commonwealth intends to decide in early August on its final solution for standing up a
functioning website.
As required, this report discusses state coverage, website and other costs
associated with the HIX-IES project. The information included in this report is
consistent with legislative testimony provided by the Administration before the Joint
Committee on Health Care Financing, briefings during monthly Health Connector Board
meetings and other public updates provided by the project team over the past six
months. It principally highlights that:
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People are enrolled in different state health coverage categories than
originally anticipated, but aggregate coverage costs have not to date been
higher than original budget assumptions.
Federal funds have been the principal resource for project and related
administrative costs. An updated estimate of project costs will be determined
upon the completion of contract negotiations with Optum, with the
Commonwealth continuing to prioritize federal funds for new project costs.
The project team will provide an addendum to this report when the Optum
contract is complete.
HEALTH INSURANCE COVERAGE COSTS
Due to the previously mentioned challenges with the website, people are enrolled
in different ACA-related coverage categories than originally anticipated. Most
importantly, as discussed above:
The Health Connector has had to maintain Commonwealth Care for people
who were enrolled in that program prior to January 1 and did not become
eligible for MassHealth as of that date. Had the website functioned properly,
this population would likely have been enrolled instead in ConnectorCare a
successor program under the ACA operated by the Health Connector.
MassHealth has had to create temporary Medicaid coverage for people who
are newly applying for subsidized coverage and cannot be enrolled in
permanent Health Connector or MassHealth coverage categories due to our
website challenges.
This means that in the most recently completed fiscal year, relative to original
budget assumptions, there was less enrollment (by member months) in ConnectorCare
and permanent MassHealth coverage categories, and more enrollment in
Commonwealth Care and temporary Medicaid coverage.

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However, even though people are enrolled in different ACA-related coverage
categories than originally anticipated, total spending on Health Connector and
MassHealth coverage for fiscal year 2014 was closely aligned with original budget
projections. Additionally, aggregate spending specifically on the Health Connector and
MassHealth coverage categories most affected by ACA implementation also closely
approximated original budget assumptions.


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This is because the budget provided resources at MassHealth and the Health
Connector for new enrollment, and aggregate per-member monthly spending was in the
range of fiscal year 2014 budget projections. Specifically, total enrollment in member-
months in the Health Connector and MassHealth coverage categories most affected by
ACA implementation was slightly greater than original budget assumptions (13.9
percent increase). At the same time, total per member monthly spending for these
coverage categories was slightly less than original budget assumptions (9.6 percent
gross, 3.6 percent net less).
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The Commonwealth has the authority to operate Commonwealth Care and
temporary Medicaid coverage through the end of this calendar year. With the HIX-IES
project on track to launch on November 15, 2014, the Administration is concurrently
focused on successfully transitioning members in legacy or temporary coverage
programs to their permanent, ACA-compliant plans. Because member transitions
cannot begin until the website goes live, there will be costs for Commonwealth Care and
temporary Medicaid coverage in the first half of fiscal year 2015.
Commonwealth Care
Anticipated fiscal year 2015 spending on Commonwealth Care will continue to
cost the state, on a net basis, more than budgeted assumptions for Health Connector
spending on ConnectorCare subsidies during the first half of the fiscal year. The federal
contribution to Commonwealth Care is less generous than that for ConnectorCare,
leading to net additional state costs over this period of about $10 million per month.
It is premature, however, to make any estimates about aggregate additional net
costs for Health Connector-related coverage for the entirety of fiscal year 2015. This
will be dependent on enrollment in and rates for ConnectorCare once members
transition out of Commonwealth Care and temporary Medicaid into permanent programs
for calendar year 2015.
Moreover, experience in fiscal year 2014 underscores that Health Connector
spending on coverage is a relatively small piece of overall state spending on subsidized
coverage (and even ACA-related coverage) and thus should not be considered in
isolation in quantifying ACA-related coverage costs or determining whether the
Commonwealth is living within, or exceeding, all relevant budgeted resources for fiscal
year 2015.
Temporary Medicaid
Based on information about the income distribution of the pre-ACA uninsured in
Massachusetts and a preliminary automated and manual review of income data from
applicants, the vast majority of temporary Medicaid enrollees are likely to be under 400
percent of the federal poverty level and thus eligible for subsidized coverage. Also,
there is no indication that coverage through the temporary Medicaid program is any
more costly on a per member basis than insurance through permanent coverage
categories. Accordingly, temporary Medicaid costs should not automatically be treated
as incremental to the Commonwealth. Instead, they should be viewed largely as costs
that the state would otherwise incur but appearing in a different place than originally
expected.
Temporary Medicaid is like other state-subsidized health insurance programs in
another respect. Cumulative spending on the program grows over time because
enrollees will use care at some point over the course of their coverage. Also, in this
case, total enrollment has increased over time. As of July 19th, there are approximately
251,000 individuals enrolled in temporary Medicaid.

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Total paid claims through July 19th are $173 million on a gross basis (before
federal match). Given claims lag, each successive report on paid claims typically
indicates some additional payments for the most recent months of service.



As is the case for Commonwealth Care, spending on temporary Medicaid is part
of a larger picture of spending on subsidized coverage by the Commonwealth. The
MassHealth program in its entirety in the fiscal year 2015 General Appropriations Act
totals $13.5 billion. The Commonwealth will be working to actively manage the
MassHealth budget to seek to live within its means and the Commonwealths recent
track record on this has been strong. For example, even with the unanticipated creation
78,040
168,720
175,032
200,772
221,757
240,806
251,280
0
50,000
100,000
150,000
200,000
250,000
300,000
Jan Feb Mar Apr May Jun Jul
Temporary Medicaid Enrollment*
(member months by coverage effective date)
updated:
6/10/14
*Reflects retroactive eligibility determinations.
updated:
7/19/14
*Reflects disenrollments, and retroactive enrollments. Figures represent only those individuals for
whom Temporary Medicaid is the richest aid category.
5.9 13.4
23.0
34.6
42.7 41.0
12.3
172.8
$0
$25
$50
$75
$100
$125
$150
Jan Feb Mar Apr May Jun Jul Total
Date of Service
Temporary Medicaid Paid Claims*
by Date of Service
($millions)
updated:
7/19/14
*Due to claims processing lag time, recent-month figures do not reflect total cost incurred.
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of temporary Medicaid coverage in fiscal year 2014, the Commonwealth did not need a
supplemental appropriation for MassHealth during that fiscal year.

PROJECT COSTS
System Costs
Originally envisioned costs for the HIX-IES project totaled $174 million. The
largest individual component of these costs was a contract with CGI, the projects initial
Systems Integrator, for $89 million (including change orders). Other components
included anticipated expenses for federally-required independent verification and
validation services, ongoing software licenses, hardware, state and contracted
personnel, and indirect and other costs.
The Administration sought and received federal grants and reimbursement to
cover the vast majority of these project costs. Federal grants have included:
a $44.5 million Early Innovator grant (awarded to the University of Massachusetts
Medical School, which held the contract for CGI until it was assigned to the
states Massachusetts Office of Information Technology (MassIT) as part of the
Administrations efforts to enhance MassIT oversight of the project)
$20.3 million in Level 1A Establishment Grant funds (a portion of the Level 1A
grant awarded to the Health Connector)
$17.6 million in Level 2 Establishment Grant funds (a portion of Level 2
Establishment grants awarded to the Health Connector)
The federal government also provided enhanced federal matching funds for a
designated $92.1 million of spending on this project. Under this formula, the federal
contribution totaled $76 million, and the state share (to be funded through the states
capital budget) was $16 million. In combination with the federal grants described
above, these amounts covered the entire anticipated project costs of $174 million.

Original HIX/IES Funding Sources
(Dollars shown in Millions)

Federal State Total
Early Innovator Award 44.5 44.5
Level 1A Establishment Funds 20.3 20.3
Level 2 Establishment Funds 17.6 17.6
Total Exchange IT Grants Awarded 82.3 82.3
Total Enhanced Federal Matching Funds 76.1 16 92.1
Total HIX/IES Funding Approval 158.4 16 174.4
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As of July 25, 2014, the Commonwealth has spent $108 million on the HIX-IES
project since February 2011. These costs are described in the table below.
HIX/IES Expenditures
February 2011 through July 25, 2014
Expenditures
Vendor Contracts
CGI 53,624,664
BerryDunn 8,968,086
Other 629,919
State Personnel 7,520,117
Contracted Personnel 17,765,775
Hardware/Software 12,556,358
Indirect 6,624,121
Leases 397,629
Other* 267,711
Total 108,354,380
* Other includes items such as cabling and electrical.
A large portion of the spending has supported vendor contracts. Through
November of 2013, the Commonwealth had paid CGI $17 million for specified project
milestones delivered on time and to our satisfaction. Based on CGIs past
underperformance and our future project needs, we determined in March that it was the
Commonwealths best interest to part ways with CGI and secure a careful transition
agreement to keep us on course towards a functioning website for this Fall.
On June 20, 2014, the Commonwealth finalized a transition agreement that will
thoughtfully end CGIs services in connection with this project. The transition
agreement is critical to delivering a working health insurance website for the Fall. It
secures the Commonwealth key staff migrations and comprehensive knowledge
transfer that is currently under way. It solves intellectual property issues and keeps our
current systems up and running to avoid disruptions that could negatively impact
consumers and the market.
The agreement commits to paying CGI for work of value received or
subsequently required, including accepted contractual milestones, other deliverables,
and operations and maintenance support and knowledge transfer as the
Commonwealth transitions to Optum as its new Systems Integrator. These transition
services must be delivered to the satisfaction of the Commonwealth to qualify for
payment under this agreement. Under the agreement, the states Attorney General also
maintains the right to pursue a state False Claims action against CGI for up to $12
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million in damages. As of July 25, 2014, the Commonwealth had made $36 million in
additional payments under this agreement, for a total of $53.6 million in payments to
CGI to date.
The Commonwealth has also made payments to BerryDunn, the projects
Independent Verification and Validation (IV&V) vendor, which is a federally mandated
function. To date, BerryDunn has provided support to the project by identifying risks and
issues, supporting testing performed by subject matter experts, and assessing the
reusability and integration of the original HIX-IES software.
There have also been payments for contracted and Commonwealth employees
working on the HIX-IES project, including business analysts, project coordinators,
developers, quality assurance managers, finance staff, an information security officer
and other project-related positions.
In addition, the Commonwealth has purchased hardware and software and has
paid other expenses (such as leases) to support the project. For example, the
Commonwealth purchased Oracle software which was critical to the development of the
original HIX-IES system. Furthermore, as part of the project turnaround efforts, the
Commonwealth set up a command center in Boston to streamline decision-making,
strengthen oversight and improve operations.
MassIT is currently leading state efforts to finalize an at-risk, deliverables-based
contract with Optum in connection with its role as our new Systems Integrator for the
project. This contract will cover the costs of website development and improvements as
well as operations and maintenance through the end of calendar year 2015. These
negotiations are ongoing at this time; when complete, the project team will provide an
updated estimate of overall project costs.
In turn, the Commonwealth will continue to focus on leveraging federal funding to
support this project. It has identified $40 million from unspent portions of previously
received federal grants for HIX-IES and other ACA implementation activities to partly
offset an anticipated request for additional federal funding for this project. Other unspent
HIX-IES federal funds will be used to pay for resources that are likewise critical to the
success of the project (such as ongoing IV&V costs).
Administrative Costs
Apart from expenditures on the HIX-IES project (which are included in the
spending totals discussed above), the Health Connector has made other expenditures
to maintain its ongoing operations as an eight-year-old state-based health insurance
Marketplace, conduct a wide range of activities to implement the Affordable Care Act,
and support members facing challenges seeking coverage due to website difficulties.
The Health Connectors administrative spending is discussed in detail in periodic
public updates to its Board (for example, see the July 10, 2014 FY14/FY15
Administrative Budget briefing and the July 11, 2013 FY13/14 Administrative Budget
briefing in the Appendix). Through fiscal year 2014, there have been select categories
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of higher-than-originally-anticipated administrative spending attributable to website
challenges. These include:
$25.8 million obligated to Optum for its work between February and June to
stabilize the website, support efforts to enroll new applicants in health insurance,
and develop the dual-track strategy (the Health Connector is the signatory to the
contract with Optum for this phase of its work on behalf of the Commonwealth).
In June, the Commonwealth secured federal matching funds for $17 million of
this amount. The remaining portion of these costs will be supported by $8.8
million from previously awarded federal Exchange Establishment grant funds. As
of July 25, 2014, the Health Connector had made $744,120 in payments using
Establishment grant funds against the total $25.8 million cost of this phase of the
Optum engagement.
$4.6 million in additional customer service and other administrative costs
attributable to the need to extend Commonwealth Care. These costs were paid
through an extension of the Commonwealth Care administrative fee charged to
the state for the continued operation of the program.
$1.5 million in additional customer service and business operations costs
necessary to support small groups purchasing ACA-compliant health coverage
through the Health Connector. These costs included system development and
implementation costs for the administration of small group business through an
existing vendor, Small Business Service Bureau (SBSB). The majority of these
costs were funded with federal grant dollars.
The Health Connectors administrative budget for fiscal year 2015 is provided in
accompanied materials. The budget proposes $97 million in total spending for fiscal
year 2015, a $20 million decrease from fiscal year 2014 levels. About 60 percent of this
amount constitutes federally funded ACA transition costs (half of which is the Health
Connectors contribution towards HIX-IES project costs). Apart from federal funding,
the Health Connectors administrative revenue sources in fiscal year 2015 include $19.5
million in state funding (a $1.3 million increase over fiscal year 2014), $10.7 million from
reinstating carrier administrative fees for the second half of the fiscal year and a $10.1
million contribution from the organizations reserves.
In response to HIX-IES project challenges, MassHealth has also implemented
administrative workarounds to enroll members into coverage. These workarounds
included the establishment of temporary Medicaid coverage and the processing of over
191,000 paper applications. During fiscal year 2014, these workarounds resulted in
some additional administrative costs such as $1.1 million in staff overtime costs for
application processing and $773,000 for the MassHealth Customer Service Center.
MassHealth was able to manage these costs by prioritizing spending within its existing
fiscal year 2014 budget and did not require supplemental funding. Project
developments over the coming months will determine whether additional funding is
required in fiscal year 2015 to support MassHealth administrative needs in connection
with this issue.

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CONCLUSION
Together with our partners in the Legislature, the Administration has made state
and federal health care reforms work for Massachusetts residents. We fully
acknowledge that our transition to the ACA has not been without challenges. We will
continue to keep the Legislature fully informed of the progress of our efforts to move the
new system forward and the financial impact of these efforts. We appreciate the
Legislatures continuing commitment to protecting and expanding access to affordable,
quality health care to deliver better health and economic security to our residents.