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State won't tap federal grants for new exchange

Maryland will not need to ask the federal government for additional grant money to build a new health exchange that will replace the faulty one the state was forced to scrap.

Health Secretary Joshua M. Sharfstein, also chair of the board that oversees Maryland's exchange, said late Friday that there is enough money left over from building the first exchange plus funding through Medicaid to cover the $40 million to $50 million it will cost to create a new site where the uninsured can buy private health plans and enroll in Medicaid under the Affordable Care Act.

"We went through every line of the budget to find as much money in the grants that we could redirect," Sharfstein said.

The state has received about $180 million in grant money from the Centers for Medicare and Medicaid Services during the past three years for its health reform efforts. It is not known precisely how much money is left or how much will be used for the new system, Sharfstein said.

Much of the federal money was used to build an exchange riddled with technical problems that led to Maryland having one of the country's worst health reform rollouts. The exchange board decided in April, a day after open enrollment ended, to ditch the failed site and adopt software developed by Deloitte Consulting that is used by Connecticut.

State officials, including Gov. Martin O'Malley, blamed the problems on bad software and poor implementation by contractors, who were eventually fired, while critics pointed to what they said was irresponsible government management.

News of the leftover funds did not assuage critics, who said money was still wasted. Rep. John Delaney, a Democrat representing Western Maryland and parts of Montgomery County, has pushed for Maryland to join the federal site.

"What still is amazing to me is why they don't go to the federal exchange, which is free and works," Delaney said. "You still have to spend $40 [million] to $50 million. It is still money they are spending on something they don't have to."

Sharfstein disupted Delaney’s claim and said it would be more cost efficient to use the Connecticut site. State officials also said a conversion to the federal exchange would not be free and could cost up to $5 million.

Rep. Andy Harris, the lone Republican in the state's congressional delegation, who also has pushed for a move to the federal exchange, said he still believes those in charge of the first exchange acted irresponsibly.

"I'm glad that more federal money will not be spent, but the spending of hundreds of millions of federal taxpayer dollars on the initial failed exchange is not made better because they don't have to spend more federal taxpayer dollars on a new exchange," Harris said.

Others welcomed the news that additional money would not have to be sought.

"The fact that they don't have to go to the feds for additional money is good news," said state Sen. Thomas M. Middleton, chairman of the Finance Committee and one of the lawmakers overseeing a panel looking into the exchange. "They are trying to get the system right. They ended up with a bad set of circumstances with contractors and software that wouldn't work."

Despite its technical problems, Maryland's exchange, as of mid-May, had enrolled more than 67,900 in private plans and 275,000 had gained Medicaid coverage.

The announcement about grant money came after the board met in closed session to discuss what company would be awarded the contract to host the new website, as well as to approve spending on licensing fees.

The new site will cost much less to run and implement than the first exchange, Sharfstein said.

The board voted to award Xerox a five-year contract not to exceed $29.3 million to host the new health exchange website. The monthly hosting costs will be about $100,000 less than for the previous exchange, Sharfstein said.

Because the heart of the new system will use Connecticut coding, which Maryland got for free, software licensing costs also will be cheaper, he said. The previous exchange used off-the-shelf software with significant fees. Yearly licensing feels will cost about $12 million the first year compared to $30 million for the previous exchange, Sharfstein said

Exchange officials have said the website is on track for completion in time for open enrollment this fall.

State officials plan to seek reimbursement of payments from the former prime contractor on the exchange, Noridian Healthcare Solutions, because the website never worked properly after crashing the day it launched Oct. 1.

The state's plans to seek reimbursement do not account for any of the cost savings found to build the new exchange, Sharfstein said.

Noridian and its subcontractors have denied the state's accusations, saying problems were due in part to changed orders from the exchange and a lack of state leadership.

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