Maryland Misallocated Millions to Establishment Grants for a Health Insurance Marketplace

The Maryland Department of Health and Mental Hygiene (State agency) did not allocate costs to its establishment grants and Medicaid in accordance with Federal requirements, the terms and conditions of the establishment grants, and its Cost Allocation Plan (CAP). The State agency allocated a total of $76.6 million to its establishment grants on the basis of a cost allocation methodology that (1) did not prospectively use updated or better data when available and (2) included a "material defect." As a result, the State agency misallocated $28.4 million in costs to the establishment grants instead of the Medicaid program.

The State agency misallocated these costs because it did not have adequate internal controls to ensure the proper allocation of costs.

We recommend that the State agency (1) refund $15.9 million to the Centers for Medicare & Medicaid Services (CMS) that was misallocated to the cooperative agreements because it did not prospectively use updated actual enrollment data; (2) refund $12.5 million to CMS that was misallocated to the establishment grants using a methodology that included a material defect; (3) immediately amend the CAP and the Advance Planning Document for the period July 1 through December 31, 2014, so that allocated costs correspond to the relative benefits received; (4) develop a written policy that explains how to calculate cost allocations and that emphasizes the necessity to use updated and actual data; and (5) oversee operations to ensure the identification and correction of enrollment projection errors, the use of better or updated enrollment data, and the application of these data to allocate costs.

In written comments on our draft report, the State agency concurred with recommendations four and five and said it will develop a written cost allocation policy and implement steps to oversee operations effectively. The State agency did not concur with the first three of our recommendations.