Cover Oregon: The Scandal That Won’t End

Brian McNicoll
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Posted: Dec 11, 2015 12:01 AM
Cover Oregon: The Scandal That Won’t End

When last we left Oregon, John Kitzhaber, the Democratic governor, had been forced to resign because his girlfriend, Cylvia Hayes, had involved him in her green energy get-rich-quick scams.

Hayes, who lived in the governor’s mansion and served as first lady, was said to be steering state consulting contracts for green energy to firms controlled by her and friends of the administration.

The state’s attorney general was mulling criminal charges. Federal prosecutors were looking at some of the issues. Kitzhaber was walking out on difficult interviews.

Meanwhile, Cover Oregon, the state’s attempt to establish its own healthcare exchange, collapsed amid finger-pointing and threats of allegations without a single Oregonian being enrolled.

There was a feeble effort on the part of Kitzhaber’s staffers to erase some emails, and a general consensus, even among Democrats in the state, that “Kitzhaber fatigue” had set in.

Soon, political support collapsed, and, with liberal Secretary of State Kate Brown, who would become the nation’s first openly bisexual governor, waiting in the wings, Kitzhaber was shown the door.

With Kitzhaber on the way out and little left in the way of things he could do to help his well-connected friends, the state’s attorney general sued the software firm that created Cover Oregon, with a Portland law firm and Kitzhaber ally heading the case at $450-per-hour. 

This vendor “repeatedly lied and defrauded the state” during the course of its Cover Oregon work, according to Ellen Rosenblum, the state attorney general. “Through this legal action, we intend to make our state whole and make sure taxpayers aren’t left holding the bag,” she said.

Only there’s a problem with that, too. It wasn’t solely Oregon taxpayers on the hook for the lost $300 million. That money came from the federal government, which provided grants to help states set up their own Obamacare exchanges.

And, as Maryland and Massachusetts out recently, Washington wants its money back.

The head of the U.S. Centers for Medicare and Medicaid Services, which has overseen implementation of state exchanges, and two U.S. senators have said in recent days any money recovered by Oregon in court would have to go to the federal government.

“The recoupment of funds form the state-based Marketplace contractors is an area where the federal government has a specific interest,” wrote Andrew Slavitt, acting CMS administrator, in a letter dated Sept. 23 to Sen. Orrin Hatch, R-Utah.

Slavitt’s letter pointed out that Maryland has settled with Noridian, one of the contractors on its failed exchange, and recovered $45 million.

This means all the money Oregon is spending to sue a vendor, in what many consider a spurious suit in the first place, likely will produce no revenue for the state even should it prevail.

Rosenblum’s spokesman says, “A lot depends on what kind of damages the state is awarded from the court.”

No, it doesn’t. It was Washington’s money, and Washington is under pressure to claw back any money states get from winding down their exchanges or suing vendors.

That pressure has increased in recent weeks after a Government Accountability Office report revealed that only about a third of the $4.5 billion the federal government gave to states to establish the IT functions of their exchanges was spent on IT. The rest – about $3 billion – is mostly unaccounted for because of lax accounting practices and confusing assignments of duties.

There are whispers of slush funds and kickbacks in some instances, but it’s obvious where a lot of the $1.9 billion in federal grants Oregon received to improve its processes went.

According to Cover Oregon, about 170,000 people signed up to begin health insurance in January through Cover Oregon or the Oregon Health Plan. But because of the website's problems, the state had to hire hundreds of staff to process health insurance applications by paper and through call centers.

Oregon’s experience with Obamacare – and with green energy for that matter – illustrates the problem with integrating government into what should be private economic functions. Money was wasted. Controls were non-existent. The systems did not function. And now, the state is suing the contractor – at $450 per hour – even though it is unlikely to win and would not get to keep the money even if it did.

It’s time for Oregon to cut its losses with this lawsuit and for all of us to learn to think twice before we endorse big government solutions to individual problems.