STATE HEALTH 

INSURANCE 

MARKETPLACES

CMS Should Improve 

Oversight of State 

Information 

Technology Projects

Report to Congressional Requesters

September 2015

GAO-15-527

United States Government Accountability Office
Highlights of GAO-15-527, a report to 

congressional requesters

September 2015

STATE HEALTH INSURANCE MARKETPLACES

CMS Should Improve Oversight of State Information 

Technology Projects

Why GAO Did This Study

The Patient Protection and Affordable 

Care Act required the establishment of 

health insurance exchanges—or 

marketplaces—to allow consumers 

and small employers to compare, 

select, and purchase health insurance 

plans. States can elect to establish a 

state-based marketplace, or cede this 

authority to CMS to establish a 

federally facilitated marketplace. To 

assist states in establishing their 

marketplaces and supporting IT 

systems, federal funding was made 

available, including grants and 

Medicaid matching funds. CMS has 

responsibilities for overseeing states’ 

use of these funds and the 

establishment of their marketplaces.

The objectives of this study were to (1) 

determine how states have used 

federal funds for IT projects to support 

their marketplaces and the status of 

the marketplaces, (2) determine CMS’s 

and states’ roles in overseeing these 

projects, and (3) describe IT 

challenges states have encountered 

and lessons learned. To do this, GAO 

surveyed the 50 states and the District 

of Columbia, reviewed relevant 

documentation from the states and 

CMS, and interviewed CMS officials.

What GAO Recommends

GAO is recommending that CMS 

define and communicate its oversight 

roles and responsibilities, ensure 

senior executives are involved in

funding decisions for state IT projects, 

and ensure that states complete 

testing of their systems before they are 

put into operation. HHS concurred with 

GAO’s recommendations.

What GAO Found

States reported to the Department of Health and Human Services’ (HHS) 

Centers for Medicare & Medicaid Services (CMS) that they spent about $1.45

billion in federal marketplace grant funding on information technology (IT) 

projects supporting health insurance marketplaces, as of March 2015. The 

majority of this spending was for state-based marketplaces (i.e., marketplaces 

established and operated by the states). These marketplaces reported spending 

nearly 89 percent of the funds on IT contracts, and CMS has ongoing efforts to 

track states’ IT spending in more detailed categories. States also reported 

spending, as of December 2014, $2.78 billion in combined federal and state 

funds designated for Medicaid eligibility and enrollment systems—a portion of 

which was used for marketplace IT projects. However, the specific amount spent 

on marketplace-related projects was uncertain, as only a selected number of 

states reported to GAO that they tracked or estimated this information. Regarding 

the status of states’ marketplace IT projects, 14 states with state-based 

marketplaces had developed and were operating IT systems to support their 

marketplaces, but, as of February 2015, not all system functions were complete. 

In addition, as of November 2014, 7 of 37 states using the federal marketplace 

system could not transfer health insurance applications between their state 

Medicaid systems and a key component of the federal marketplace or had not 

completed testing or certification of these functions. According to CMS officials, 

states operating their own IT systems and states using the federal marketplace 

system were continuing to improve the development and operation of their 

marketplaces in the enrollment period that began in November 2014.

CMS tasked various offices with responsibilities for overseeing states’ 

marketplace IT projects. However, the agency did not always clearly document, 

define, or communicate its oversight roles and responsibilities to states as called 

for by best practices for project management. According to some states, this 

resulted in instances of poor communication with CMS, which adversely affected 

states’ deadlines, increased uncertainty, and required additional work. CMS also 

did not involve all relevant senior executives in decisions to approve federal 

funding for states’ IT marketplace projects; such involvement, according to 

leading practices for investment management, can increase accountability for 

decision making. Further, while CMS established a process that required the 

testing of state marketplace systems to determine whether they were ready to be 

made operational, these systems were not always fully tested, increasing the risk 

that they would not operate as intended. For their part, states oversaw their IT 

projects through state agencies or quasi-governmental entities, depending on 

marketplace type, as well as using other oversight mechanisms. 

States reported a number of challenges in establishing the systems supporting 

their marketplaces. These fell into several categories, including project 

management and oversight, system design and development, resource allocation 

and distribution, and marketplace implementation and operation. States also 

identified lessons learned from dealing with such challenges, including the need 

for strong project management and clear requirements development. CMS has 

taken various actions to respond to state challenges, identify lessons learned, 

and share best practices with states; continuing these efforts will be important as 

states work to complete their marketplace systems.

View GAO-15-527. For more information, 

contact Valerie C. Melvin, (202) 512-6304 or 

melvinv@gao.gov.

United States Government Accountability Office
Letter 1

Background 6

States Spent Federal Grant and Medicaid Funds to Establish 

Marketplace IT Systems, although Not All Marketplace IT 

Functions Are Fully Operational 21

CMS and States Established a Framework for Oversight, but CMS 

Oversight Was Not Always Effectively Executed 40

States Encountered Challenges and Identified Lessons Learned 

and Best Practices in Managing, Overseeing, Developing, and 

Operating Marketplace IT Systems 58

Conclusions 66

Recommendations for Executive Action 67

Agency Comments and Our Evaluation 67

Appendix I Objectives, Scope, and Methodology 79

Appendix II Health Insurance Marketplace Grant Funding and State-Reported 

Expenditures 85

Appendix III Comments from the Department of Health and Human Services 89

Appendix IV Comments from the District of Columbia Health Benefit Exchange 

Authority 94

Appendix V Comments from MNsure 98

Appendix VI Comments from the Washington Health Benefit Exchange 100

Appendix VII GAO Contact and Staff Acknowledgments 103

Contents

Page i GAO-15-527 State Health Insurance Marketplaces
Tables

Table 1: Marketplace Grant Funds Spent on States’ IT Projects, 

by Marketplace Type, as of March 2015 23

Table 2: Grant Spending for IT by Centers for Medicare & 

Medicaid Services Budget Category as of March 2015 30

Table 3: Medicaid Funds Spent on Medicaid Eligibility and 

Enrollment Systems, by Marketplace Type, as of 

December 2014 32

Table 4: State Survey-Reported Marketplace-Related Medicaid IT 

Spending through June 2014 33

Table 5: Operational Status of the 14 State-Based Marketplace IT 

Systems by Functional Category as of February 2015 38

Table 6: CMS Offices and Groups Responsible for State 

Marketplace IT Project Oversight 42

Table 7: Enterprise Life Cycle Gate Reviews 52

Table 8: Health Insurance Marketplace Grant Funding and StateReported Expenditures as of March 2015 86

Figures

Figure 1: Type of Health Insurance Marketplace Used by States 

for Plan Year 2015 9

Figure 2: State and Federal Marketplace Information Technology 

Solutions 10

Figure 3: Timeline of Health Insurance Marketplace Activities 17

Figure 4: Reported Grant IT Spending by State-Based 

Marketplaces and State-Based Marketplaces Using the 

Federal Marketplace IT Solution as of March 2015 25

Figure 5: Reported Grant IT Spending by States with a Federally 

Facilitated Marketplace or Federally Facilitated 

Partnership as of March 2015 27

Figure 6: Challenges Rated by States with State-Based 

Marketplaces 64

Figure 7: Challenges Rated by States with a Federally Facilitated 

Marketplace 65

Page ii GAO-15-527 State Health Insurance Marketplaces
Abbreviations

CCIIO Center for Consumer Information and Insurance Oversight

CHIP Children’s Health Insurance Program 

CMCS Center for Medicaid and CHIP Services

CMS Centers for Medicare & Medicaid Services 

HHS Department of Health and Human Services 

IRS Internal Revenue Service 

IT information technology

OTS Office of Technology Solutions

PMBOK Project Management Body of Knowledge

PPACA Patient Protection and Affordable Care Act

SHOP Small Business Health Options Program

This is a work of the U.S. government and is not subject to copyright protection in the 

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Page iii GAO-15-527 State Health Insurance Marketplaces
441 G St. N.W.

Washington, DC 20548

September 16, 2015

Congressional Requesters

The Patient Protection and Affordable Care Act (PPACA),1 signed into 

law on March 23, 2010, includes provisions to reform aspects of the 

private health insurance market and expand the availability and 

affordability of health care coverage. The act required the establishment 

of health insurance exchanges, now commonly referred to as 

“marketplaces,” in each state and the District of Columbia2 by January 1, 

2014. These marketplaces are required to allow consumers, such as 

individuals and small employers, to compare, select, and purchase health 

insurance offered by participating private issuers of qualified health 

plans.3

The Department of Health and Human Services’ (HHS) Centers for 

Medicare & Medicaid Services (CMS) is responsible for overseeing the 

establishment of the marketplaces, including providing funding and 

oversight for states’ marketplace development efforts and creating a 

federally facilitated marketplace that can be used by states that do not 

choose to establish and operate their own. For their part, states are 

responsible for undertaking various efforts, including information 

technology (IT) projects needed to support the development of their own 

marketplaces or connections to the federal marketplace.

As with the federal marketplace, states’ marketplaces began enrolling 

individuals in health insurance plans on October 1, 2013. However, 

individuals attempting to access the systems supporting the marketplaces 

encountered various challenges. In light of these challenges, you asked 

1

Pub. L. No. 111-148, §§ 1311(b), 1321(c), 124 Stat. 119, 173, 186 (Mar. 23, 2010) 

(hereafter, “PPACA”), as amended by the Health Care and Education Reconciliation Act of 

2010, Pub. L. No. 111-52, 124 Stat. 1029 (Mar. 30, 2010). PPACA requires the 

establishment of health insurance exchanges, now known as marketplaces.

2

In this report, the term “state” also refers to the District of Columbia.

3

PPACA requires the insurance plans offered under a marketplace, known as qualified 

health plans, to provide a package of essential health benefits—including coverage for 

specific service categories, such as ambulatory care, prescription drugs, and 

hospitalization.

Letter

Page 1 GAO-15-527 State Health Insurance Marketplaces

 
us to review the states’ and CMS’s actions related to the IT projects 

supporting states’ health insurance marketplaces. Our specific objectives 

were to (1) determine how states have used federal funds for IT projects 

to establish, support, and connect to health insurance marketplaces, 

including amounts spent, and the overall status of their development and 

operation; (2) determine CMS’s and states’ roles in overseeing these 

state IT projects; and (3) describe IT challenges that states have 

encountered in developing and operating their marketplaces and 

connected systems, and lessons learned from their efforts.

To address the objectives, we administered a survey to all 50 states and 

the District of Columbia to collect pertinent information about the IT 

projects supporting their health insurance marketplaces.4 We pre-tested 

the survey with marketplace and Medicaid officials from 7 states to 

ensure that the questions were clear, comprehensive, and unbiased, and 

to minimize the burden the survey placed on respondents. We developed 

two versions of this survey: one for states that established their own 

marketplaces and one for states that used the federally facilitated 

marketplace.5 Based on CMS’s classification of states for the first 

enrollment period,6 17 states received the state-based version of the 

survey, 7 and 34 states received the federally facilitated version. The 

survey was administered between September 30, 2014, and November 

19, 2014, and focused on IT projects that supported health insurance 

4

We did not include U.S. territories, such as the Virgin Islands, in the scope of this review.

5

This included states that relied on selected enrollment and other capabilities provided by 

the federally facilitated marketplace, or federally facilitated partnerships, as discussed 

later in this report.

6

The first enrollment period for state marketplace operation was for plan year 2014, which 

began on October 1, 2013, and ended on March 31, 2014.

7

Of the 17 states, 14 are state-based marketplaces and 3 are state-based marketplaces 

that use the federal marketplace IT solution, which will be discussed later in the report.

Page 2 GAO-15-527 State Health Insurance Marketplaces

 
marketplaces for individuals.8 We received responses from 46 states and 

the District of Columbia.9

To determine how states have used federal funds for IT projects to 

establish, support, and connect to health insurance marketplaces, and the 

overall status of their development and operation, we reviewed guidance 

that CMS provided to the states regarding federal funding for and the 

development of marketplaces and Medicaid eligibility and enrollment 

systems,10 such as the marketplace grant funding opportunity 

announcement. We also reviewed sections of GAO’s IT investment 

management framework relevant to managing project costs.11 We then 

analyzed the states’ survey responses regarding their project costs and 

development, as well as any supporting documentation that they provided 

concerning applicable federal marketplace grants and Medicaid funding. 

In addition, we reviewed CMS data on spending of marketplace grant 

funds and Medicaid funding for IT. Specifically, we reviewed funding and 

status documentation submitted by the states to CMS, including state IT 

spending and status summaries, and asked CMS officials responsible for 

reviewing the states’ federal marketplace grant and Medicaid matching 

funding a series of questions concerning its accuracy and reliability. We 

determined that the funding data provided in the responses were 

sufficiently reliable for our purposes and noted any limitations of the statereported spending data in the report.

8

In addition to marketplaces for individuals, PPACA also required the creation of similar 

exchanges, now known as marketplaces, called Small Business Health Options Program 

(SHOP) marketplaces, where small employers can shop for and purchase health 

coverage for their employees. Our report does not focus on SHOPs.

9

The 4 states that did not provide responses to the survey were Arkansas, Kansas, New 

Jersey, and Ohio. In addition, among the 47 that did respond, not all provided answers to 

every question.

10With the enactment of PPACA, changes to Medicaid eligibility and enrollment systems 

were needed in order for the Medicaid program to operate seamlessly with the 

marketplaces. 

11GAO, Information Technology Investment Management: A Framework for Assessing 

and Improving Process Maturity, Version 1.1, GAO-04-394G (Washington, D.C.: March 

2004). 

Page 3 GAO-15-527 State Health Insurance Marketplaces

 
To determine CMS’s and states’ roles in overseeing the development of 

marketplace IT solutions,12 we analyzed the survey responses, HHS/CMS 

guidance provided to states, and CMS’s policies and procedures and 

other documentation describing its roles and responsibilities as applicable 

to states’ marketplace development efforts. We compared CMS’s policies 

and procedures to best practices included in GAO’s IT investment 

management framework13 and to the Project Management Institute’s A 

Guide to the Project Management Body of Knowledge (PMBOK® 

Guide) 14 to identify whether CMS had established roles and 

responsibilities that were consistent with industry practices. We also 

assessed the manner in which CMS communicated guidance and 

information on roles and responsibilities to the states.

Further, we reviewed CMS’s funding oversight process and compared it 

to the sections of GAO’s IT investment management framework that are 

relevant to the management of project cost to determine if the agency 

followed best practices for overseeing the marketplace investments. We 

also reviewed CMS’s Enterprise Life Cycle guidance for systems 

development reviews, and reports documenting states’ operational 

readiness reviews to assess the extent to which CMS followed its 

processes. We also reviewed the survey responses and supporting 

documentation to determine states’ marketplace oversight roles and how 

the states viewed CMS’s oversight and guidance in regard to their 

marketplace-related projects. Lastly, we interviewed CMS officials 

responsible for overseeing implementation of the state marketplaces to 

obtain their perspectives on their marketplace roles.

To describe IT challenges encountered in developing and operating the 

marketplaces and connected systems and lessons learned from these 

efforts, we analyzed the survey responses related to challenges and 

lessons learned. Specifically, in administering the survey, we asked the 

12Marketplace IT solutions are defined as including any marketplace IT systems and 

services that were developed, modified, or enhanced to support a state’s health insurance 

marketplace. Marketplace IT systems may include hardware, software, databases, 

eligibility and enrollment systems, and rules engines needed to run the marketplace 

website. Services related to IT may include call center operations and consulting. 

13GAO-04-394G.

14Project Management Institute, Inc., A Guide to The Project Management Body of 

Knowledge (PMBOK® Guide), Fifth Edition, (Newton Square, Pa.: 2013). “PMBOK” is a 

trademark of the Project Management Institute, Inc.

Page 4 GAO-15-527 State Health Insurance Marketplaces

 
states to rate their experiences with each of various challenges 

presented, based on the type of marketplace they used (i.e., one 

established by the state or the federally facilitated marketplace). The 

challenges to be considered by states that developed their own 

marketplaces were divided into five areas in the survey (project 

management and oversight, marketplace IT solution design, marketplace 

IT solution development, resource allocation and distribution, and 

marketplace implementation and operation). The challenges to be 

considered by states that used the federally facilitated marketplace were 

divided into two areas (project management and oversight and system 

design and development) based on the IT work each marketplace 

performs.

We asked states to rate their experiences with each of these challenge 

areas using a 5-point scale with the following response options: very 

great challenge, great challenge, moderate challenge, somewhat of a 

challenge, or little or no challenge. In analyzing the states’ ratings of the 

challenges, we used combined counts of “very great” and “great”

responses to identify the greatest challenges for each area. We then 

discussed the top two greatest challenges in this report. If a challenge 

area applied to both a state-based marketplace and a state with a 

federally facilitated marketplace, we selected the greatest challenges 

from each marketplace type.

In addition, we asked states to identify lessons learned as they applied to 

the categories of challenges. We then analyzed states’ responses to 

determine the number of lessons learned reported by each state. Further, 

we obtained input from CMS officials responsible for overseeing states’

marketplace implementation regarding their perspectives on the states’

challenges and lessons learned. A more detailed discussion of our 

objectives, scope, and methodology is provided in appendix I.

We conducted this performance audit from April 2014 to September 2015 

in accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.

Page 5 GAO-15-527 State Health Insurance Marketplaces
PPACA directed each state to establish and operate a health insurance 

marketplace by January 1, 2014.15 In cases where states elected not to 

establish and operate a marketplace, the law directed the federal 

government to establish and operate a health insurance marketplace on 

their behalf. These marketplaces were expected to provide a seamless, 

single point-of-access for individuals to enroll in private health insurance 

plans and apply for income-based financial assistance established under 

the law.

PPACA and HHS regulations and guidance require every state to have 

marketplace capabilities that enable them to carry out four key functions, 

among others:

• Eligibility and enrollment. The marketplace must enable individuals 

to assess and determine their eligibility for enrollment in healthcare 

coverage. In addition, the marketplace must provide individuals the 

ability to obtain an eligibility determination for other federal healthcare 

coverage programs, such as Medicaid and the Children’s Health 

Insurance Program (CHIP).16 Once eligibility is determined, 

individuals must be able to apply for and enroll in applicable coverage 

options.

• Plan management. The marketplace is to provide a suite of services 

for state agencies and health plan issuers to facilitate activities such 

as submitting, monitoring, and renewing qualified health plans.

• Financial management. The marketplace is to facilitate payments of 

premiums to health plan issuers and also provide additional services 

such as payment calculation for risk adjustment analysis and costsharing reductions for individual enrollments.

• Consumer assistance. The marketplace must be designed to 

provide support to consumers in completing an application, obtaining 

eligibility determinations, comparing coverage options, and enrolling in 

healthcare coverage.

15PPACA, § 1311(b), 124 Stat. at 173.

16Medicaid is a joint federal-state program that finances health care coverage for certain 

low-income, disabled, elderly and/or pregnant adults and children. CHIP is a federal-state 

program that provides health care coverage to children 19 years of age and younger living 

in low-income families whose incomes exceed the eligibility requirements for Medicaid.

Background

Page 6 GAO-15-527 State Health Insurance Marketplaces

 
To provide these capabilities, PPACA further required the states, as well 

as HHS (who delegated this role to CMS) to establish supporting 

automated systems and capabilities. Toward this end, states and CMS 

undertook projects to design, develop, implement, and operate health 

insurance marketplace systems.

States electing to establish their own marketplaces (hereafter referred to 

as a state-based marketplace) were required, in accordance with CMS 

guidance and regulations, to develop their own IT solutions, including a 

web portal for individual consumers to interact with and select healthcare 

coverage, as well as supporting systems that perform functions such as 

real-time eligibility queries, transferring application information to state 

Medicaid/CHIP agencies, sending taxpayer information to the Internal 

Revenue Service, and exchanging enrollment information with issuers of 

qualified health plans.

In addition, state-based marketplace IT solutions were required to 

interface with CMS systems designed to exchange information with 

external partners, including other federal agencies and states, and 

facilitate the electronic payment of insurance premiums to plan issuers. 

As an alternative to their web portals, these states were also required to 

set up call centers through which consumers could apply for coverage.

A state that operates its own marketplace can request that CMS perform 

eligibility and enrollment functions using federal IT systems. We refer to 

this as a state-based marketplace using the federal marketplace IT 

solution. This type of marketplace evolved when certain states 

encountered IT-related challenges during the development of their state 

marketplace solutions.

Further, if a state elected not to establish its own marketplace, CMS 

assumed some or all aspects of the marketplace operations for that state 

using two additional marketplace types:

• Federally facilitated marketplace: CMS is responsible for all aspects of 

establishing and operating the marketplace including the four key 

functions.

• Federally facilitated partnership: CMS is responsible for establishing 

and operating the eligibility enrollment and financial management 

functions, while the state assists with plan management and/or 

consumer assistance.

Page 7 GAO-15-527 State Health Insurance Marketplaces
In these cases, states rely to varying degrees on the systems developed 

by CMS to support a federally facilitated marketplace. These include 

Healthcare.gov—the federal website that serves as the user interface for 

individuals to obtain information about health coverage, set up a user 

account, select a health plan, and apply for healthcare coverage—and 

several supporting systems. The supporting systems include a system for 

verifying an applicant’s identity and establishing a login account; a 

transactional database to facilitate eligibility and enrollment, plan 

management, financial services, and other functions; and a data services 

hub that serves as a single portal for exchanging information with external 

partners.17 For example, federal agencies such as the Social Security 

Administration (SSA), Department of Homeland Security (DHS), and 

Internal Revenue Service (IRS) provide or verify information used in 

making determinations of a person’s eligibility for coverage and financial 

assistance.

For plan year 2015,18 14 states had a state-based marketplace, 3 had a 

state-based marketplace using the federal marketplace IT solution, 27 

had a federally facilitated marketplace, and 7 had a federally facilitated 

partnership (see fig. 1).

17Specifically, these entities are the same ones that interact with the state marketplace IT 

solutions. These external partners include issuers of qualified health plans, and federal 

agencies such as the Department of Defense, Department of Homeland Security, 

Department of Veterans Affairs, Internal Revenue Service, Office of Personnel 

Management, Peace Corps, and the Social Security Administration. 

18Open enrollment period for plan year 2015 was the second enrollment period for the 

state marketplaces, which began on November 15, 2014, and ended on February 15, 

2015.

Page 8 GAO-15-527 State Health Insurance Marketplaces

 
Figure 1: Type of Health Insurance Marketplace Used by States for Plan Year 2015

Depending on the type of marketplace established in his or her state, an 

individual user would apply for health coverage through either their state’s 

web portal or through Healthcare.gov. The key functions required to enroll 

that individual would then be carried out by a combination of state and 

federal systems specific to the type of marketplace.

A general depiction of both the state and federal marketplace IT solutions 

is provided in figure 2.

Page 9 GAO-15-527 State Health Insurance Marketplaces
Figure 2: State and Federal Marketplace Information Technology Solutions

Note: Federally facilitated partnerships and state-based marketplaces using the federal marketplace 

IT solution do not conduct all of the functions. CMS is responsible for establishing and operating the 

eligibility and enrollment and financial management functions, while the state assists with plan 

management and consumer assistance.

Page 10 GAO-15-527 State Health Insurance Marketplaces
States had access to two sources of federal funding to establish their 

marketplaces: federal marketplace grants and Medicaid matching funds. 

CMS allows states to use both Medicaid matching funds and marketplace 

grants to pay for shared system services and functions that states needed 

to establish for marketplace operations,19 such as developing a rules 

engine system20 and establishing interfaces to the federal data services 

hub.21 Various offices within CMS were tasked with overseeing grant 

reviews, Medicaid advanced planning document reviews, and IT gate

reviews to ensure that states followed a standardized funding process for 

their marketplace-related IT projects. These offices included the Center 

for Consumer Information and Insurance Oversight (CCIIO), Center for 

Medicaid and Chip Services (CMCS), and the Office of Technology 

Solutions (OTS).

PPACA authorized HHS to award federal exchange grants (now referred 

to as marketplace grants) for planning and establishing marketplaces. 

The act did not specify an exact amount of marketplace grant funding, but 

appropriated to HHS, out of any moneys in the Treasury not otherwise 

appropriated, an amount necessary to make marketplace grant awards. 

The act directed HHS to determine the total amount of funding that it 

would make available to each state for each fiscal year and authorized 

19In addition to these technical requirements, CMS specified operational requirements—

known as critical success factors—to help states prioritize the many changes that they 

were making to their Medicaid enrollment and eligibility systems to comply with PPACA. 

Due to differences among states in their approaches to establishing a marketplace, not all 

states needed to implement all critical success factors. For example, states running their 

own marketplaces would not need to implement the factor relating to sending and 

receiving applications to and from the federal marketplace IT solution. That particular 

factor would only apply to the states that were using the federal marketplace IT solution.

20CMS’s IT guidance describes the rules engine as a system that applies the business 

rules associated with determining eligibility for individuals covered by using modified 

adjusted gross income. This includes functionality and processing logic to register, define,

classify, and manage the rules; verify consistency of rules definitions; define the 

relationship between different rules; and relate some rules to IT applications that are 

affected or need to endorse these rules for such purposes as adjudicating eligibility-based 

on modified adjusted gross income or supporting workflow for the resolution of 

discrepancies. 

21States should follow cost allocation principles outlined by the Office of Management and 

Budget in Circular A-87 to ensure that enhanced federal Medicaid funding is provided only 

for the portion of costs that are directly attributed to the Medicaid program. 75 Fed. Reg. at 

21954 (Apr. 19, 2011).

Federal Funding Available 

to States for Establishing 

Marketplaces

Marketplace Grants

Page 11 GAO-15-527 State Health Insurance Marketplaces

 
the department to award marketplace grants to states through December 

2014.22

On the basis of this authority, HHS established four separate programs 

for awarding marketplace grants to states.

• Planning Grants: Provided states with resources to conduct the initial 

research and planning needed to build a marketplace and determine 

how it would be operated and governed. The grants were awarded to 

states in 2010 and 2011 and provided 1 year of funding. A state could 

receive only one planning grant.23

• Early Innovator Grants: Provided funding to a state or group of 

states that were identified as early leaders in building their 

marketplaces, to assist in designing and implementing the IT 

infrastructure needed to operate the marketplaces. All marketplace IT 

components, including software and data models, developed with 

these grants could be adopted and modified by other states to fit their 

specific needs. The grants were awarded in February 2011 and the 

grant funds were available for 2 years. A state could only receive one 

of these grants.24

• Establishment Grants (Level 1): Provided funding for a 1-year 

project period to states pursuing any marketplace type. This funding 

was intended to help states undertake additional marketplace 

establishment activities, such as changes in response to legislative or 

22PPACA required state-based marketplaces to be self-sustaining beginning on January 

1, 2015, and authorized marketplaces to charge assessments or user fees to participating 

health insurance issuers, or to otherwise generate funding to support their operations.

CMS has provided guidance to states noting that after January 1, 2015, grant funds may 

not be used to cover maintenance and operating costs, such as software maintenance, 

telecommunications, and base operational personnel and contractors.

23States were awarded up to $1 million, depending on the state’s proposed activities and 

budget and HHS’s assessment of the proposal. Overall, HHS awarded $50.7 million in 

planning grants. Some states chose to return a portion or, in one case, all of their grant 

funds awarded if they initially planned for, but did not pursue, establishing a state-based 

marketplace.

24States were awarded $262.3 million in early innovator grants. Approximately $86.1 

million was returned—grant funds that were not expended and returned to CMS by the 

state. These grants were awarded to Kansas, Maryland, New York, Oklahoma, Oregon, 

Wisconsin, and a multistate consortium led by the University of Massachusetts Medical 

School (and consisting of Connecticut, Maine, Massachusetts, Rhode Island, and 

Vermont).

Page 12 GAO-15-527 State Health Insurance Marketplaces

 
regulatory requirements, developing IT systems, and consulting with 

key stakeholders. The grants were awarded between May 2011 and 

December 2014. Once awarded, the funds were available for 1 year, 

and a state could apply for multiple grants.

• Establishment Grants (Level 2): Provided funding for a multi-year 

project period to states that have legal authority to implement a 

marketplace and are further along in marketplace development and 

are pursuing a state-based marketplace. This funding was designed 

to help the states carry out all marketplace activities, including 

consumer and stakeholder engagement and support, eligibility and 

enrollment, plan management, and technology development. The 

grants were awarded between May 2011 and December 2014. Once 

awarded, the grant funds remain available for up to 3 years. A state 

could receive only one grant.

States establishing state-based marketplaces were expected to carry out 

activities in a number of areas to receive these marketplace grants. 

These activity areas included stakeholder consultation, program 

integration, IT systems development, financial management, oversight 

and program Integrity, health Insurance market reform, and business 

operations of the marketplace.

Once grants were awarded, funding was disbursed using the Payment 

Management System, which is an HHS-administered system that 

provides federal agencies and grant recipients the tools to manage grant 

payments. Grantees submitted progress reports documenting financial 

expenditures and program progress through an online data collection 

system on a monthly and semi-annual basis.

As of December 31, 2014, CMS had awarded approximately $5.51 billion 

in federal marketplace grants to states.25 Of these grant funds awarded, 

CMS had authorized states to spend approximately $2.16 billion on IT to 

support state-based marketplaces and federally facilitated partnerships as 

25This awarded amount includes all 50 states and the District of Columbia. This amount 

includes awards for all marketplace grants (i.e., Planning, Early Innovator, and 

Establishment Level 1 and Level 2 grants). PPACA prohibits the awarding of 

establishment grants for marketplaces after January 1, 2015; HHS awarded grants until 

December 31, 2014. 

Page 13 GAO-15-527 State Health Insurance Marketplaces

 
of March 2015.26 According to CMS, funds authorized for IT contracts 

could be designated as restricted and required prior approval from the 

various CMS offices mentioned previously before the funds could be 

spent. For states that opted to use the federally facilitated marketplace, IT 

funds were not provided after it was determined that these states were 

not establishing a state-based marketplace.

With the enactment of PPACA, changes to Medicaid eligibility and 

enrollment systems were needed in order for the Medicaid program27 to 

operate seamlessly with the marketplaces, as well as to implement new 

Medicaid eligibility policies. Specifically, in all states, the Medicaid 

eligibility and enrollment system had to be replaced or modernized to 

meet the more streamlined enrollment process requirements of PPACA 

and its implementing policies, which included real-time transfer of 

applications between the state Medicaid agencies and the marketplace 

and immediate Medicaid eligibility determinations, regardless of the type 

of marketplace a state elected to use.28

Under federal law, states are eligible to receive funding, in the form of an 

enhanced federal matching rate of 90 percent (referred to as 90/10 

funding), for the design, development, or installation of their Medicaid 

claims processing and information retrieval systems.29 Because states’

Medicaid eligibility and enrollment systems had to be replaced or 

modernized to meet the PPACA requirements, CMS expanded the 

availability of federal Medicaid funds at the enhanced matching rate of 90 

26This amount includes IT spending by states with state-based marketplaces, including 

those that used the federal marketplace IT solution, federally facilitated partnerships, and 

two states with federally facilitated marketplaces that implemented SHOP-only 

marketplaces, which are Mississippi and Utah. For the purposes of this report, which is 

focused on IT projects supporting health insurance marketplaces for individuals, the IT 

spending by Mississippi and Utah is included in the amount of IT spending by states with a 

federally facilitated marketplace.

27CMS also specified critical success factors relating to states’ system capability to accept 

streamlined applications, verify eligibility with electronic sources, and convert existing 

income standards and process applications based on modified adjusted gross income. 

28In state-based marketplace states, those systems-related costs were shared and 

allocated between Medicaid and marketplace grant funding.

2942 U.S.C. § 1396b(a)(3)(A)(i). States may also qualify for a 75 percent matching rate for 

the operation of these systems. See 42 U.S.C. § 1396b(a)(3)(B). The 90 and 75 percent 

federal matching rate is referred to as “enhanced” because the rate is higher than the 

regular federal matching rate of 50 percent for Medicaid administrative expenses. 

Medicaid Matching Funds

Page 14 GAO-15-527 State Health Insurance Marketplaces

 
percent to help states pay for required changes,30 including their 

interfaces to establish connections to the federal marketplace IT solution 

through the federal data services hub or the state marketplace IT solution. 

This enhanced federal matching rate is available to cover costs incurred 

by the states related to changes to their Medicaid eligibility systems from 

April 19, 2011, to December 31, 2015. All states are eligible to obtain the 

90/10 funds for IT-related changes they make to their Medicaid eligibility 

and enrollment systems.

In addition, a state may receive funding in the form of a 75 percent federal 

matching rate for the maintenance and any ongoing costs of operating its 

upgraded Medicaid eligibility and enrollment system. The funding is 

generally available when the upgraded system becomes operational, and 

it does not expire.31

In updating their Medicaid eligibility and enrollment systems, states could 

use federal funds for full system replacements or for more limited 

modifications, with the scope of a state’s changes depending on a 

number of factors, including the age of the system and the extent of 

integration among state programs.

Federal regulations require the approval of advanced planning documents 

in order for states to be able to draw down the 90/10 and 75/25 matching 

funds.32 To access Medicaid matching funding, states must first submit 

these planning documents to CMS. In its role as the agency that oversees 

30Federal regulations provide that federal financial participation is available at 90 percent 

of a state’s expenditures for the design, development, installation, or enhancement of an 

eligibility determination system that meets the requirements specified in the regulation, 

and only for costs incurred for goods and services provided on or after April 19, 2011, and 

on or before December 31, 2015. 42 C.F.R. § 433.112(c) (2014). In April 2015, CMS 

issued a notice of proposed rulemaking to extend the availability of this enhanced federal 

match indefinitely. 45 Fed. Reg. 20455 (Apr. 16, 2015). For the purposes of this report, we 

use the term “90/10 funding” to refer to total spending on Medicaid eligibility IT systems; 

specifically, reflecting both the 90 percent federal match and the 10 percent state share of 

the funding. 

31Beginning April 19, 2011, an enhanced federal financial participation of 75 percent is 

available for expenditures related to the operation of an upgraded eligibility determination 

system that meets applicable standards and conditions. States may continue to receive 

this enhanced match only if the system meets such standards and conditions by 

December 31. 2015. See 42 C.F.R. § 433.116(j) (2014). 

3242 CFR 433.112 (2014). 

Page 15 GAO-15-527 State Health Insurance Marketplaces

 
the Medicaid program and provides guidance and technical assistance to 

states related to Medicaid eligibility and enrollment system changes, CMS 

is to review these documents to ensure that certain technical and 

operational criteria are met before states are eligible for the funding. To 

receive approval, states must develop IT systems that meet technical 

standards and conditions. These standards and conditions require states 

to develop systems that are flexible, align with the Medicaid Information 

Technology Architecture principles, and promote data exchanges and the 

reuse of Medicaid technologies across systems and states.33

Figure 3 provides a timeline of the health insurance marketplaces’ major 

activities previously mentioned, including dates when federal funding 

became available and enrollment time frames.

33The Medicaid Information Technology Architecture is an HHS IT initiative that began in 

2005 and aims to stimulate an integrated business and IT transformation affecting 

Medicaid programs in all states by establishing national guidelines for technologies, 

information, and processes, among other efforts. For more information about these 

technical requirements, which were beyond the scope of this report, see Department of 

Health and Human Services, CMS, Enhanced Funding Requirements: Seven Conditions 

and Standards, Medicaid IT Supplement (MITS-11-01-v1.0), Version 1.0 (Baltimore, Md.: 

April 2011).

Page 16 GAO-15-527 State Health Insurance Marketplaces

 
Figure 3: Timeline of Health Insurance Marketplace Activities

Page 17 GAO-15-527 State Health Insurance Marketplaces
During the first enrollment period, states faced difficulties developing and 

operating their marketplace IT solutions.34 For state-based marketplaces, 

various sources reported35 that technical issues varied widely, 

contributing to websites that froze midway through the process of 

applying for coverage, system crashes, and systems taken offline for 

days at a time, ultimately causing applicants to face long waits for 

eligibility determinations. One state reported technical problems serious 

enough to prevent any online enrollment; thus, thousands of individuals 

had to enroll manually using paper applications.

The problems experienced in state-based marketplaces for the first 

enrollment period were different in each state, but they included

• poor system performance and delays in addressing information 

security,

• partially completed software functionality,

• hardware problems,

• enrollment errors causing long wait times and applications to get stuck 

in the system,

• difficulties getting individuals’ identities verified through the systems, 

and

• the inability to easily make changes to individuals’ insurance coverage 

in response to events such as births or income changes.

States that relied on the federally facilitated marketplace and federally 

facilitated partnerships also encountered problems in the development 

and operation of their IT solutions during the first enrollment period. For 

example, in these states, consumers attempting to enroll in health plans 

through Healthcare.gov and its supporting systems were met with 

confusing error messages, slow load times for forms and pages, and in 

34Of 17 state-based marketplaces that we identified, 15 developed and operated an IT 

marketplace solution in the first enrollment period. The other 2 states, Idaho and New 

Mexico, submitted blueprints to be state-based marketplaces, but did not operate their 

own IT solution and instead used the federal marketplace IT solution.

35Various sources include CMS documentation, state audits, and media reports.

States Faced 

Development and 

Operations Difficulties 

during the First 

Marketplace Enrollment 

Period

Page 18 GAO-15-527 State Health Insurance Marketplaces

 
some cases, website outages.36 We previously reported that 

Healthcare.gov and its supporting systems were hindered by inadequate 

system capacity, numerous errors in software code, and limited system 

functionality—all of which impeded the systems’ performance and their 

availability for consumers’ use.37

Regarding state Medicaid systems, states with a federally facilitated 

marketplace, federally facilitated partnership, or state-based marketplace 

using the federal marketplace IT solution reported challenges in 

implementing the requirement to transfer or send and receive 

applications. For example, none of these types of states were able to 

transfer applications via the marketplace by the start of the first 

enrollment period on October 1, 2013.38

Over the past 2 years, we have issued various reports highlighting 

challenges that CMS and the states have faced in implementing and 

operating health insurance marketplaces. For example, in an April 2013 

report, we described the actions of seven states that were in various 

stages of developing an information technology infrastructure to establish 

marketplaces, including redesigning, upgrading, or replacing their 

outdated Medicaid and CHIP eligibility and enrollment systems.39 Six of 

the seven states were also building the IT infrastructure needed to 

integrate systems and allow consumers to navigate among health 

programs, but identified challenges with the complexity and magnitude of 

the IT projects, time constraints, and guidance for developing their 

systems.40

36GAO, Healthcare.gov: CMS Has Taken Steps to Address Problems, but Needs to 

Further Implement Systems Development Best Practices, GAO-15-238 (Washington, 

D.C.: Mar. 4, 2015).

37GAO-15-238.

38GAO, Medicaid: Federal Funds Aid Eligibility IT System Changes, but Implementation 

Challenges Persist, GAO-15-169 (Washington, D.C.: Dec. 12, 2014).

39GAO, Health Insurance: Seven States’ Actions to Establish Exchanges under the 

Patient Protection and Affordable Care Act, GAO-13-486 (Washington, D.C.: Apr. 30, 

2013). These seven states were the District of Columbia, Iowa, Minnesota, Nevada, New 

York, Oregon, and Rhode Island.

40This report described states’ actions and did not include recommendations.

Prior GAO Reports 

Highlighted Concerns

and Made 

Recommendations 

Related to Improving 

Health Insurance 

Marketplaces

Page 19 GAO-15-527 State Health Insurance Marketplaces

 
In September 2014, we reported that while CMS had taken steps to 

protect the security and privacy of data processed and maintained by the 

systems that support Healthcare.gov, weaknesses remained in both the 

processes used for managing information security and privacy as well as 

the technical implementation of IT security controls.41 Specifically, we 

noted that Healthcare.gov and the related systems had been deployed 

despite incomplete security plans and privacy documentation, incomplete 

security tests, and the lack of an alternate processing site to avoid major 

service disruptions. Accordingly, we recommended that CMS implement 

22 information security controls. We also recommended that the agency 

improve its system security plans, privacy documentation, security tests, 

and alternate processing site for the systems that support Healthcare.gov. 

HHS concurred with all 22 of the recommendations to improve the 

effectiveness of its information security control and fully or partially 

concurred with our remaining information security program-related 

recommendations. The department stated that it intends to take steps to 

address the weaknesses, including updating its security plans, developing 

required computer matching agreements, and developing a backup site 

for Healthcare.gov.

In December 2014, we reported that all states using the federal 

marketplace IT solution had faced challenges transferring applications to 

and from that system.42 We pointed out that none of the states using the 

federal marketplace IT solution in the first enrollment period were able to 

implement application transfers, which required the establishment of two 

IT connections: one connection to transfer applications found ineligible for 

Medicaid coverage from the state Medicaid agency to the federal 

marketplace IT solution, and another connection to transfer applications 

found ineligible for coverage from the federally facilitated marketplace to 

the state Medicaid agency.43

Most recently, in March 2015, we reported that several problems with the 

initial development and deployment of Healthcare.gov and its supporting 

systems had led to consumers encountering widespread performance 

41GAO, Healthcare.gov: Actions Needed to Address Weaknesses in Information Security 

and Privacy Controls, GAO-14-730 (Washington, D.C.: Sept. 16, 2014).

42GAO-15-169.

43This report described states’ actions and did not include recommendations.

Page 20 GAO-15-527 State Health Insurance Marketplaces

 
issues when trying to create accounts and enroll in health plans.44 We 

noted, for example, that CMS had not adequately conducted capacity 

planning, adequately corrected software coding errors, or implemented all 

planned functionality. In addition, the agency did not consistently apply 

recognized best practices for system development, which contributed to 

the problems with the initial launch of Healthcare.gov and its supporting 

systems. In this regard, weaknesses existed in the application of 

requirements, testing, and oversight practices. Further, we noted that 

HHS had not provided adequate oversight of the Healthcare.gov initiative 

through its Office of the Chief Information Officer.

We made recommendations aimed at improving requirements 

management, system testing processes, and oversight of development 

activities for systems supporting Healthcare.gov. HHS concurred with all 

of our recommendations and subsequently took or planned steps to 

address the weaknesses, including instituting a process to ensure 

functional and technical requirements are approved, developing and 

implementing a unified standard set of approved system testing 

documents and policies, and providing oversight for Healthcare.gov and 

its supporting systems through the department-wide investment review 

board.

States reported to CMS that they spent federal marketplace grant funds, 

as well as Medicaid matching funds, on various IT projects to establish, 

support, and connect to health insurance marketplaces. Specifically, 

states reported spending about $1.45 billion in federal marketplace grant 

funds from September 2010 through March 2015. The states also 

reported spending federal funds designated for Medicaid eligibility and 

enrollment systems on marketplace-related IT projects, although the 

actual amount spent was uncertain, as only a selected number of states 

reported on our survey that they tracked or estimated this information. In 

this regard, from April 2011 through December 2014, states reported 

spending $2.78 billion in combined federal and state Medicaid funds, a 

portion of which was spent to support the marketplaces.

States that chose to establish state-based marketplaces were responsible 

for the majority of the federal marketplace grant spending. These states’

efforts typically included developing web portals and supporting data 

44GAO-15-238.

States Spent Federal 

Grant and Medicaid 

Funds to Establish 

Marketplace IT 

Systems, although 

Not All Marketplace IT 

Functions Are Fully 

Operational

Page 21 GAO-15-527 State Health Insurance Marketplaces

 
processing systems to carry out key marketplace-related functions, and 

establishing electronic connections in order to exchange information with 

various states, federal partners, and issuers.

Fourteen states with state-based marketplaces had developed and were 

operating IT systems to support their marketplaces; however, not all 

system functions were complete as of February 2015. In addition, 

according to a CMS status report, as of November 2014, 7 of 37 states 

using the federal marketplace IT solution could not transfer applications 

for health insurance coverage between their state Medicaid systems and 

the federal data services hub or had not completed testing or certification 

of these functions. According to CMS officials, states operating IT 

systems and states using the federal marketplace IT solution were 

continuing to improve the development and operation of their 

marketplaces in the second enrollment period.45

States reported to CMS spending approximately $1.45 billion in federal 

grant funds on IT projects to establish, support, and connect to health 

insurance marketplaces from September 2010 to March 2015.46 States 

that established state-based marketplaces, including state-based 

marketplaces using the federal marketplace IT solution, reported having 

spent approximately $1.37 billion of these funds. In addition, states with a 

federally facilitated marketplace reported spending approximately $47

million,47 while those with a federally facilitated partnership reported 

spending approximately $32 million.

45The second open enrollment period for state marketplace operation was for plan year 

2015 and began on November 15, 2014, and ended on February 15, 2015.

46According to CMS officials, the agency did not define IT costs but allowed states to 

define for themselves what they considered to be IT costs.

47According to CMS officials, states with a federally facilitated marketplace were not 

provided IT marketplace grant funds unless these states were planning for or studying the 

feasibility of a state-base marketplace. This amount includes IT spending by two states 

with federally facilitated marketplaces that implemented SHOP-only marketplaces, which 

are Mississippi and Utah. For the purposes of this report, which is focused on IT projects 

supporting health insurance marketplaces for individuals, the IT spending by Mississippi 

and Utah is included in the amount of IT spending by states with a federally facilitated 

marketplace.

States Spent Most Federal 

Marketplace Grant Funds 

to Develop Systems 

Supporting State-Based 

Marketplaces and Used 

Medicaid Funds to 

Connect to Marketplaces

Page 22 GAO-15-527 State Health Insurance Marketplaces

 
Table 1 provides a summary of the states’ reported use of marketplace 

grant funds for their IT projects as of March 2015.48

Table 1: Marketplace Grant Funds Spent on States’ IT Projects, by Marketplace 

Type, as of March 2015 

(Dollars in millions)

Marketplace type (number of states)

Amount 

spent for IT 

State-based marketplace (14) $1,224

State-based marketplace using the federal marketplace IT solution (3) 150

State-based marketplace subtotal 1,374

Federally facilitated marketplace (27) 47

Federally facilitated partnership (7) 32

Federally facilitated marketplace and partnership subtotal 79

Total $1,454

Source: GAO analysis of CMS data. | GAO-15-527

In addition to the $1.45 billion of reported IT spending, approximately 

$703 million of authorized grant funding for IT projects had not been 

spent as of mid-March 2015.49 For additional details on the amount of 

marketplace grant funding awarded and spent, see appendix II.

States with state-based marketplaces were authorized by CMS to spend 

$2.02 billion for IT until December 2015, and this authorized amount per 

state ranged from approximately $55 million to $325 million as of March 

48In addition, CMS officials indicated that 29 states, primarily with a federally facilitated 

marketplace, have chosen to return a portion or, in one case, all of their grant funds 

awarded because the scope of states’ project activities changed since the funds were 

initially awarded. More specifically, CMS officials stated that most of these grant funds 

were returned by states that decided not to undertake the activities for which the grant had 

been awarded, such as those that had initially planned to establish a state-based 

marketplace. According to CMS, as of October 2014, about $298 million had been deobligated or returned to CMS. This was 5 percent of the $5.51 billion in total grants 

awarded as of December 2014. We did not verify the amount returned. CMS’s report did 

not state whether funds de-obligated or returned were designated for IT or non-IT. Further, 

one federally facilitated state, Alaska, did not apply for and was not awarded any 

marketplace grant funding.

49We did not verify whether these funds remain available to states for expenditure or 

whether they have been reprogrammed or de-obligated.

Page 23 GAO-15-527 State Health Insurance Marketplaces

 
2015.50 As shown in figure 4, the reported spending of grant funds among 

the 17 states that were approved to establish state-based marketplaces, 

(i.e., the 14 state-based marketplaces and the 3 state-based 

marketplaces using the federal marketplace IT solution), ranged from 

approximately $29 million (in Minnesota) to approximately $254 million (in 

California), as of March 2015.

50We did not verify whether these funds remain available to states for expenditure or 

whether they have been reprogrammed or de-obligated.

Page 24 GAO-15-527 State Health Insurance Marketplaces

 
Figure 4: Reported Grant IT Spending by State-Based Marketplaces and State-Based Marketplaces Using the Federal 

Marketplace IT Solution as of March 2015

Note: We did not verify whether these funds remain available to states for expenditure or whether 

they have been reprogrammed or de-obligated. In the agency’s responses to frequently asked 

questions on the use of marketplace grant funds for establishment activities, CMS stated that 

allowable uses of marketplace grant funds after January 1, 2015, are for establishment activities that 

were specifically described in the grantee’s approved work plan, including stabilizing marketplace IT 

systems through the design, development, and testing of IT functionality. Unallowable costs related to 

ongoing operations include, but are not limited to, hardware/software maintenance and operations.

Page 25 GAO-15-527 State Health Insurance Marketplaces
Regarding states with a federally facilitated marketplace or federally 

facilitated partnership, 19 of these states were authorized by CMS to 

spend $378 million for IT, and this authorized amount per state ranged 

from approximately $158,000 to $81 million as of March 2015.51 These 

states reported marketplace grant IT spending that ranged from 

approximately $30,000 (in Alabama) to approximately $20 million (in 

Iowa), as of March 2015 (see fig. 5). The 15 other states that used these 

two types of marketplaces were not authorized to spend grant funds for IT 

projects. In June 2015, CCIIO officials told us that, with the exception of 

Arkansas, Mississippi, and Utah, states with a federally facilitated 

marketplace or federally facilitated partnership are no longer authorized to 

spend marketplace grant funding for information technology because they 

are no longer investing in the long-term creation of a modern eligibility 

system to be shared between a state-based marketplace and the state 

Medicaid program.52

51We did not verify whether these funds remain available to states for expenditure or 

whether they have been reprogrammed or de-obligated. According to CMS officials, states 

that initially planned for, but did not pursue, a state-based marketplace were required to 

return the funds to CMS or to re-budget the funds for non-IT costs.

52In June 2015, Arkansas was conditionally approved by CMS to establish a state-based 

marketplace, and thus can spend marketplace grant funding until December 2017. 

Mississippi and Utah are operating marketplaces for small businesses.

Page 26 GAO-15-527 State Health Insurance Marketplaces

 
Figure 5: Reported Grant IT Spending by States with a Federally Facilitated Marketplace or Federally Facilitated Partnership 

as of March 2015

Note: We did not verify whether these funds remain available to states for expenditure or whether 

they have been reprogrammed or de-obligated. In June 2015, CMS officials within the Center for 

Consumer Information and Insurance Oversight (CCIIO) told us that, with the exception of Arkansas,

Mississippi, and Utah, states with a federally facilitated marketplace or federally facilitated partnership 

are no longer authorized to spend marketplace grant funding for information technology because they 

are no longer investing in the long-term creation of a modern eligibility system to be shared between 

a state-based marketplace and the state Medicaid program. According to CMS officials, states that 

initially planned for, but did not pursue, a state-based marketplace were required to return the funds 

to CMS or to re-budget the funds for non-IT costs. For example, according to a state official from 

Wisconsin, the state returned Early Innovator grant funds in January 2012.

Page 27 GAO-15-527 State Health Insurance Marketplaces
CMS required the states to report their grant spending for marketplace IT 

projects in five broad budget categories: contracts, consultants, 

personnel, equipment, and supplies.53 In this regard, the 17 states that 

established state-based marketplaces, including state-based 

marketplaces that used the federal marketplace IT solution, reported 

spending the following approximate amounts in these categories, as of 

March 2015:

• $1.13 billion on contracts,

• $76.18 million on consultants,

• $39.00 million on state personnel,

• $21.06 million on equipment, and

• $720,000 on supplies.

The largest part of these reported expenditures—nearly 89 percent—was 

on contracts for services such as systems integration, project 

management, and independent validation and verification.

In addition to costs in these five categories, CMS also asked the states to 

report the amount of early innovator IT marketplace grant funding that 

they had spent. In response, these states reported that they had spent 

approximately $112.4 million of such funding.54

53Department of Health and Human Services, Centers for Medicare & Medicaid Services, 

Center for Consumer Information and Insurance Oversight, Progress Reporting 

Instructions for Cooperative Agreements to Support Establishment of State-Operated 

Health Insurance Exchanges (June 2012). CMS requires states to report IT spending in 

five categories. Some early innovator funding was awarded and spent before CMS 

implemented its reporting process. According to CMS, all early innovator grant spending is 

IT spending, but it was not always broken out into the five IT categories (contracts, 

personnel, supplies, equipment, and consultants). 

54Some early innovator funding was awarded and spent before CMS implemented its 

reporting process. According to CMS, all early innovator grant spending is IT spending, 

but it was not always broken out into the five IT categories (contracts, personnel, supplies, 

equipment, and consultants).

Page 28 GAO-15-527 State Health Insurance Marketplaces

 
The 34 states with a federally facilitated marketplace or federally 

facilitated partnership55 reported spending, as of March 2015, 

approximately

• $69.68 million on contracts,

• $2.19 million on consultants,

• $1.66 million on state personnel,

• $5.68 million on equipment, and

• $.03 million on supplies.

These states also reported spending $.06 million of early innovator IT 

marketplace grant funding.

Table 2 shows marketplace grant spending for IT, by category, as of 

March 2015.

55According to CMS officials, these states initially planned to establish a state-based 

marketplace but later decided to partner with or rely on the federally facilitated 

marketplace.

Page 29 GAO-15-527 State Health Insurance Marketplaces

 
Table 2: Grant Spending for IT by Centers for Medicare & Medicaid Services Budget Category as of March 2015

(Dollars in millions)

Marketplace type (number of states) IT contracts

IT 

consultants

State IT 

personnel

IT 

equipment IT supplies

Early 

Innovator

State-based marketplace (14) $1,039.00 $75.97 $35.91 $20.36 $0.710 $52.45

State-based marketplace using the federal 

marketplace IT solution (3)

86.15 0.212 3.09 .696 0.010 59.92

State-based marketplace subtotal 1,125.15 76.18 39.00 21.06 0.720 112.37

Federally facilitated marketplace (27a) 45.34 1.40 .617 .057 0.028 .06

Federally facilitated partnership (7a) 24.35 0.795 1.04 5.62 0.005 -

Federally facilitated marketplace and 

partnership subtotal

69.68 2.19 1.66 5.68 0.033 .06

Total $1,194.83 $78.37 $40.65 $26.73 $0.753 $112.43

Source: GAO analysis of CMS data. | GAO-15-527

Note: Data as of March 26, 2015. CMS requires states to report IT spending in five categories. Some 

early innovator funding was awarded and spent before CMS implemented its reporting process. 

According to CMS, all early innovator grant spending is IT spending, but this was not always broken 

out into the five IT categories: contracts, personnel, supplies, equipment, and consultants.

a

Regarding states with a federally facilitated marketplace or federally facilitated partnership, 19 states 

with these types of marketplaces were authorized by CMS for IT spending as of March 2015. The 15 

other states that used these two types of marketplaces were not authorized to spend grant funds for 

IT projects.

During the course of our work, in October 2014, CMS began collecting 

data on IT contract costs in new categories aimed to gather a greater 

level of detail across states with state-based marketplaces. These new 

reporting categories are system integration, project management, 

independent verification and validation, middleware software,56 rules 

engine software, and “other.”57

As of May 2015, 11 state-based marketplaces had reported costs in some 

of these new detailed cost categories.58 However, CMS’s documentation 

indicated that not all states reported using all the new categories. For 

56Middleware software is the “glue” that helps programs and databases (which may be on 

different computers) work together. Its most basic function is to enable communication 

between different pieces of software.

57These categories are outlined in CMS’s January 2015 draft instructions.

58Colorado, Idaho, New Mexico, Oregon, Vermont, and Washington did not report IT costs 

in CMS’s new categories.

Page 30 GAO-15-527 State Health Insurance Marketplaces

 
example, not all states reported costs in the rules engine and middleware 

software categories because those costs were included in the system 

integration category or marked in the “other” category. Specifically, only 

five states reported costs for developing rules engine software or 

middleware software. According to CCIIO officials, CMS is following up 

with states on missing amounts. Following through on these efforts to 

collect more detailed information on states’ IT contract costs would 

increase CMS’s insight into states’ IT spending.

States also spent Medicaid funds for marketplace-related IT projects, 

such as modifying Medicaid eligibility and enrollment systems to interface 

with the marketplaces. Specifically, states spent some portion of 

approximately $2.78 billion in combined federal and state Medicaid 

funding from April 2011 through December 2014 for marketplace-related 

IT projects. Of this amount, $2.42 billion was from 90/10 funding59 and 

$364 million was from 75/25 funding.60 An undetermined portion of this 

spending was used to develop and maintain eligibility and enrollment 

systems connections to the marketplaces.

States that established state-based marketplaces, including state-based 

marketplaces using the federal marketplace IT solution, reported having 

spent approximately $757 million of the 90/10 Medicaid funds for 

Medicaid eligibility and enrollment systems. Further, states with a 

federally facilitated marketplace reported spending approximately $1.32 

billion of these funds, and those with federally facilitated partnerships 

reported spending approximately $340 million. The amounts spent 

included expenditures for marketplace-related IT projects.

Of the $364 million in 75/25 Medicaid funds, states that established statebased marketplaces, including state-based marketplaces using the 

federal marketplace IT solution, reported having spent approximately $56 

59As previously noted, Medicaid 90/10 matching funds will no longer be available to states 

after December 2015, though in April 2015, CMS issued a notice of proposed rulemaking 

to extend the availability of this enhanced federal match indefinitely. 45 Fed. Reg. 20455 

(Apr. 16, 2015).

60States report expenditures of 90/10 and 75/25 funding on the CMS-64, which is called 

the Quarterly Medicaid Statement of Expenditures for the Medical Assistance Program. 

The CMS-64 aggregates states’ expenditures and is used to reimburse states for their 

federal share of Medicaid expenditures. The information is stored in a data set called the 

Medicaid Budget and Expenditure System. 

States Spent an Undetermined 

Portion of Their Medicaid 

Funds on Marketplace

IT Projects

Page 31 GAO-15-527 State Health Insurance Marketplaces

 
million. Those with a federally facilitated marketplace reported spending 

approximately $285 million, and those with a federally facilitated 

partnership reported spending approximately $23 million.

Table 3 provides a summary of states’ Medicaid 90/10 and 75/25 

expenditures for Medicaid eligibility and enrollment systems by 

marketplace type, as of December 2014.

Table 3: Medicaid Funds Spent on Medicaid Eligibility and Enrollment Systems, by 

Marketplace Type, as of December 2014 

(Dollars in millions)

Marketplace type (number of states)

Medicaid 

90/10

Medicaid 

75/25 Total

State-based marketplace (14) $562 $46 $608

State-based marketplace using the federal 

marketplace IT solution (3)

$195 $11 $206

State-based marketplace subtotal $757 $56 $813

Federally facilitated marketplace (27) $1,321 $285 $1,605

Federally facilitated partnership (7) $340 $23 $363

Federally facilitated marketplace and 

partnership subtotal

$1,661 $308 $1,969

Total $2,418 $364 $2,782

Source: GAO analysis of CMS data. | GAO-15-527

Note: Some numbers may not sum due to rounding. These amounts reflect federal and state 

spending. Funds could be used to make changes to Medicaid eligibility and enrollment systems, 

which could include modifications to interface with marketplaces as well as other non-marketplace 

related modifications.

While CMS required states to report the ratio of Medicaid funds to grant 

funds in allocating their planned spending for marketplace-related IT 

projects, the agency did not require states to track the actual amount of 

Medicaid funds spent specifically on these IT projects. Thus, the total 

portion of Medicaid funds spent for those purposes is unknown.

However, as part of our survey, 26 states were able to track or estimate 

the portion of marketplace-related IT spending for Medicaid 90/10 funds, 

and 17 states were able to track or estimate the portion of marketplacePage 32 GAO-15-527 State Health Insurance Marketplaces
related IT spending for Medicaid 75/25 funds.61 The states that tracked or 

estimated their use of Medicaid funds reported spending approximately 

$750 million of these funds—both 90/10 and 75/25 funds—for 

marketplace-related IT projects through June 2014.62 The remaining 

states in our survey did not track the amount or could not provide the 

actual or estimated amount of Medicaid funds spent.

Based on the survey responses, states may have tracked or estimated 

these amounts using a variety of approaches, thus state-reported data 

may not be consistent across states. Table 4 shows the approximate 

state-reported amounts of combined federal and state 90/10 and 75/25 

Medicaid funding used for marketplace-related IT projects by marketplace 

type.

Table 4: State Survey-Reported Marketplace-Related Medicaid IT Spending through 

June 2014 

(Dollars in millions)

Marketplace type 90/10 75/25 Total

State-based marketplace $250

(n=11) 

$70

(n=9) 

$320 

Federally facilitated marketplace and partnership $310

(n=15) 

$120

(n=8) 

$430 

Total $560 $190 $750 

Source: GAO analysis of state survey responses. | GAO-15-527

Note: This represents costs reported by 11 states with a state-based marketplace for 90/10, 9 states 

with a state-based marketplace for 75/25, 15 states with a federally facilitated marketplace or 

federally facilitated partnership for 90/10, and 8 states with a federally facilitated marketplace or 

federally facilitated partnership for 75/25 funding. Reported spending includes federal and state 

funds. Because CMS did not require consistent reporting of marketplace-related IT spending, statereported data may not be consistent across states.

61On our survey, for state-based marketplaces, we asked about spending of Medicaid 

matching funds for marketplace IT solutions. For federally facilitated states, we asked 

about spending on marketplace-related IT projects which included but were not limited to 

assessing or planning for the systems needed to become a state-based marketplace, or 

any systems development, modernizations, or enhancements to the state’s Medicaid 

eligibility and enrollment system instituted for the purpose of connecting to the federal 

marketplace IT solution (e.g., developing interfaces to the federal services data hub and 

transferring accounts between Medicaid eligibility and enrollment systems and the federal 

marketplace IT solution).

62About $4.17 million of this $750 million was estimated.

Page 33 GAO-15-527 State Health Insurance Marketplaces

 
Generally, the states used federal funds (both marketplace grant and 

Medicaid matching funds) for various IT projects, including the 

establishment and operation of their marketplaces and their connection to 

the federal marketplace. Accordingly, the nature and extent of their efforts 

varied depending on which marketplace type they chose to establish.

The 17 states that were approved to establish state-based marketplaces, 

(i.e., the 14 state-based marketplaces and the 3 state-based 

marketplaces using the federal marketplace IT solution) undertook 

various IT projects to establish their marketplaces. These states generally 

used the funds to develop their IT solutions, including the web portal for 

individual consumer interaction (to set up user accounts, select health 

plans, and apply for health coverage); systems to perform the key 

marketplace functions (eligibility and enrollment, plan management, 

financial management, and consumer assistance); functionality for 

determining Medicaid and CHIP eligibility using new income standards;63

functionality for sharing marketplace enrollment data with qualified health 

plan issuers; and interfaces with federal systems through the federal data 

services hub (needed to conduct eligibility verifications). In documents 

provided to supplement the survey responses, states also reported using 

their funds to cover numerous other expenses for state personnel, 

systems integrator contracted services, interface development and 

maintenance, independent verification and validation services,64 project 

management, technical support, and software licenses.

Among the 34 states with a federally facilitated marketplace or federally 

facilitated partnership, IT projects typically involved system development 

to connect the states’ existing Medicaid systems to CMS’s federal data 

services hub. In addition, 17 of these states reported on our survey that 

they conducted projects to explore the option of developing IT systems to 

support a state-based marketplace (even though they ultimately chose to 

participate in the federally facilitated marketplace). For example, one 

state reported to CMS that it used grant funds to develop technical 

63Section 2002(a) of PPACA requires states to determine income eligibility for Medicaid 

using modified adjusted gross income standards, which is a uniform, tax-based definition 

of income.

64Independent verification and validation is a process whereby organizations can reduce 

the risks inherent in system development and acquisition efforts by having a 

knowledgeable party who is independent of the developer determine whether the system 

or product meets the users’ needs and fulfills its intended purpose.

States Used Federal Funds

to Establish Various Aspects

of Their Marketplaces

Page 34 GAO-15-527 State Health Insurance Marketplaces

 
requirements and an architectural design, along with a request for 

proposals to obtain a systems integrator for the implementation of a 

marketplace. Another state using the federally facilitated marketplace was 

awarded marketplace grant funds to support technology projects in

anticipation of becoming a state-based marketplace. According to CMS 

officials, states that initially planned for, but did not pursue, a state-based 

marketplace were required to return the funds to CMS or to re-budget the 

funds for non-IT costs. In addition, two federally facilitated partnership 

states used marketplace grant funds to develop new integrated Medicaid 

eligibility and enrollment systems needed to support new requirements, 

such as determining income eligibility for Medicaid using new income 

standards.

As of February 2015, the 14 states with state-based marketplaces had 

developed and were operating systems to support their marketplaces;65

however, not all IT functions were complete.

In particular, CMS reported that these 14 states’ marketplace systems 

were performing some, but not all, key functions, including those related 

to eligibility and enrollment, financial management, hub services, and IRS 

reporting:

• With regard to eligibility and enrollment functions, CMS status reports 

indicated that eight state-based marketplace systems were fully 

operational and operating without interruptions in service. The other 

six state-based marketplace systems were partially operational, 

meaning that these functions were operational but did not work as 

intended and may have required manual processes to supplement 

automated functionality.66 States with partially operational functions 

used business process workarounds to complete eligibility and 

enrollment functions, such as manually entering and verifying 

65These 14 state-based marketplaces are California, Colorado, Connecticut, the District of 

Columbia, Hawaii, Idaho, Kentucky, Maryland, Massachusetts, Minnesota, New York, 

Rhode Island, Vermont, and Washington. This does not include 3 states—Nevada, New 

Mexico, and Oregon—which are state-based marketplaces that use the federal 

marketplace IT solution.

66Functions were determined to be fully operational if they were fully functional without 

any interruptions in service and partially operational if the functions were operational but 

did not work as intended. Issues with partially operational functions may include the need 

for manual processes to supplement automated functionality or certain pieces of the 

functionality are not operational.

States Are Continuing to 

Improve the Development 

and Operations of Their 

Marketplace Systems, but 

Not All IT Functions Are 

Complete

Page 35 GAO-15-527 State Health Insurance Marketplaces

 
individuals for healthcare coverage. For example, in one state, 

applications to the state-based marketplace were sent by Medicaid as 

portable document format (PDF) files67 and processed by data entry 

specialists. In another state, data transferred from the marketplace to 

Medicaid was automated, but other information was manually entered.

• With regard to financial management functions such as collecting 

premium payments, remitting payments to issuers, and payment 

calculation for reinsurance, 4 state-based marketplace systems were 

fully operational without interruptions in service and 8 state-based 

marketplace systems were partially operational and may have 

required manual workarounds. (These functions were not applicable 

for 2 state-based marketplace systems that decided to rely on issuers 

to conduct premium billing and processing functions.68)

• Although all states developing state IT solutions had received 

approval from CMS to connect to the federal data hub, only 1 statebased marketplace state had fully completed development of hub 

services functions such as verifying an individual’s identity and 

citizenship and retrieving tax information for evaluating taxpayer 

eligibility for insurance affordability programs. Thirteen state-based 

marketplace states had partially completed hub services functions, 

meaning that they had not yet implemented all hub services because 

67PDF is a file format that has captured all the elements of a printed document as an 

electronic image that can be viewed, printed, or forwarded to someone else. 

68States chose from three options for financial management functions: (1) collecting 

premiums from applicants and remitting payments to issuers, (2) collecting the first 

month’s premium from applicants and remitting payments to issuers while the issuers 

directly collect subsequent premiums, and (3) having issuers collect all premiums from 

applicants.

Page 36 GAO-15-527 State Health Insurance Marketplaces

 
the testing or development had not been completed or independent 

verification and validation attestation had not yet been received.69

• With regard to submissions to IRS regarding information such as 

premium tax credits,70 1 state had fully completed performance testing 

of these functions, 10 states had partially completed performance 

testing, and 2 states had not completed any performance testing of 

these functions.71 Additionally, these functions were not applicable for 

1 state, which used the federal IT system in the previous enrollment 

period and was not responsible for IRS reporting.

The operational status of the state-based marketplace IT systems by 

functional category, as of February 2015 is summarized in table 5.

69Hub services functions included, for example, verifying the individual’s identity by calling 

the Remote Identity Proofing Precise Identity service, verifying Social Security number 

and citizenship, and retrieving tax return information for use in evaluating a taxpayer’s 

eligibility for insurance affordability programs. States that completed these functions had 

fully developed, tested, and implemented these services, and an independent verification 

and validation contractor had attested that the functionality had been tested. States that 

partially completed these functions had not yet implemented or automated hub services 

because the testing or development had not been completed or independent verification 

and validation attestation had not yet been received. According to CMS officials, not all 

hub services were required for a state to be operational because some hub services are 

not directly related to initial eligibility and enrollment. In addition, states were able to 

implement some hub services manually as a workaround option or through local data 

sources. 

70To expand access to health insurance that qualifies as minimum essential coverage, 

PPACA created the premium tax credit to subsidize premium costs for plans purchased by 

eligible individuals and families through the marketplaces. 

71States with state-based marketplaces were required to report certain information to the 

IRS and to individuals who enroll in qualified health plans through the marketplace. This 

information ensured that individuals received the amount of premium tax credit to which 

they were entitled, including those individuals who did not request advance payments of 

the premium tax credit at initial enrollment, but claimed it on their tax return. States 

completed these functions when performance testing was complete. States partially 

completed these functions when some, but not all, performance testing had been 

completed. These functions were not operational in states that had not completed any 

performance testing for these functions.

Page 37 GAO-15-527 State Health Insurance Marketplaces

 
Table 5: Operational Status of the 14 State-Based Marketplace IT Systems by 

Functional Category as of February 2015

State

Eligibility and 

enrollment

Financial 

management

Hub 

services

IRS reporting file 

submissions

California ● ◐ ◐ ◐

Colorado ◐ ◐ ◐ ◐

Connecticut ◐ ◐ ◐ ◐

District of 

Columbia

◐ ● ◐ ◐

Hawaii ◐ ◐ ◐ ○

Idaho ● ● ◐ Not applicable

Kentucky ● Not applicable ● ◐

Maryland ● Not applicable ◐ ◐

Massachusetts ● ● ◐ ◐

Minnesota ◐ ◐ ◐ ○

New York ● ◐ ◐ ◐

Rhode Island ◐ ◐ ◐ ◐

Vermont ● ● ◐ ●

Washington ● ◐ ◐ ◐

Legend:

● With regard to the status of IT systems, eligibility and enrollment and financial management 

functions were determined to be fully operational if they were fully functional without any interruptions 

in service. Hub services functions were determined to be fully complete if they were developed, 

tested, and implemented, and an independent verification and validation contractor had attested that 

the functionality has been tested. IRS reporting file submission functions were determined to be fully 

complete when performance testing was complete.

◐With regard to the status of IT systems, eligibility and enrollment and financial management 

functions were determined to be partially operational if the functions were operational but did not work 

as intended or included the need for manual processes to supplement automated functionality. Hub 

services functions were determined to be partially complete if functions had not yet implemented hub 

services because the testing or development had not been completed or because the attestation had 

not been received. IRS reporting file submission functions were determined to be partially completed 

when some, but not all, performance testing had been completed. This rating may also include states 

who had arranged to have CMS perform specific functions under these categories.

○ With regard to the status of IT systems, IRS reporting file submission functions were determined to 

be not operational for states that had not completed any performance testing.

Source: GAO analysis of Centers for Medicare & Medicaid Services data. | GAO-15-527

Note: Not all states agreed with CMS’s ratings of their operational status.

Further, between the first and second enrollment periods, 6 of the 17 

states with state-based marketplaces and state-based marketplaces 

using the federal marketplace IT solution changed their IT solution. In 

response to our survey, these states cited a variety of reasons for doing 

so, such as significant flaws in the system, unsuccessful system roll out, 

and non-working technology.

Page 38 GAO-15-527 State Health Insurance Marketplaces
The primary IT development and operations changes, as reported by the 

6 states to CMS, were the following:

• Two states with state-based marketplaces, Oregon and Nevada, 

stopped development on their marketplace IT solutions and decided 

instead to use the federal marketplace IT solution (i.e., Healthcare.gov 

and related systems) for eligibility and enrollment functions.

• New Mexico had delays in developing and operating its marketplace 

and used the federal marketplace IT solution as its platform for 

eligibility and enrollment for the first enrollment period. For the second 

open enrollment, the state continued to use the federal marketplace IT 

solution for the eligibility and enrollment functionality and 

subsequently decided to continue using the federal marketplace IT 

solution indefinitely.

• Maryland changed its IT solution to one that had been successfully 

implemented in Connecticut for the second enrollment period.

• Massachusetts replaced its existing system and implemented a 

commercial-off-the-shelf technology solution for the second 

enrollment period.

• Idaho, which previously used the federal marketplace IT solution, 

developed and operated its own marketplace IT solution for the 

second enrollment period.72

According to CMS documentation regarding marketplaces using the

federal marketplace IT solution, as of November 2014, 7 of 37 states 

using the federal marketplace IT solution could not transfer applications 

for health insurance coverage between their state Medicaid systems and 

the federal data services hub or had not completed testing or certification 

of these functions. Specifically, 3 of the states could not transfer—send 

and receive—applications for health insurance coverage between the 

state Medicaid and federal marketplace IT solution.73 The other 4 states 

72Idaho had previously acknowledged significant delays in completing benchmark 

activities during the first enrollment period, and thus had used the federal marketplace IT 

solution during the first enrollment period. According to Idaho’s marketplace Executive 

Director, legislation enabling the creation of a state-based marketplace was not signed 

until March 2013, which did not allow sufficient time for successful development and 

deployment of its own technology.

73Kansas, New Jersey, and Oregon could not establish an interface to automatically 

transfer applications between state Medicaid and marketplace systems.

Page 39 GAO-15-527 State Health Insurance Marketplaces

 
had not completed testing and certification of those functions.74 CMS 

officials stated that the agency was continuing to work with the 7 states 

that had not fully implemented these functions to ensure implementation 

as soon as possible.

In addition, as of April 2015, the transfer of applications between state 

Medicaid systems and the federal marketplace IT solution were not taking 

place in real time, and according to a CMCS official, achieving this 

capability is a goal for 2015 or 2016. For example, in one state, it took 

about 15 minutes to send applications between state Medicaid systems 

and the federal marketplace IT solution in either direction. In another 

example, a state held on to applications received and sent them at the 

end of the day. According to CMCS officials, states using the federal 

marketplace IT solution continue to focus on completing their eligibility 

system modernization, resolving defects, and making improvements to 

systems so that business processes require less manual intervention.

To address the requirements of PPACA and its implementing policies, 

CMS engaged in various activities to oversee the states’ marketplace IT 

projects. In particular, the agency assigned oversight roles and 

responsibilities, put in place various reporting systems, and established a 

series of reviews that were to help ensure that states’ systems were 

adequately tested and functioning as intended. Nonetheless, even with 

these steps, CMS did not clearly document, define, and communicate its 

oversight roles and responsibilities to state officials, and it did not 

consistently involve senior executives in the review and approval of 

federal funding for states’ IT marketplace projects. In addition, CMS’s 

reviews of the states’ progress were not always effective in ensuring that 

systems and capabilities being developed to support the states’

marketplaces were fully tested before they became operational.

States that established and operated their own (state-based) 

marketplaces generally used quasi-governmental entities to oversee their 

marketplace IT projects; they also relied on various oversight 

mechanisms, including executive steering committees, management 

change control boards, and technical review boards. Meanwhile, states 

with a federally facilitated marketplace or federally facilitated partnership 

oversaw their IT projects through existing state agencies.

74Georgia, Ohio, South Carolina, and Tennessee had not completed testing and 

independent certification of the account transfer function.

CMS and States 

Established a 

Framework for 

Oversight, but CMS 

Oversight Was Not 

Always Effectively 

Executed

Page 40 GAO-15-527 State Health Insurance Marketplaces

 
To oversee states’ efforts in undertaking IT projects to support the 

establishment and operation of their marketplaces, CMS identified 

numerous internal offices and groups to which it had assigned roles and 

responsibilities. As previously mentioned, three key offices—CCIIO, OTS, 

and CMCS—were responsible for overseeing states’ efforts in 

establishing the marketplaces. These three offices were to conduct 

oversight activities, such as being involved in joint grant reviews, 

Medicaid advanced planning document reviews, and IT gate reviews, to 

ensure that states followed a standardized funding process.

Their primary roles and duties included the following:

• CCIIO led the marketplace implementation, and within that office, 

State Officers were assigned to be accountable for day-to-day 

communications with the state marketplace officials. CCIIO officials 

were also involved in grant funding decisions.

• OTS was responsible for systems integration and software 

development efforts to ensure that the functions of the marketplaces 

were carried out. A primary participant within OTS was the IT project 

manager, who was the individual responsible for monitoring, among 

other things, state-based marketplaces’ IT development activities and 

support for states that transitioned from one marketplace type to 

another. OTS officials also provided technical reviews to State 

Officers to inform grant funding decisions.

• CMCS was the office responsible for coordinating and approving 

Medicaid matching fund requests and implementation activities 

related to the state health insurance marketplaces. The office carried 

out these responsibilities in conjunction with CCIIO. CMCS officials 

identified the enrollment and eligibility specialists as the primary 

contacts within their office.

In addition, CMS established a group called the Cross Component 

Committee to address marketplace-related issues across states. The 

committee, which included members from OTS, CCIIO, and CMCS, was 

tasked with overseeing the states’ progress to ensure that all marketplace 

requirements were aligned with CMS policy. Major policy issues identified 

through the committee were raised to business unit directors within the 

agency.

CMS also informed us of other offices and groups within the agency that 

had roles and responsibilities for overseeing states’ marketplace IT 

projects. Based on written and oral descriptions of the various offices and 

CMS Identified Oversight 

Roles and 

Responsibilities, but 

These Were Not Always 

Clearly Documented, 

Defined, or Communicated

Page 41 GAO-15-527 State Health Insurance Marketplaces
groups, as provided by CCIIO, CMCS, and OTS officials, we compiled the 

information in table 6 to summarize CMS’s identified roles and 

responsibilities for overseeing state marketplace IT projects.

Table 6: CMS Offices and Groups Responsible for State Marketplace IT Project Oversight

Office or group State marketplace roles and responsibilities

Office of the Administrator Directs the planning, coordination, and implementation of programs that provide access to 

health care, which encompasses administering Medicare, Medicaid and the Children’s 

Health Insurance Program (CHIP). This includes responsibility for overseeing CMS as it 

provides funding and guidance to states for implementing the insurance reforms and 

health insurance marketplace provisions enacted under the Patient Protection and 

Affordable Care Act (PPACA). The Principal Deputy Administrator is located within the 

office of the Administrator.

Center for Consumer Information and 

Insurance Oversight (CCIIO)

Leads marketplace implementation and is to provide consumers with information on 

insurance coverage options. It is also to implement, monitor compliance with, and enforce 

rules governing the insurance market reforms enacted under PPACA. Further, it is to 

develop and implement policies and rules governing state-based marketplaces, oversee 

the operations of state-based marketplaces, and administer the federal marketplace for 

states that elect not to establish their own. Key officials within this office include the 

following:

Marketplace Chief Executive Officer: Serves as the head of CCIIO and is responsible 

for managing the office’s operations, to include managing the federal marketplace. The 

official is also responsible for directing the state marketplace group and managing 

relations with the state marketplaces.

State Officers: Serve as CCIIO’s primary points of contact to assigned states, with 

responsibility for leading and facilitating state calls, reviews, and debrief sessions. These 

officials are to provide federal program oversight of state marketplace grant 

implementation, and are considered to be the technical experts in the programmatic and 

grants monitoring process. In addition, they are to develop and monitor state action plans 

and ensure that states receive necessary guidance and assistance; create agendas for 

state calls; and identify and provide CCIIO leadership with updates on states’ progress, 

challenges, risks, and technical assistance requirements. The State Officers report to the 

Director of the State Marketplace group, who reports to the Marketplace Chief Executive 

Officer. Finally, they lead and coordinate the state-based, inter-agency Establishment 

Review process.

Page 42 GAO-15-527 State Health Insurance Marketplaces
Office or group State marketplace roles and responsibilities

Office of Technology Solutions Leads system integration for enterprise-wide and component-specific software 

development efforts to ensure that the functions of Medicare, Medicaid, and the 

marketplaces are carried out. Several groups within this office have specific marketplace 

responsibilities, including the following:

Rapid Program Deployments Group: Responsible for providing executive leadership 

and direction to ensure successful implementation of system changes and new 

functionality to support PPACA. The group provides technical assistance and guidance to 

state entities and coordination with multiple federal agencies, to ensure conformance with 

IT standards required to support PPACA.

Rapid Program Deployments Group, Division of State IT Program Services:

Responsible for providing IT guidance and oversight for state-based marketplaces 

(including integration with any federally provided support services). This group also 

collaborates with the Center for Medicaid and CHIP Services (CMCS) and CCIIO to 

deliver state-based marketplace support.

IT Project Managers: Monitor state-based marketplaces’ IT development activities, 

marketplace implementation and operation reporting, and transition state activities (i.e., 

states with a federally facilitated marketplace or federally facilitated partnership and statebased marketplaces). Their responsibilities include holding weekly/bi-weekly calls with the 

states to discuss progress, review contracts, and provide feedback/input; reviewing 

advanced planning documents for Medicaid funding of state-based marketplace IT 

development activities; and providing feedback and producing state-based marketplace 

implementation and operational progress reports on a quarterly or as-needed basis.

Center for Medicaid and CHIP Services 

(CMCS)

Serves as CMS’s focal point for assistance with formulation, coordination, integration, and 

implementation of all national program policies and operations relating to Medicaid, the 

Children’s Health Insurance Program (CHIP), and the Basic Health Program (BHP).a

CMCS is also the lead for management, oversight, budget, and performance issues 

relating to Medicaid, CHIP, BHP, and the related interactions with states and the 

stakeholder community. CMCS utilized its Data and Systems Group Division of State 

Systems to coordinate and approve Medicaid funding requests and implementation 

activities related to the state health insurance marketplaces in conjunction with CCIIO. 

Key groups and officials within this office include the following:

Data and Systems Group, Division of State Systems: Develops CMCS national 

Medicaid IT policies and guidance and coordinates and approves state funding requests 

and implementation activities related to the state and federal health insurance 

marketplaces with CCIIO. Develops and implements new applications for state system 

enhancements and reviews and certifies Medicaid eligibility systems.

Eligibility and Enrollment Specialists: CMS identified this as a primary role in oversight 

of state marketplace IT projects, but responsibilities of this position were not defined in 

CMS policy or procedures.

Office of Acquisition and Grants 

Management (OAGM)

Reviews and provides guidance on grant services for state marketplaces.

Office of Communications (OC) Serves as CMS’s focal point for internal and external strategic and tactical 

communications. The office advises the Administrator regarding all activities related to the 

media. It also provides consultation, advice, and training to CMS’s senior staff with 

respect to relations with the news media. This office has membership on other boards 

that discuss state marketplace IT projects.

Page 43 GAO-15-527 State Health Insurance Marketplaces
Office or group State marketplace roles and responsibilities

Marketplace Operations Board Tasked with providing strategic and tactical direction and guidance for the implementation 

of marketplace program requirements, as well as with managing and integrating the 

planning, development, and operations of the marketplace program across CMS. The 

board, which concluded its activities in August 2014, reported to the Office of the 

Administrator through the Chief Operating Officer/Marketplace board. Voting members of 

this board included representatives from CCIIO, CMCS, OC, Offices of Hearings and 

Inquiries, Consortium for Medicare Health Plans Operations, and OTS. 

CMS Cross Component Committee Reviews and discloses all of CMS’s communications with the state marketplaces and 

other stakeholders, include holding meetings, and distributing policies, IT guidance, and 

correspondence, to ensure that these communications and interactions are shared 

among all CMS staff. The Committee is responsible for raising any unresolved issues to 

the business unit directors, who then raise them to the Marketplace Operations Board as 

appropriate. The CCC includes leadership members from CMCS, OIS, and CCIIO.

Health Reform Operations Board Resolves intra-agency challenges related to implementation of Medicaid expansion and 

the state health insurance marketplaces. The Health Reform Operations Board is a 

collaborative forum of individuals with responsibility for facilitating discussions on key 

policy and operational issues that impede progress on marketplace activities, directing the 

formulation of work groups to support efficiencies, and assigning resources as necessary 

to effect the implementation of the marketplace.b

IT Exchange Steering Committee Serves as a collaborative body for addressing and resolving persistent inter-agency 

challenges related to the implementation of state marketplaces. The Steering Committee 

is made up of three workgroups (i.e., data sharing and privacy, security harmonization, 

and operational oversight) with an Executive Secretariat who acts as a liaison between 

the Steering Committee and departments. There are seven departments and agencies 

represented on the committee.c

State Operations and Technical 

Assistance Teams

Established by CMS in April 2012 to create an efficient and responsive pathway for CMS 

to provide support and technical assistance to states on matters related to implementation 

of the Medicaid and CHIP provisions of PPACA.d The State Operations and Technical 

Assistance teams serve as a point of contact for information sharing related to 

implementation of building the infrastructure to accommodate Medicaid coverage. 

Source: GAO analysis of CMS data. | GAO-15-527

Note: Unless otherwise indicated, the boards and committees listed in the table above were 

operational as of May 2015.

a

The Basic Health Program gives states the ability to provide more affordable coverage for lowincome residents and improve continuity of care for people whose income fluctuates above and below 

Medicaid and CHIP levels.

b

The Deputy Chief Operating Officer serves as the chairperson of the Health Reform Operations 

Board. Membership of the Health Reform Operations Board includes senior executives from CCIIO, 

CMCS, OC, the Office of Financial Management, the Office of Acquisition and Grants Management, 

and the Consortium for Medicare Health Plans Operations. The Deputy Chief Operating Officer 

serves as the chairperson of the Health Reform Operations Board.

c

The Federal Chief Information Officer, the Health Program Associate Director, and the U.S. Chief 

Technology Officer, in the Executive Office of the President were to serve as co-Chairpersons for the 

Affordable Care Act IT Steering Committee. Membership of the IT Exchange Steering Committee 

includes senior executives from CMS, IRS, the Department of Homeland Security, the Department of 

Defense, the Department of Veterans Affairs, the Social Security Administration, and the Peace 

Corps.

d

Membership of this group includes state Medicaid and CHIP Directors and CMS officials from 

CMCS’s Office of the Center Director, the Children and Adults Health Programs Group, the Data and 

Systems Group, the Consortium for Medicaid and CHIP Operations, and the Associate Regional 

Administrator for Medicaid.

Page 44 GAO-15-527 State Health Insurance Marketplaces
In addition to establishing marketplace roles and responsibilities, CMS 

identified various reporting systems that were to be used to assist federal 

officials in overseeing state marketplace IT project funding and progress. 

For example, the agency relied on state marketplace information that it 

compiled in multiple computer systems to make funding decisions and 

provide technical assistance to state officials.75 CMS also maintained or 

utilized other systems that allowed states to apply for marketplace grant 

funding online and to transfer funds to states to establish and operate 

their marketplace.76 Additional systems allowed states to report to CMS 

on their grant IT expenditures; upload documentation related to their 

marketplace IT projects, such as project plans and testing and 

requirements documents; and share best practices with each other.77

Project management best practices emphasize the importance of clearly 

documenting, defining, and communicating project roles and 

responsibilities during the organizational planning process.78 During this 

process, to make the most effective use of the people involved with a 

project, best practices cite the importance of identifying, documenting, 

and clearly assigning project roles, responsibilities, and reporting 

relationships. Effective communication means that the information is 

provided in the right format, at the right time, to the right audience, and 

with the right impact. Adequate communications planning avoids 

problems such as delays in message delivery, insufficient communication 

to stakeholders, and misunderstanding or misinterpretation of the 

message communicated.

According to best practices identified in the Project Management 

Institute’s Guide to the Project Management Body of Knowledge, a key 

document needed to ensure that communication is carried out effectively 

75These funding and technical assistance-related computer systems were Grant Solutions 

and the State Exchange Resource Tracking System. 

76These application and payment systems were Grants.gov and the Payment 

Management System. 

77These expenditure reporting and documentation sharing systems were the On-Line Data 

Collection System and the Collaborative Application Lifecycle Tool. 

78GAO-04-394G and Project Management Institute, Inc., A Guide to The Project 

Management Body of Knowledge (PMBOK® Guide), Fifth Edition, (Newton Square, Pa.: 

2013). “PMBOK” is a trademark of the Project Management Institute, Inc.

Page 45 GAO-15-527 State Health Insurance Marketplaces

 
is a communications management plan.79 The communications 

management plan describes how project communications will be planned, 

structured, monitored, and controlled in a comprehensive document, 

including stakeholder communication requirements; the method of 

updating and refining the communications management plan as the 

project progresses and develops; and charts the information flow in the 

project. Among other things, it should include persons or groups who are 

responsible for communicating and receiving the information, the process 

and associated time frames for escalating issues that cannot be resolved 

at lower levels, and workflows that show the order of information 

authorization. In addition, according the Project Management Institute’s 

Guide to the Project Management Body of Knowledge, a communications 

management plan is a comprehensive document that contains the entire 

scope of the project and is updated regularly to reflect the current 

communication and stakeholders.

However, while CMS established roles and responsibilities to help 

oversee marketplace activities, the agency did not always clearly 

document, define, and communicate marketplace IT project roles and 

responsibilities to the states. Despite the complexity inherent in 

overseeing marketplace IT project efforts across 50 states and the District 

of Columbia, CMS did not have a comprehensive communication plan 

that clearly documented and defined its state marketplace oversight 

structure and all the associated roles and responsibilities of key 

organizations and officials that were involved in state marketplace 

oversight. Instead, the agency’s definition and communication of roles 

and responsibilities were dispersed among various websites, operating 

procedures, and other documents, such as those we used in developing 

table 6. For example, roles for officials such as the CMS Administrator 

and Principal Deputy Administrator were located on the agency’s website, 

while other roles and responsibilities, such as those of the CCIIO State 

Officers, were described in one of the agency’s standard operating 

procedures. Additionally, CMS officials within CCIIO and CMCS stated 

that some roles and responsibilities are embedded in memorandums of 

agreement.

79Project Management Institute, Inc., A Guide to The Project Management Body of 

Knowledge (PMBOK® Guide), Fifth Edition, (Newton Square, Pa.: 2013). “PMBOK” is a 

trademark of the Project Management Institute, Inc.

Page 46 GAO-15-527 State Health Insurance Marketplaces

 
Further, while the agency had documented selected stakeholder 

responsibilities in a matrix that CCIIO, OTS, and CMCS officials said 

applied to state marketplace IT projects, this document only identified 

responsibilities specifically associated with CMS’s development of the 

Healthcare.gov web portal supporting the federally facilitated marketplace 

and did not include all the personnel associated with oversight of the state 

marketplaces. Specifically, it did not identify all stakeholders that would 

be included in a more comprehensive communications plan developed for 

the management of state marketplace IT projects, including the CCIIO 

State Officers, the Marketplace Chief Executive Officer, and relevant state 

officials.

The agency also provided a standard operating procedure for 

marketplace communications and technical assistance80 that contained 

selected CMS roles and instructions for providing technical assistance to 

states. However, the procedure was identified as a draft document from 

January 2013, and was limited to addressing technical assistance, which 

did not represent the full range of stakeholder and IT oversight activities. 

For example, the document did not identify all groups that are to receive 

pertinent information, a process identifying time frames and the 

management chain for escalating the communication of information, or 

workflows for issuing and disseminating guidance to states.

Further, officials within CCIIO, CMCS, and OTS did not recognize certain 

organizations as having a role in marketplace IT activities, even though 

they should have done so. For example, while the officials told us that the 

Office of Communications does not have a role in states’ marketplace IT 

oversight, this office is identified as a member in the charters of key 

committees and boards responsible for state marketplace IT project 

oversight, including the Cross Component Committee, Marketplace 

Oversight Board, and Health Reform Operations Board.

In discussing this matter, CCIIO and CMCS officials acknowledged that 

they had not created a comprehensive communication plan containing all 

relevant oversight roles and responsibilities. According to these officials, 

certain roles and responsibilities were not defined and documented 

because they were considered to be general public knowledge for which 

80Department of Health and Human Services, Centers of Medicare & Medicaid Services, 

Standard Operating Procedure – Coordination of CMS Exchange IT, FFE and Hub Onboarding Communications and Technical Assistance Draft Version 0.2 (Jan. 10, 2013).

Page 47 GAO-15-527 State Health Insurance Marketplaces

 
no detailed documentation was necessary. They added that, in the 

absence of a specific document or process, states were informed of who 

their points of contact were by e-mail or weekly calls. Further, these 

officials noted that all communications to the states were routed through 

the CCIIO State Officers, thus replacing the need for a comprehensive 

communications management plan.

As previously described, CMS provided oversight and technical 

assistance to states in establishing their marketplaces. In responding to 

our survey, states with a state-based marketplace, including those using 

the federal marketplace IT solution, provided generally positive ratings of 

the clarity, completeness, and timeliness of CMS’s communication, while 

federally facilitated states, including federally facilitated partnerships, 

provided a higher rate of dissatisfaction.81 Similarly, state-based 

marketplace states provided generally positive ratings of the clarity, 

completeness, and timeliness of CMS’s guidance, while federally 

facilitated states provided a higher rate of dissatisfaction.82

While states with all marketplace types reported in our survey being 

generally satisfied with the level of CMS oversight and assistance, 

several states identified instances of delayed or insufficient 

communications with CMS. Specifically, of the 36 states that responded 

to our survey question regarding CMS’s overall oversight and assistance, 

25 states rated it as just right, 4 rated it as more than enough, and 7 rated 

it as less than enough. Further, of the 17 states that provided comments, 

5 spoke positively about CMS’s support and 1 spoke positively about the 

completeness and timeliness of CMS guidance.

81States reported that they were satisfied, dissatisfied, or neither satisfied nor dissatisfied 

with CMS communication. Of the 16 state-based states that rated CMS’s communication, 

14 states were satisfied with the clarity, 14 were satisfied with the completeness, and 10 

were satisfied with the timeliness. Of the 24 states with a federally facilitated marketplace 

or federally facilitated partnership that rated CMS’s communication, 12 were dissatisfied 

with the clarity, 13 were dissatisfied with the completeness, and 17 were dissatisfied with 

the timeliness. 

82States reported that they were satisfied, dissatisfied, or neither satisfied nor dissatisfied 

with CMS guidance. Of the 16 state-based states that rated CMS’s guidance, 13 states 

were satisfied with the clarity, 13 were satisfied with the completeness, and 9 were 

satisfied with the timeliness. Of the 24 states with a federally facilitated marketplace or 

federally facilitated partnership that rated CMS’s guidance, 14 were dissatisfied with the 

clarity, 15 were dissatisfied with the completeness, and 20 were dissatisfied with the 

timeliness.

Page 48 GAO-15-527 State Health Insurance Marketplaces

 
The remaining 11 states provided both mixed and negative comments 

regarding the completeness and timeliness of CMS guidance that 

included roles and responsibilities.83 For example, these states noted that 

they generally had experienced some type of delay in message delivery 

from CMS, insufficient communication with the stakeholders, and 

misunderstandings or misinterpretations of the messages communicated. 

For example, these states generally reported that they lacked complete 

and timely policy and business guidance from CMS, which impacted their 

IT development deadlines, created rework, and necessitated moving 

forward to develop solutions without knowing if the agency would approve 

or disapprove of their marketplace solutions.

Overall, responses to our survey questions indicate that CMS may not 

have always provided the level of consistent and comprehensive 

communication of roles and responsibilities that is necessary to support 

states in effectively establishing and operating their marketplace systems. 

Having a comprehensive communications management plan that 

identifies and conveys the roles and responsibilities of key organizations 

and officials could be a valuable resource as states move forward on any 

further marketplace IT efforts.

To oversee its own IT projects, such as the development of 

Healthcare.gov and related systems, CMS created a process called the 

eXpedited Lifecycle Process.84 This process required reviews and 

approvals by senior-level CMS executives, generally the Director or 

Deputy Director of the agency’s IT unit—OTS—and business units, 

including CCIIO, CMCS, and OAGM. According to the agency’s guidance, 

these senior-level executives should be individuals who have the 

authority to speak for, vote for, and otherwise make commitments on 

behalf of their business units. This approach is consistent with best 

practices in GAO’s IT investment management framework, which 

emphasizes the importance of having senior executive-level decision 

makers, such as the heads of IT and business units, involved in 

83As previously discussed, CMS’s guidance to states included documentation such as 

memorandums of agreement that, among other things, described roles and 

responsibilities for CMS and state officials. 

84The eXpedited Lifecycle Process is CMS’s system development life-cycle process. The 

purpose of these reviews is to provide management and stakeholders with the opportunity 

to assess project work to date and identify any potential issues.

Federal Funding Decisions 

for State Marketplace IT 

Projects Did Not Always 

Include Senior-ExecutiveLevel Oversight

Page 49 GAO-15-527 State Health Insurance Marketplaces

 
investment decisions.85 Such involvement by senior executives provides 

accountability for investment decisions and helps ensure that these 

decisions are consistent and reflect the goals of the agency.

Similar to the eXpedited Lifecycle Process, CMS created its 

Establishment Review process, which states were required to comply with 

(as part of their cooperative agreements with CMS) in order to receive 

marketplace grant funding. The Establishment Review process is a 

structured grant monitoring approach that consists of multiple technical 

reviews for assessing the state’s progress and associated IT project 

documentation. States must obtain CMS approval to access restricted IT 

grant funds86 by passing technical review gates associated with the 

planning, design, and implementation of their projects.

However, unlike the eXpedited Lifecycle Process that CMS uses to 

manage its own investments at the federal level, the Establishment 

Review process did not include representation from all relevant senior 

executives in the agency to review and approve the planned marketplace 

IT projects prior to releasing federal funding to the states. Specifically, 

CMS’s standard operating procedure for State Officers identified the IT 

and business units involved in the Establishment Review process, which 

included CCIIO, CMCS, OTS, and OAGM, among others. However, with 

the exception of the Director of CCIIO, it did not clearly require 

involvement by the heads of the other IT and business units involved in 

this process. For example:

• CMS did not demonstrate that senior-level executives from all relevant 

business and IT units were involved in the initial approval of grant 

awards. According to the operating procedure and officials from these 

business and IT units, the agency’s Objective Review Committee was 

tasked with reviewing state applications for federal marketplace 

grants. This committee consisted of subject matter experts from both 

inside and outside the federal government who scored applications 

during a review in which the State Officer participated to answer 

questions. The State Officer then prepared federal marketplace grant 

85GAO-04-394G.

86As noted previously, a portion of the marketplace grant funds provided to states was 

restricted for IT contractual spending until states were able to show development 

progress. 

Page 50 GAO-15-527 State Health Insurance Marketplaces

 
funding recommendations to OAGM and the Deputy Director of the 

State Exchange Group within CCIIO, who made the final decision on 

grant awards. However, it was unclear who these subject matter 

experts were or whether there were executives at the appropriate 

level involved with these decisions.

• CMS did not provide evidence that senior executives from all relevant 

business and IT units were involved in approving the release of 

restricted IT funds from marketplace grants as states progressed with 

their projects. According to CMS’s standard operating procedure and 

officials in CCIIO and OAGM, decisions to release restricted state IT 

funding were made by the Deputy Director of the State Exchange 

Group within CCIIO and OAGM grant management officers, who were 

responsible for reviewing and providing guidance on grant services for 

state marketplaces. These decisions were based on input from CCIIO 

State Officers, who served as primary points of contact to assigned 

states, and IT project managers in OTS, who were responsible for 

monitoring state-based marketplaces’ IT development activities. 

However, these officials did not hold executive-level positions.

• CMS did not provide evidence of executive-level involvement in the 

approval of Medicaid funds for marketplace IT projects. CMCS 

officials stated that they followed CMS’s Establishment Review 

process in order for states to receive Medicaid matching funds and 

that the approval of these funds was a coordinated effort between 

CCIIO and CMCS. However, they did not identify the specific officials 

responsible for approving these funds or provide evidence to show the 

approval process included senior executives from CMCS, CCIIO, and 

other relevant business units.

CCIIO, CMCS, and OTS officials told us that they believed their 

Establishment Review process included the appropriate officials to review 

and approve state requests for federal funding. These officials added that 

they used their existing organizational structure to oversee decisions 

regarding marketplace grants and Medicaid funds.

However, without the involvement of senior executives from all relevant IT 

units, such as OTS and business units such as CCIIO and CMCS to 

review and approve all federal funds invested in the state marketplace IT 

projects, CMS has less assurance that decisions are being coordinated 

among officials with a perspective across their respective business units 

and the agency as a whole. By ensuring such executive involvement, 

CMS would increase accountability for decisions to fund states’ IT 

Page 51 GAO-15-527 State Health Insurance Marketplaces
projects and better ensure these decisions are well informed and make 

efficient use of federal funds.

As part of its marketplace oversight, CMS established a process to review 

states’ progress on related IT projects. This framework, called the 

Enterprise Life Cycle, requires states to provide CMS specific artifacts 

supporting their projects, such as the concept of operations, system test 

documents, and project plans, among others. The framework focuses on 

incremental reviews of the projects at distinct stages, or “gates.” For each 

review, states are expected to show CMS an acceptable level of progress 

and maturity in their projects’ development before proceeding to the next 

project phase. Table 7 describes the various Enterprise Life Cycle gate 

reviews.

Table 7: Enterprise Life Cycle Gate Reviews

Review Description

Architectural Review The purpose of this review is to ensure the state has a clear and well-defined system concept 

of operations and comprehensive project management plan. The project scope and boundary 

must be clearly defined at this point, and each state must be able to demonstrate a Medicaid 

information technology architecture (MITA) assessment and roadmap to MITA compliance for 

any Medicaid-related aspects of their project.

Project Baseline Review The Project Baseline Review is to demonstrate that the project planning process is largely 

complete and that a fully developed concept of operations and project management plan 

have been established and baselined.

Final Detailed Design Review This review is to demonstrate that a complete set of system designs has been produced, that 

the design is founded on a complete set of requirements, and the project is ready to proceed 

with system development activities. This includes demonstrating that all systems, 

subsystems, interfaces, and operational threads are fully specified, documented, and 

baselined. CMS expects that an independent party has validated the system requirements 

and the system and detailed designs before it conducts this review.

Operational Readiness Review The Operational Readiness Review is to determine whether the system is ready to go into 

production. The state must demonstrate it has concluded all system testing and completed 

any remedial actions; all operator and user training for the support staff; and all privacy, 

security, and accreditation activities.

Annual Operational Analysis Review During the Operations and Maintenance Phase, the Operational Analysis Review examines 

the operating status of the system through a variety of key performance indicators and 

determines whether the system is performing in an efficient and effective manner.

Source: GAO analysis of CMS information. | GAO-15-527

These reviews were important because they were intended to 

demonstrate that the state marketplaces were ready to go live. In 

particular, during the operational readiness reviews, states establishing 

state-based marketplaces were required to demonstrate that they had 

met requirements, such as concluding all system testing, before the IT 

projects could proceed from development to operations. The Enterprise 

CMS Reviews of State 

Marketplace IT Projects 

Did Not Fully Ensure

State Systems Were 

Ready for Operation

Page 52 GAO-15-527 State Health Insurance Marketplaces
Life Cycle guidance defines this review as the agency’s determination 

that the state marketplace is ready to go into production. Based on these 

operational readiness reviews, CMS was to either approve the state’s 

system for operation or grant a conditional approval to proceed if the 

system was substantially compliant with the requirements of the review.

However, the operational readiness reviews did not always meet the 

agency’s stated goal to ensure that states’ marketplace systems were 

ready for production. For the first enrollment period, CMS conducted 

operational readiness reviews of 15 state-based marketplaces in August 

and September 2013.87 However, CMS conditionally passed all of those 

states without fully ensuring that they had conducted all required system 

testing and demonstrated that their systems were ready for production as 

called for in its Enterprise Life Cycle guidance. For example, CMS 

documentation from these operational readiness reviews showed the 

following:

• Maryland demonstrated several eligibility and enrollment functions. 

However, the state had only completed approximately half of the 

planned user acceptance testing and had over 100 outstanding highpriority defects. In addition, almost 500 total defects had yet to be 

resolved.

• Nevada also demonstrated several eligibility and enrollment functions. 

However, the state had not submitted test reports for all end-to-end 

system testing, and user acceptance testing was in progress. The 

report identified 42 critical or major defects that needed to be 

addressed.

• Massachusetts demonstrated several eligibility and enrollment 

functions. However, the state had not completed testing and reported 

1,170 open defects.

Nonetheless, all state-based marketplace systems were conditionally 

approved and went live on October 1, 2013. Consumers in many states 

subsequently experienced widespread problems when using these IT 

solutions to apply for health insurance coverage during the first 

87These 15 state-based marketplaces are California, Colorado, Connecticut, the District of 

Columbia, Hawaii, Kentucky, Maryland, Massachusetts, Minnesota, Nevada, New York, 

Oregon, Rhode Island, Vermont, and Washington. Idaho and New Mexico were statebased marketplaces that used the federal marketplace IT solution. 

Page 53 GAO-15-527 State Health Insurance Marketplaces

 
enrollment period, and in four states these problems were so severe that 

the states switched to a different solution.88

According to CMS officials, these four states implemented new 

marketplace IT solutions or used the federal marketplace IT solution in 

the second open enrollment period and successfully conducted 

enrollment even if some states had to create manual workarounds. 

However, according to CMS documentation, as of November 2014, eight 

states continued to have outstanding follow-up items from their 

operational readiness reviews that had not been addressed. In May 2015, 

officials in CCIIO, CMCS, and OTS stated they were actively working with 

these states to complete their outstanding open items.

CCIIO officials further noted that the Enterprise Life Cycle gate reviews 

were not intended to be “pass or fail,” but to set the appropriate level of 

expectations for the status and progress of marketplace development and 

implementation and to identify areas where states may require 

assistance. In addition, CCIIO officials stated that, if all the milestones 

were not met during the gate review, they planned to conduct more 

frequent follow-up to improve the state’s position. They also said that 

although the IT component did not work for certain states, the agency 

granted conditional approvals because the states were able to build 

workarounds and put manual processes in place to allow individuals to 

submit applications and enroll in health coverage. Officials in OTS added 

that, although they made suggestions for improvements, states could 

choose whether or not to implement CMS’s recommendations.

However, when CMS granted states conditional approval to go live, they 

did not ensure states’ systems had been fully tested, which is part of the 

structured and disciplined approach to oversight that is outlined in the 

agency’s Enterprise Life Cycle. By not ensuing that systems were 

completely tested, the agency lacked assurance that the states’

marketplace IT systems would performed as intended which, in some 

cases, resulted in applicants facing long waits for eligibility 

determinations, websites freezing midway through the process of 

applying for coverage, and systems being taken offline for days at a time, 

forcing applicants to enroll manually.

88The four states that switched IT solutions after the first enrollment period were 

Massachusetts, Maryland, Nevada, and Oregon. 

Page 54 GAO-15-527 State Health Insurance Marketplaces

 
The extent and manner of oversight that states exercised over 

marketplace IT projects depended in large part on the type of 

marketplace they chose to establish. For state-based marketplaces, state 

officials were responsible for overseeing various IT activities associated 

with the development and operations of their marketplaces. Specifically, 

states were required to oversee the planning involved with becoming a 

state-based marketplace. Thus, among other things, state officials were 

responsible for ensuring that key functionality requirements in areas such 

as eligibility and enrollment, plan management, consumer assistance, 

and financial management, were included in the development of the 

marketplace.

Additionally, these states were responsible for overseeing contractors, 

who carried out various marketplace IT project-related activities, such as 

system integration, platform builds, project management, independent 

verification and validation, and security assessments. State officials were 

to follow CMS policy and guidance when establishing the marketplaces, 

including preparing project artifact deliverables, such as the marketplace 

concepts of operation, system test documents, and project plans. They 

also were to comply with financial and performance reporting 

requirements of CMS’s Enterprise Life Cycle process.

To oversee their marketplaces, 13 of 17 states with state-based 

marketplaces, including those using the federal marketplace IT solution, 

reported on our survey that they established “quasi-governmental”

entities, which were created by state legislation to oversee marketplace 

activities and interface with CMS to fulfill the state’s marketplace 

responsibilities. These entities are governed by a board made up of 

representatives from consumer groups and health insurance issuers, 

since CMS policy requires a balance of consumer and business interests 

on the board. The board is responsible for governance of the 

marketplace, making key marketplace decisions, and holding regularly 

scheduled meetings.

By contrast, 4 of these 17 states reported on our survey that they chose 

to operate their marketplace through an existing state agency, such as a 

state department of health or Medicaid agency. If a state-based 

marketplace was housed within an existing state agency, then that 

marketplace was typically led by directors or an advisory board, and the 

leadership team typically reported to the governor’s office.

States with state-based marketplaces, including those using the federal 

marketplace IT solution, reported on our survey that they also established 

States’ Oversight Roles 

Varied Depending on 

Marketplace Type

Page 55 GAO-15-527 State Health Insurance Marketplaces
various committees and boards to assist state officials in overseeing the 

marketplace’s IT funding and progress. These oversight committees and 

boards included steering committees, management change control 

boards, and technical review boards, among others.

• Steering committees: All states with state-based marketplaces had 

established this type of committee. A steering committee is to provide 

leadership, direction, and support for IT projects.89 For example, one 

state’s steering committee was reported to be made up of senior 

leadership from various agencies within the state and was responsible 

for ensuring that marketplace IT goals aligned with various state 

agencies’ goals. In addition, the committee served as a forum for 

project strategy development and operations, policy, and technology 

recommendations to its board of directors.

• Management change control boards: Thirteen of the 17 states with 

state-based marketplaces established this type of board. A 

management change control board is to oversee a project’s scope 

and requirements.

90 For example, one state reported that its 

management change control board was chaired by its project director 

and oversaw not only changes to the scope and requirements, but 

also its marketplace project schedule, costs, and deliverables.

• Technical review boards: Nine of the 17 states with state-based 

marketplaces established this type of board. A technical review board 

provides technical findings and recommendations to project 

stakeholders.91 For example, one state reported that its technology 

committee provided leadership and helped to analyze the impact of 

the marketplace on existing IT standards and informed other teams 

and stakeholders about policy changes that could impact the project.

In addition, 7 of the 17 states with state-based marketplaces, including 

those using the federal marketplace IT solution, reported on our survey 

89GAO, Information Technology: A Framework for Assessing and Improving Enterprise 

Architecture Management, GAO-03-584G (Washington, D.C.: April 2003, Version 1.1).

90Project Management Institute, Inc., A Guide to The Project Management Body of 

Knowledge (PMBOK® Guide), Fifth Edition, (Newton Square, Pa.: 2013). “PMBOK” is a 

trademark of the Project Management Institute, Inc. 

91GAO, Information Technology Management: Governmentwide Strategic Planning, 

Performance Measurement, and Investment Management Can Be Further Improved, 

GAO-04-49 (Washington, D.C.: January 2004).

Page 56 GAO-15-527 State Health Insurance Marketplaces

 
that they used additional oversight mechanisms beyond these three. 

Specifically, one state reported that its marketplace and state 

administration established an integrated project management office to 

assist with coordination of Medicaid and tax credit applications and 

eligibility functions. Another state reported using a cross-agency group 

made up of agencies involved in marketplace eligibility functions from 

both IT and policy perspectives.

Further, all states relying on the federally facilitated marketplace and 

federally facilitated partnerships that responded to our survey indicated 

that they used existing state agencies to oversee implementation of their 

marketplace IT projects. Existing state agencies included state 

departments of health or Medicaid agencies, which coordinated directly 

with CMS. In addition, these states’ officials oversaw the contractors who 

were responsible for various marketplace-related activities, such as

building interfaces to connect the state systems to the federal data 

services hub for transferring information between the federally facilitated 

marketplace and state Medicaid programs.

Page 57 GAO-15-527 State Health Insurance Marketplaces
States encountered various challenges in their efforts to design, develop, 

and implement marketplace IT systems.92 States with state-based 

marketplaces reported experiencing challenges in each of five areas 

identified in our survey: project management and oversight, marketplace 

IT solution design, marketplace IT solution development, resource

allocation and distribution, and marketplace implementation and 

operation. In addition, states with a federally facilitated marketplace 

reported facing challenges in two areas identified in the survey: project 

management and oversight and system design and development.

While states operating both state-based and federally facilitated 

marketplace IT solutions93 reported in the survey that they faced similar 

issues, various challenges were more common for states developing their 

own IT solution because the scope of their efforts was larger than that of 

states with a federally facilitated marketplace. For example, those with 

state-based marketplaces generally reported experiencing issues with 

marketplace eligibility and enrollment functions; while for states with a 

federally facilitated marketplace, those functions were performed by CMS.

To varying extents, states identified lessons learned and best practices 

from their experiences with and efforts to address the challenges. CMS 

was aware of state challenges and took various actions to provide 

technical assistance. It also has taken steps to facilitate the sharing of the 

lessons learned and related best practices, which will continue to be 

important as states work to complete the remaining functions for their 

marketplace systems.

92We surveyed state marketplace officials in the 50 states and the District of Columbia. 

Forty-seven states responded, but not every state chose to rate every challenge identified.

93In this section, the federally facilitated marketplace IT solution includes federally 

facilitated partnership marketplaces and the state-based marketplace IT solution includes 

state-based marketplaces that use the federal marketplace IT solution.

States Encountered 

Challenges and

Identified Lessons 

Learned and

Best Practices

in Managing, 

Overseeing, 

Developing,

and Operating 

Marketplace

IT Systems

Page 58 GAO-15-527 State Health Insurance Marketplaces

 
Compressed time frames was rated as the greatest challenge94 by 

officials of both states with a state-based marketplace and states with a 

federally facilitated marketplace. Specifically, 13 of 17 states with statebased marketplaces and 20 of 30 states95 with a federally facilitated 

marketplace considered compressed time frames a great or very great 

challenge, and it was also reported as a factor driving other challenges. 

State officials noted that their IT project schedules were constrained by 

the need to deliver functionality in time for the first enrollment period 

beginning on October 1, 2013. For example, one state-based 

marketplace official reported that compressed time frames affected the 

state’s development and testing time, which impacted all phases of 

testing (system, integration, performance, and user acceptance).

Project governance, oversight, and decision making was also rated as 

one of the greatest challenges in the project management and oversight 

area by officials of both states with a state-based marketplace and states 

with a federally facilitated marketplace. Specifically, 10 of 17 states with 

state-based marketplaces and 8 of 30 states with a federally facilitated 

marketplace rated project governance, oversight, and decision making as 

a great or very great challenge.

Based on our analysis of narrative survey responses, 14 states with statebased marketplaces and 15 states with a federally facilitated marketplace 

also identified lessons learned or best practices in the area of project 

management and oversight. For example, regarding compressed time 

frames, a best practice identified by 1 state was to double the amount of 

lead time normally expected when planning for implementation of 

complex IT projects. Another state reported a lesson learned regarding 

compressed time frames, which was related to IT systems design and 

development. This state learned that taking a two-phased approach 

whereby the state modified its legacy Medicaid eligibility system first, and 

then proceeded with a full-scale system upgrade, helped meet deadlines 

while avoiding significant problems that had arisen in other states.

94Ratings of very great and great on the state survey were combined when determining 

the two greatest challenges in each area.

95Of the 34 states with a federally facilitated marketplace IT solution, 4 did not respond to 

our survey. States that did not complete a survey were Arkansas, Kansas, New Jersey, 

and Ohio.

Project Management and 

Oversight Challenges 

Include Compressed Time 

Frames and Project 

Governance, Oversight, 

and Decision Making

Page 59 GAO-15-527 State Health Insurance Marketplaces

 
States also reported lessons learned and best practices related to project 

governance, oversight, and decision making. For example, one state 

reported reshaping its project management team and, thus, making 

progress for the second open enrollment season. A second state realized 

too late that it needed more governance and a dedicated program

management office. This state’s officials also said that it was important to 

recognize that the marketplace is an IT project as well as an insurance 

project, and that it was critical to have a proper mix of both sides to 

ensure success.

Developing interfaces and interoperability with insurers was rated as one 

of the greatest challenges by 9 of 17 states with state-based 

marketplaces.96 For example, 1 state reported challenges with a system 

that was supposed to allow users to pay for and enroll in insurance plans; 

however, that basic feature was not appropriately developed by launch or 

for months afterward. The state hired a contractor to reconcile enrollment 

and premium tax credit issues between its insurance carriers and its IT 

solution, but all issues were not resolved, and the state was still working 

through this process when officials responded to our survey.

Developing state marketplace website eligibility functions for both state 

Medicaid and Qualified Health Plans was also rated as one of the 

greatest challenges by 9 of the 17 states. For example, one state official 

reported that their applicants could not have their eligibility determined for 

Qualified Health Plans, Medicaid, and premium tax credits without the 

assistance of specially trained customer service representatives or 

community partners and agents. Another state’s original IT solution was 

not working appropriately, so officials approached CMS, who offered to let 

the state use the Healthcare.gov platform for eligibility and enrollment. A 

third state cited numerous multi-stage workarounds to circumvent defects 

in eligibility and enrollment functionality. This included, for example, 100 

percent manual validation of all enrollment files.

Although 8 states with state-based marketplaces identified lessons 

learned or best practices in the marketplace IT solution design and 

development area, with one exception, states did not specifically identify 

lessons learned related to developing interfaces and interoperability with 

96We consolidated marketplace IT solution design and marketplace IT solution 

development for the state-based marketplaces.

State-Based Marketplace 

IT Solution Design and 

Development Challenges 

Include Interfacing with 

Insurers and Developing 

Website Eligibility 

Functions

Page 60 GAO-15-527 State Health Insurance Marketplaces

 
insurers or developing state marketplace website eligibility functions. One 

state reported that it learned that projects like this should begin with 

simple rules on eligibility, and then add complexity. Further, this state 

decided to maintain Medicaid and CHIP enrollees in its legacy system 

using a close approximation of eligibility rules to ensure that there was no 

disruption in coverage with the launch of a new system. New applications 

for Medicaid and CHIP were determined in the new system while 

renewals for current enrollees were determined in the legacy system. This 

was to enable more time for adequate testing and further development of 

Medicaid and CHIP rules in the new system.

Conducting systems integration testing was rated as one of the greatest

challenges by 12 of 30 states with a federally facilitated marketplace. For 

example, 1 state reported that limited development and testing time 

affected all phases of testing including system, integration, performance, 

and user acceptance testing. Another state reported that the interface 

between the state and the federally facilitated marketplace was delayed 

due to implementation delays in the federal marketplace IT solution. 

These delays resulted in last-minute changes to the federal systems, both 

known (but communicated late) and unknown. Each federal system 

change required the state to also change, and such changes and delays 

resulted in the state missing deadlines. Other states specifically cited a 

lack of end-to-end testing between the federal IT systems and states, as 

well as integrating and testing with the federal marketplace and the 

federal data services hub, as challenges.

Changes to requirements was rated as one of the greatest challenges by 

19 of 30 states with a federally facilitated marketplace. For example, one 

state official said that “the aggressive time frame made an impact to the 

design. Systems always evolve, but the aggressive schedule forced 

design trade-offs along the way.” A second state reported that the 

compressed time frame caused CMS to continually define requirements 

throughout implementation and into operations, resulting in the 

reprogramming of multiple design changes. Lastly, another state official 

commented on multiple challenges related to changes in requirements. 

This state official said that changes and delays due to clarification of CMS 

requirements in areas such as use of the federal data services hub and 

identity proofing caused significant rework and some critical functionality 

to be deferred, which, because of the aggressive time frame, impacted 

operations.

A second state official emphasized developing a comprehensive set of 

requirements. The state invested time to develop a comprehensive set of 

System Design and 

Development Challenges 

for States Using the 

Federally Facilitated 

Marketplace Include 

Systems Integration 

Testing and Changes

to Requirements

Page 61 GAO-15-527 State Health Insurance Marketplaces
requirements for all known areas of the system and included broad 

requirements referencing CMS guidance documents when detail from 

CMS was insufficient. The state then required vendors to explicitly identify 

which requirements would be met with delivered functionality, and which 

requirements would need to be augmented with customizations or 

additional software applications. This kept most of the systems 

development in scope and resulted in less than a 10 percent increase in 

the negotiated fixed price due to change orders. A third state identified a 

best practice regarding guidance and policy—which drive requirements—

noting that they should be finalized before states are tasked with 

implementing system changes and testing.

Our analysis of narrative survey responses showed that 14 states with a 

federally facilitated marketplace reported lessons learned or best 

practices related to IT systems design and development, including those 

associated with changes to requirements or the development of 

requirements. For example, one state official said that there were many 

changes leading all the way up to open enrollment. Only after this 

occurred did officials recognize that they needed to lock down the scope 

of work and disallow “nice-to-haves” to focus on critical functionality.

Adequate number of staff was rated as one of the greatest challenges by 

9 of 17 states with state-based marketplaces. In one case, a state official 

reported that the state had only approved the hiring of approximately onethird of the staff it requested and, as of October 2014, had never hired a 

certified project manager to oversee their state’s marketplace-related IT 

projects. Similarly, staffing limitations forced another state to ask its staff 

to work overtime, in some cases more than 60 hours a week for months 

on end, in order to complete the work required prior to open enrollment, 

resulting in burnout and the loss of key staff soon after the start of the first 

open enrollment period.

Adequate funding to sustain a state’s marketplace system was rated as 

one of the greatest challenges by 6 of 17 states with state-based 

marketplaces. For example, one state official reported that, in order to 

meet open enrollment deadlines and reduce schedule risks, the state 

decided to use a commercial off-the-shelf product instead of open-source 

products, which led to an increase in life-cycle costs.

Our analysis of narrative survey responses found that five states reported 

lessons learned or best practices related to resource allocation and 

distribution. For one state, the most significant lesson learned was the 

amount of testing resources required for all associated types of IT testing. 

Resource Allocation and 

Distribution Challenges 

Include Adequate

Staff and Funding

Page 62 GAO-15-527 State Health Insurance Marketplaces
Due to this, the state has identified a need for additional business analyst 

positions and subject matter expert knowledge.

Call center operations was rated as one of the greatest challenges by 9 of 

the 17 states with state-based marketplaces. For example, one state 

official reported that due to challenges with system performance, their call 

center experienced high-traffic volume, and this affected the average time 

to handle a call, abandonment rates of calls, and operations. Another 

state reported that insufficient time for staff training led to inefficiencies in 

call center operations.

System performance was rated as one of the greatest challenges by 7 of 

the 17 states with state-based marketplaces. For example, 1 state cited 

significant challenges in implementation and operation because its 

software did not work as advertised. Also, as mentioned above, system 

performance problems affected call center operations. This was 

compounded in part because of the surge in users attempting to use the 

online marketplace that occurred in the period immediately after going 

live.

Our analysis of narrative survey responses showed that two states with 

state-based marketplaces identified best practices or lessons learned 

related to the operation and implementation of marketplace-related IT 

systems. For example, one state cited the importance of contingency 

planning that enabled state deployment of additional system capacity 

when volume exceeded expectations. Another state reported that the 

inability to develop and refine marketplace technology resulted in 

significant operational costs, which could have been avoided with a less 

aggressive time frame.

Figure 6 summarizes the challenges in each of the five areas rated by 

states with state-based marketplaces. Figure 7 depicts the challenges 

that states with a federally facilitated marketplace rated in each of their 

two respective areas.

Marketplace 

Implementation and 

Operation Challenges 

Include Call Center 

Operations and

System Performance

Page 63 GAO-15-527 State Health Insurance Marketplaces
Figure 6: Challenges Rated by States with State-Based Marketplaces

Note: Marketplace solution design and development were consolidated when analyzing state survey 

responses. CMS (Centers for Medicare & Medicaid Services); HHS (U.S. Department of Health and 

Human Services).

Page 64 GAO-15-527 State Health Insurance Marketplaces
Figure 7: Challenges Rated by States with a Federally Facilitated Marketplace

Page 65 GAO-15-527 State Health Insurance Marketplaces
CMS was aware of states’ challenges and responded to them by 

engaging in various outreach to and communication efforts with the 

states. According to CCIIO officials, once an issue or challenge was 

identified, CMS responded in a number of ways. Specifically, according to 

these officials, the agency provided technical assistance that included 

discussions with CMS subject matter experts to ensure that appropriate 

information and resources were available to address challenges. For 

example, the officials said they conducted site visits with state 

marketplace officials during which they discussed management and other 

issues and made recommendations for improvement, as needed. Other 

state challenges that CMS officials indicated they were aware of included 

issues with compressed schedules, state governance, legislative 

requirements, vendor management, personnel and resources, and callcenter operations.

Additionally, CMS made efforts to both directly share and facilitate the 

sharing of identified lessons learned and best practices among the states. 

CCIIO officials reported that lessons learned and best practices were 

shared through various methods such as discussion forums, including biweekly forum meetings with senior state officials, conference calls, and 

weekly newsletters distributed to grantees, and through various reporting 

and document sharing systems maintained by CMS.

In taking steps to respond to state challenges, identify lessons learned, 

and share best practices with states, CMS performs an essential role of 

advising state officials and others involved with health insurance 

marketplace IT projects. It will be important for CMS to continue doing so 

as states work to complete the remaining functions for their marketplace 

systems.

States spent approximately $1.45 billion in federal marketplace grant 

funds to help establish IT systems supporting their health insurance 

marketplaces, as well as a portion of Medicaid funds. As of the second 

enrollment period, states had largely established these systems, although 

some of their functions remain to be implemented.

While CMS was tasked with overseeing states’ development of their 

marketplace IT systems, limitations in CMS’s efforts resulted in oversight 

that was not always effectively executed. Specifically, because roles and 

responsibilities were not always clearly defined, documented or 

communicated, as recommended by leading practices for project 

management, a number of states faced hurdles in communicating with 

CMS Responded to 

Challenges and 

Facilitated the Sharing

of Lessons Learned

and Best Practices

Conclusions

Page 66 GAO-15-527 State Health Insurance Marketplaces
stakeholders and receiving timely CMS guidance. In addition, although 

called for by leading practices in investment management, relevant senior 

executives in the agency were not always involved in overseeing 

decisions to fund states’ marketplace IT projects, resulting in less 

accountability for such decisions. Further, because CMS’s reviews of 

state IT projects did not ensure state systems were fully tested as called 

for in CMS’s guidance, systems were put into place that, in some cases, 

did not perform as intended. States also had a key oversight role, which 

varied depending on the type of marketplace.

Finally, states reported a number of challenges and lessons learned in 

establishing their marketplaces, with state-based marketplaces 

encountering some unique challenges. CMS has taken various actions to 

facilitate the sharing of these challenges and lessons learned, as well as 

best practices among the states, and it will be important for CMS to 

continue these efforts as states work to complete the remaining functions 

for their marketplace systems.

To improve the oversight of states’ marketplace IT projects, we 

recommend that the Secretary of Health and Human Services direct the 

Administrator of the Centers for Medicare & Medicaid Services to take the 

following three actions:

• clearly document, define, and communicate to all state marketplace 

officials and stakeholders the roles and responsibilities of those CMS 

officials involved in overseeing state marketplaces in a 

comprehensive communication management plan;

• ensure that all CMS senior executives from IT and business units who 

are involved in the establishment of state marketplace IT projects 

review and approve funding decisions for these projects; and

• ensure that states have completed all testing of marketplace system 

functions prior to releasing them into operation.

We received written comments on a draft of this report, signed by HHS’s 

Assistant Secretary for Legislation. In the comments (reprinted in 

appendix III), the department stated that it concurred with all three of our 

recommendations. The department added that it had taken various 

actions that were focused on improving its oversight and accountability for 

states’ marketplace efforts. 

Recommendations for 

Executive Action

Agency Comments 

and Our Evaluation

Page 67 GAO-15-527 State Health Insurance Marketplaces
While the actions discussed are important, the department did not always 

identify specific activities being taken or planned that would address the 

full extent of the recommendations. Specifically, with respect to our 

recommendation that CMS clearly document, define, and communicate 

its roles and responsibilities for overseeing state marketplaces in a 

comprehensive communication management plan, the department noted 

that a State Officer is assigned to each state to serve as the primary point 

of contact and that CMS’s roles and responsibilities are communicated 

through this official. The department also stated that these roles and 

responsibilities are documented in several resources, including standard 

operating procedures and weekly newsletters to state officials. However, 

the department did not indicate that CMS would develop a 

communications management plan to provide a comprehensive and 

consistent means of identifying and conveying the roles and 

responsibilities of key CMS organizations to all states and the District of 

Columbia. As we noted in our report, CMS’s standard operating 

procedures and other documents did not identify all the relevant 

stakeholders or activities involved in its oversight process. Thus, we 

maintain that a comprehensive communications management plan would 

be a valuable resource as states move forward on any further 

marketplace IT efforts. 

With respect to our recommendation that CMS include senior executives 

from all relevant IT and business units in funding decisions for state 

marketplace IT projects, HHS stated that the department already includes 

senior executives in its funding decisions for these projects. However, as 

noted in our report, CMS did not provide evidence that key senior 

executives from CCIIO, CMCS, and OTS were involved in various funding 

decisions associated with the states’ IT projects. For example, CMS did 

not demonstrate that senior-level executives from all relevant business 

and IT units were involved in the initial approval of grant awards or the 

release of restricted IT funds from marketplace grants as states 

progressed with their projects. In addition, CMS did not provide evidence 

of senior executive involvement in the approval of Medicaid funds for 

marketplace IT projects. By ensuring such executive involvement, CMS 

would increase accountability for decisions to fund states’ IT projects and 

ensure that these decisions are well informed in order to make efficient 

use of federal funds.

With respect to our recommendation to ensure that states have 

completed all testing of marketplace system functions prior to releasing 

them into operation, HHS noted that it will continue to follow its guidelines 

to determine if state marketplace system functions are ready for release. 

Page 68 GAO-15-527 State Health Insurance Marketplaces
The department added that it will continue to work closely with statebased marketplaces to improve their systems and verify that system 

requirements are met. We agree that following its review guidance as 

defined is important. In particular, as noted in our recommendation, CMS 

should ensure that states’ systems are fully tested before approving them 

for release into production, rather than relying on workarounds and 

manual processes. 

HHS also provided technical comments, which we incorporated in the 

report as appropriate. Among these comments, the CMS liaison in the 

Office of Legislation sent an e-mail on September 10, 2015, stating that 

the amount of total marketplace grant spending for the District of 

Columbia that CMS provided to us based on its March 2015 report was 

incorrect. Accordingly, we revised our analysis and relevant areas of our 

report to reflect the new amount provided by the agency.

We also provided relevant excerpts of this report to each of the 50 states 

and the District of Columbia and received responses, via e-mail or in 

writing, from officials in 15 states. Officials from 5 of these states (Alaska, 

Arizona, Maine, Nevada, and Rhode Island) said they had no comments. 

Among the remaining 10 states, 6 states (Alabama, Idaho, Indiana, 

Minnesota, Washington, and Wisconsin) commented on our discussion of 

their marketplace grant data. According to these states, the data we 

reported on marketplace grant funding were not always consistent with 

their own data. However, the grant funding discussed in our report 

reflects state-reported data that CMS provided and represents a 

consistent source and time frame of data for all states as of March 2015; 

thus, we did not revise our discussion of the reported data in the report. 

However, we did revise the report to clarify that the state-reported data 

that CMS provided could lag behind actual state marketplace grant data 

for a specific date.

In addition, officials from 6 of the 10 states commented on the status of 

their systems development and operation.

• In e-mail comments, the Grant Compliance Officer of Covered 

California provided details on specific functionality Covered California 

was still implementing. For example, its small business marketplace 

was using manual workarounds for its automated payment 

functionality until the system is completed. Regarding the hub 

services and IRS reporting submission functions, the official said that 

California will continue to enhance and improve efficiencies of the hub 

Page 69 GAO-15-527 State Health Insurance Marketplaces
services for the health insurance renewal process, and will complete 

performance testing of IRS reporting submissions.

• In written comments, the Executive Director of the District of Columbia

Health Benefit Exchange Authority did not agree with some of the 

characterizations in our report. Specifically, the Executive Director 

concurred with our characterization of the status of the financial 

management functions as fully complete and IRS reporting functions 

as partially complete, but did not agree that the District of Columbia’s

eligibility and enrollment and hub services functions were only partially

complete. Regarding the eligibility and enrollment functions, the 

Executive Director said that our characterization was misleading and 

unsupported because these functions were only partially operational 

for one specific function and that the marketplace received permission 

from CMS to implement an alternate method for implementing another

specific function; thus, the overall eligibility and enrollment function 

should have been considered fully operational.

Our characterization of eligibility and enrollment functions as partially 

operational was based on CMS’s February 2015 operational status 

report which consisted of a larger list of functions than the Executive 

Director cited and states were expected to automate all these 

functions. While we recognize that the District of Columbia was able 

to enroll applicants through its system, CMS’s report indicated that 

these specific functions, which support important provisions of 

PPACA, were not complete or fully automated. Regarding hub 

services, the Executive Director said that the District of Columbia

requested and received permission from CMS not to deploy a specific 

function for plan year 2015 but has begun testing this function for plan 

year 2016. Since the District of Columbia was still testing this hub 

service, it had not fully developed, tested, and implemented this 

functionality required by CMS. The District of Columbia Health Benefit 

Exchange Authority’s comments are reprinted in appendix IV.

• In e-mail comments, the Executive Director of the Office of the 

Kentucky Health Benefit Exchange requested that we clarify the 

partial rating for IRS required submissions because the Executive 

Director believed that the state had been fully compliant with these 

requirements. However, according to CMS’s February 2015 

operational status report, Kentucky had not completed the most 

recent annual submission of IRS data which is used to ensure that 

individuals received the correct amount of premium tax credit.

• In written comments, the Interim Chief Executive Officer of MNsure, 

the Minnesota marketplace, generally agreed with the operational 

status ratings for the functional categories. But the official also noted

Page 70 GAO-15-527 State Health Insurance Marketplaces
that while the functions may be rated as partially operational, our 

report did not recognize that MNsure delivered the required services 

and in some cases used manual workarounds to temporarily meet the 

functional requirements. We recognized that states implemented 

workarounds to deliver services, but our report focuses on the status 

of fully automated functionality delivered by states’ IT projects. For 

example, regarding eligibility and enrollment functions, although 

MNsure sent automated notices for most consumers, due to system 

limitations it was unable to issue automated notices to some 

consumers renewing coverage and therefore created manual notices 

for these consumers.

In addition, regarding financial management functions, the Interim 

Chief Executive Officer said MNsure was billing small business 

customers using a manual process in February 2015, but has since 

incorporated automation into the process. Further, the official noted 

that MNsure opted to have certain financial management functions 

performed by CMS. While MNsure made progress in this area, we are 

reporting the status according to CMS’s February 2015 operational 

status report, which is a consistent source and time frame of data for 

all states, and these financial management functions were 

categorized as not operational in the report. Regarding hub services, 

the Interim Chief Executive Officer generally agreed with the status 

and stated that MNsure will continue to plan for testing of these 

functions. Regarding IRS reporting, the official generally agreed with 

the status and stated that the delays for submitting files to IRS were 

due to additional quality assurance work. The MNsure Minnesota 

marketplace’s comments are reprinted in appendix V.

• In e-mail comments, the Deputy Director of the New York State 

Department of Health disagreed that financial management, hub 

services and IRS reporting file submissions functions were partially 

operational as of February 2015, and believed that the ratings should 

reflect fully operational or fully complete. In addition, the Deputy 

Director stated that the state should not receive partial ratings 

because it opted to have CMS perform certain financial management 

functions, determined alternate methods for completing certain hub 

services functions, and was waiting for solutions from CMS regarding 

IRS reporting file submissions. Although New York opted to have 

certain financial management functions performed by CMS, the 

agency’s February 2015 operational status report categorized these 

functions as not operational. Further, while CMS may have allowed 

certain alternate methods or workarounds for hub services functions, 

CMS’s operational status report indicated that these specific functions 

were not complete or fully automated. Even though New York may 

Page 71 GAO-15-527 State Health Insurance Marketplaces
have been waiting for a solution from CMS to complete its IRS 

reporting file submissions, CMS’s report noted that this function was 

not fully complete.

• In written comments, the Chief Executive Officer of the Washington 

Health Benefit Exchange concurred with our characterization of the 

status of eligibility and enrollment functions and IRS reporting file 

submissions but did not agree that its financial management and hub 

services functions were only partially operational. The Chief Executive 

Officer stated that our report lacked the necessary details for him to 

review in order to respond to these characterizations. We later 

provided details from CMS’s February 2015 operational status report 

that we evaluated to determine the status of the state’s marketplace. 

Subsequently, the official stated that certain financial management 

functions were incomplete because the state opted to have these 

functions performed by CMS. Nonetheless, CMS’s February 2015 

operational status report categorized these functions as not 

operational. For hub services, the official noted that the Washington 

Healthplanfinder successfully used multiple services offered by the 

federal hub to verify Social Security numbers, citizenship, lawful 

presence, income, and other eligibility factors and that the 

marketplace has tested these services. However, CMS’s February 

2015 operational status report noted that it had only partially 

completed certain hub services for verifying eligibility. The 

Washington Health Benefit Exchange’s comments are reprinted in 

appendix VI.

Other technical comments provided via e-mail by marketplace and 

Medicaid officials within these states were considered and incorporated 

into our final report as appropriate

We are sending copies of this report to the Secretary of Health and 

Human Services and other interested parties. In addition, the report is 

available at no charge on the GAO website at http://www.gao.gov.

Page 72 GAO-15-527 State Health Insurance Marketplaces
Should you or your staffs have questions on matters discussed in this 

report, please contact me at (202) 512-6304. I can also be reached by email at melvinv@gao.gov. Contact points for our Offices of Congressional 

Relations and Public Affairs may be found on the last page of this report. 

GAO staff who made major contributions to this report are listed in 

appendix VII.

Valerie C. Melvin, Director

Information Management and Technology Resources Issues

Page 73 GAO-15-527 State Health Insurance Marketplaces
List of Congressional Requesters

The Honorable Orrin Hatch

Chairman

The Honorable Ron Wyden

Ranking Member

Committee on Finance

United States Senate

The Honorable Lamar Alexander

Chairman

Committee on Health, Education, Labor and Pensions

United States Senate

The Honorable Ron Johnson

Chairman

The Honorable Thomas R. Carper

Ranking Member

Committee on Homeland Security and Governmental Affairs

United States Senate

The Honorable Charles E. Grassley

Chairman

Committee on the Judiciary

United States Senate

The Honorable Claire McCaskill

Ranking Member

Permanent Subcommittee on Investigations

Committee on Homeland Security and Governmental Affairs

United States Senate

The Honorable Fred Upton

Chairman

Committee on Energy and Commerce

House of Representatives

The Honorable Jason Chaffetz

Chairman

The Honorable Elijah E. Cummings

Ranking Member

Committee on Oversight and Government Reform

House of Representatives

Page 74 GAO-15-527 State Health Insurance Marketplaces
The Honorable Paul Ryan

Chairman

The Honorable Sander M. Levin

Ranking Member

Committee on Ways and Means

House of Representatives

The Honorable Greg Walden

Chairman

Subcommittee on Communications and Technology

Committee on Energy and Commerce

House of Representatives

The Honorable Joseph R. Pitts

Chairman

Subcommittee on Health

Committee on Energy and Commerce

House of Representatives

The Honorable Tim Murphy

Chairman

Subcommittee on Oversight and Investigations

Committee on Energy and Commerce

House of Representatives

The Honorable Mark Meadows

Chairman

Subcommittee on Government Operations

Committee on Oversight and Government Reform

House of Representatives

The Honorable Jim Jordan

Chairman

Subcommittee on Health Care, Benefits, and Administrative Rules

Committee on Oversight and Government Reform

House of Representatives

The Honorable William Hurd

Chairman

Subcommittee on Information Technology

Committee on Oversight and Government Reform

House of Representatives

Page 75 GAO-15-527 State Health Insurance Marketplaces
The Honorable Mike Coffman

Chairman

Subcommittee on Oversight and Investigations

Committee on Veterans’ Affairs

House of Representatives

The Honorable Charles Boustany, Jr.

Chairman

Subcommittee on Human Resources

Committee on Ways and Means

House of Representatives

The Honorable Peter Roskam

Chairman

The Honorable John Lewis

Ranking Member

Subcommittee on Oversight

Committee on Ways and Means

House of Representatives

The Honorable Michael Bennet

United States Senate

The Honorable Richard Blumenthal

United States Senate

The Honorable Robert P. Casey, Jr.

United States Senate

The Honorable Al Franken

United States Senate

The Honorable Tim Kaine

United States Senate

The Honorable Amy Klobuchar

United States Senate

The Honorable Joe Manchin III

United States Senate

The Honorable Jeffrey A. Merkley

United States Senate

Page 76 GAO-15-527 State Health Insurance Marketplaces
The Honorable Bill Nelson

United States Senate

The Honorable Jeanne Shaheen

United States Senate

The Honorable Jon Tester

United States Senate

The Honorable John Thune

United States Senate

The Honorable Mark R. Warner

United States Senate

The Honorable Ron Barber

House of Representatives

The Honorable Tulsi Gabbard

House of Representatives

The Honorable Duncan Hunter

House of Representatives

The Honorable Darrell Issa

House of Representatives

The Honorable Mike Kelly

House of Representatives

The Honorable Ann McLane Kuster

House of Representatives

The Honorable Daniel W. Lipinski

House of Representatives

The Honorable Patrick E. Murphy

House of Representatives

The Honorable Scott Peters

House of Representatives

Page 77 GAO-15-527 State Health Insurance Marketplaces
The Honorable Kyrsten Sinema

House of Representatives

The Honorable Filemon Vela

House of Representatives

Page 78 GAO-15-527 State Health Insurance Marketplaces
Appendix I: Objectives, Scope, and 

Methodology

Our objectives were to (1) determine how states have used federal funds 

for IT projects to establish, support, and connect to health insurance 

marketplaces, including amounts spent, and the overall status of their 

development and operation; (2) determine CMS’s and states’ roles in 

overseeing these state IT projects; and (3) describe IT challenges that 

states have encountered in developing and operating their marketplaces 

and connected systems, and lessons learned from their efforts.

To address the three objectives, we designed and administered a webbased survey to collect information about the state health insurance 

marketplace IT projects in the 50 states and the District of Columbia. We 

developed two versions of this survey: one for states with state-based 

marketplaces, including those using the federal marketplace IT solution,

and one for states with a federally facilitated marketplace or federally 

facilitated partnership.1 Seventeen states received the state-based 

version of the survey, and 34 states received the federally facilitated 

version. Generally, the survey asked state program officials about

• federal and state funding for developing and operating state 

marketplace-related IT projects,

• state marketplace and project types,

• CMS’s and state’s marketplace oversight roles and tools, and

• challenges and lessons learned with state marketplace IT 

development and operations.

Out of the original population of state health marketplaces in the 50 states 

and the District of Columbia,2 46 states3 and the District of Columbia 

submitted survey responses; however, not all respondents provided 

1

Under the Patient Protection and Affordable Care Act, each state could establish and 

operate its own marketplace, referred to as a state-based marketplace. In addition, a state 

with a state-based marketplace could request that CMS perform eligibility and enrollment 

functions through utilization of the federal marketplace IT solution. A federally facilitated 

marketplace was established and operated in a state that did not elect to establish a statebased marketplace. Federally facilitated partnerships are a variation of a federally 

facilitated marketplace in which CMS establishes and operates the marketplace and 

states assist CMS in carrying out certain functions of the marketplace, such as plan 

management and consumer assistance. 

2

We did not include U.S. territories, such as the Virgin Islands, in the scope of this review. 

3

States that did not complete a survey were Arkansas, Kansas, New Jersey, and Ohio.

Appendix I: Objectives, Scope, and 

Methodology

Page 79 GAO-15-527 State Health Insurance Marketplaces

 
Appendix I: Objectives, Scope, and 

Methodology

answers to every question. We did not independently verify the data the 

states provided in each case, but we did, in selected cases, compare 

them to equivalent CMS data. We also relied on CMS-provided data, 

rather than survey data, in most cases because we received more up-todate and complete information from CMS. The survey was administered 

between September 30, 2014, and November 19, 2014. The status of 

state marketplace types is as of the end of the second enrollment 

period—which ended on February 15, 2015.

Several weeks before the survey period began, we notified recipients that 

they would be receiving it and confirmed that they were the appropriate 

state contacts. We also followed up with non-respondents several times 

before the survey period ended.

In developing the surveys, we took steps to ensure the accuracy and 

reliability of responses. We pre-tested the survey with marketplace and 

Medicaid officials from seven states to ensure that the questions were 

clear, comprehensive, and unbiased, and to minimize the burden the 

questionnaire placed on respondents.

To determine how states have used federal funds to establish, support, 

and connect to health insurance marketplaces and the overall status of 

their development and operation, we reviewed CMS guidance regarding 

federal funding and development for marketplaces such as the 

marketplace grant funding opportunity announcement, instructions for 

marketplace reporting,4 guidance for marketplace and Medicaid IT 

systems,5 and blueprint guidance for approval of state marketplace types. 

We also reviewed best practices for IT investment management and 

managing program costs.6 We then reviewed CMS funding and status 

4

Department of Health and Human Services, Centers for Medicare & Medicaid Services, 

Center for Consumer Information and Insurance Oversight, Progress Reporting 

Instructions for Cooperative Agreements to Support Establishment of State-Operated 

Health Insurance Exchanges (June 2012).

5

Department of Health and Human Services, Centers for Medicare & Medicaid Services, 

Guidance for Exchange and Medicaid Information Technology (IT) Systems, Version 2.0

(May 2011), and Supplemental Guidance on Cost Allocation for Exchange and Medicaid 

Information Technology (IT) Systems, Questions and Answers (Oct. 5, 2012).

6

GAO, Information Technology Investment Management: A Framework for Assessing and 

Improving Process Maturity, Version 1.1, GAO-04-394G (Washington, D.C.: March 2004), 

and GAO Cost Estimating and Assessment Guide: Best Practices for Developing and 

Managing Capital Program Costs, GAO-09-3SP (Washington, D.C.: March 2009).

Page 80 GAO-15-527 State Health Insurance Marketplaces

 
Appendix I: Objectives, Scope, and 

Methodology

documentation, including notices of grant awards and state IT spending 

and status summaries. We also analyzed state survey responses on 

costs and development status, including state documentation on federal 

grant and Medicaid costs.

To assess the reliability of CMS’s data on state-reported IT spending to 

establish, support, and connect to marketplaces, we assessed the 

reliability of the systems used to collect the information. We asked 

officials responsible for entering and reviewing the grants information a 

series of questions about the accuracy and reliability of the data. Among 

the sources of data used for our study, we reviewed a spreadsheet 

compiled by CMS Center for Consumer Information and Insurance 

Oversight officials that contained state-reported grant funding data and 

marketplace IT project status information drawn from three separate 

information systems: CMS’s On-Line Data Collection System,7 Grant 

Solutions,8 and the Payment Management System.9 The spreadsheet 

was a consistent source of information that reflected the same cost 

factors for all states as of March 2015.10 Specifically, the spreadsheet 

tracked, among other things, the type and total amount of grant funding 

provided and available to each state, as well as the time period for 

expending those funds. We also reviewed the data to determine if there 

were any outliers and other obvious errors in the data. For any anomalies 

in the data, we followed up with CMS to either understand or correct 

those anomalies. We determined that the data were sufficiently reliable 

for our purposes and noted any limitations in our report. While our report 

7

The On-Line Data Collection System is the system of record for grant reporting and offers 

a snapshot of overall progress that has been self-reported by the state grantee. State 

grantees use the system to submit progress reports that contain budget reports and 

progress reports on the completion of program requirements. These reports were 

submitted by state grantees on a monthly and semi-annual basis. 

8

Grant Solutions is a system that allows CMS to conduct business from pre-award to postaward of grants. It is the primary means of communication between state grantees and the 

CMS grants management and program staff. It allows CMS State Officers to review state 

grantee requests, prepare recommendation memorandums for post-award requests, and 

monitor state grantee documentation uploads.

9

The Payment Management System allows CMS to pay state grantees awarded funds. 

State grantees use the system to draw down federal grant funds and submit federal 

financial reports.

10According to CMS, this data could lag about two months from states’ actual 

expenditures because states had to close and reconcile their accounting data.

Page 81 GAO-15-527 State Health Insurance Marketplaces

 
Appendix I: Objectives, Scope, and 

Methodology

discusses state-reported IT spending based on CMS data, we did not 

verify the accuracy of the data states reported to CMS.

We also reviewed our recent report on Medicaid funding for eligibility IT 

system changes,11 which addressed state-reported Medicaid expenditure 

data from CMS-64—a form that states complete quarterly to obtain 

federal reimbursement for services provided or administrative costs 

incurred. We updated our review of states’ reported expenditures, 

beginning with the quarter ending June 30, 2011, the first quarter for 

which 90/10 funds were available to states, through the quarter ending 

December 31, 2014.12 To determine the reliability of the CMS-64 data, we 

reviewed related documentation and our prior records of interviews with 

CMS officials describing how these data are collected and processed; we 

also examined other research that has used these data to report state 

expenditures.13 We determined that the data we used in this report were 

sufficiently reliable and noted any limitations in our report.

In addition, we reviewed and analyzed CMS documentation of states’

marketplace status and operation progress and challenges to summarize 

the status of marketplaces. We reviewed states’ survey responses 

regarding changes in and the status of developing and operating their 

marketplace IT solutions. We also reviewed CMS state marketplace 

operational status reports as of February 2015 and the CMS State 

Exchange Resource Tracking System as of April 2015. We did not 

independently verify the accuracy of CMS’s data on states’ operational 

status. We also obtained input from CMS regarding funding and status of 

marketplaces through interviews with knowledgeable officials.

To determine CMS’s and states’ roles in overseeing these state IT 

projects, we analyzed applicable federal laws and regulations, CMS 

11GAO, Medicaid: Federal Funds Aid Eligibility IT System Changes, but Implementation 

Challenges Persist, GAO-15-169 (Washington, D.C.: Dec. 12, 2014).

12States submit all Medicaid data electronically and must attest to their completeness and 

accuracy. These data are preliminary in nature, in that they are subject to further review, 

and are likely to be updated as states have up to 2 years after incurring costs to submit 

claims for 90/10 funding.

13Our prior work related to state reporting on the CMS-64 noted that reviewed states did 

not correctly report program integrity-related overpayments collected by the state on the 

CMS-64. See GAO, Medicaid: CMS Should Ensure That States Clearly Report 

Overpayments, GAO-14-25 (Washington, D.C.: Dec. 6, 2013). 

Page 82 GAO-15-527 State Health Insurance Marketplaces

 
Appendix I: Objectives, Scope, and 

Methodology

marketplace policies and guidance, documentation on applicable CMS 

marketplace roles and responsibilities and state marketplace governance 

structures, state survey responses regarding their governance structures, 

and state survey responses and ratings regarding the effectiveness of 

CMS guidance, oversight, and related systems.

We also compared CMS’s policies and procedures to best practices 

included in GAO’s IT investment management framework and to the 

Project Management Institute’s A Guide to the Project Management Body 

of Knowledge (PMBOK® Guide) to determine whether CMS had roles 

and responsibilities clearly documented and communicated in its policies 

and procedures.14 Further, we reviewed CMS’s funding oversight 

processes and compared them to relevant sections of GAO’s IT 

investment management framework to determine if CMS followed best 

practices for overseeing IT investments. We used our survey results to 

describe how the states viewed CMS’s oversight and guidance in regard 

to the marketplace-related IT projects.

We also reviewed CMS’s Enterprise Life Cycle guidance for systems 

development reviews and reports from states’ operational readiness 

reviews from August and September 2013 to assess the extent to which 

CMS followed its process. In addition, we reviewed state survey 

responses and other state-provided documents to determine states’

marketplace oversight roles. Further, we interviewed CMS officials

responsible for the oversight and implementation of the state 

marketplaces to obtain their perspective on their marketplace roles.

To describe IT challenges encountered in developing and operating the 

marketplace and connected systems as well as lessons learned from 

these efforts, we analyzed state survey responses related to challenges, 

lessons learned, and best practices identified by state officials and 

documentation such as CMS meeting presentations. For the state 

surveys, we identified a variety of marketplace-related IT challenges 

based on our analysis of CMS and state documentation and interviews, 

and grouped these challenges according to several broad areas. Statebased marketplace challenges were divided into five areas in the survey 

(project management and oversight, marketplace IT solution design, 

14GAO-04-394G and Project Management Institute, Inc., A Guide to The Project 

Management Body of Knowledge (PMBOK® Guide), Fifth Edition, (Newton Square, Pa.: 

2013). “PMBOK” is a trademark of the Project Management Institute, Inc. 

Page 83 GAO-15-527 State Health Insurance Marketplaces

 
Appendix I: Objectives, Scope, and 

Methodology

marketplace IT solution development, resource allocation and distribution, 

and marketplace implementation and operation), while federally facilitated 

challenges were divided into two areas (project management and 

oversight and system design and development) based on the IT work 

each marketplace performs. For the purposes of our report, we 

consolidated the marketplace IT solution design and marketplace IT 

solution development challenge areas for the state-based marketplaces.

In both the state-based and federally facilitated versions of our survey, we 

asked states to rate their experience with each of these identified 

challenges using a 5-point scale with the following response options: very 

great challenge, great challenge, moderate challenge, somewhat of a 

challenge, or little or no challenge. In our report, we combined the very 

great and great state ratings. We then analyzed states’ ratings of 

challenges and using counts of the “very great” and “great” responses, we 

selected the greatest (i.e., the top two) challenges from each area for 

discussion in this report. If a challenge area applied to both states using a 

state-based marketplace and states with a federally facilitated 

marketplace, the greatest challenges from each marketplace type were 

selected.

Further, we asked each state to identify whether they had identified best 

practices or lessons learned within each challenge area of our survey, 

and to include specific examples of those best practices and lessons. We 

reviewed all written survey responses regarding states’ lessons learned to 

ensure these lessons were appropriately categorized into each identified 

challenge area. Based on our qualitative analysis of the states’ survey 

responses, we identified the number of states that provided lessons 

learned and then provided examples of the best practices or lessons 

learned that related to the greatest challenges in each area, if there were 

any. We also interviewed CMS and state officials responsible for the 

oversight and implementation of the state marketplaces to determine 

what the agency did to identify and share states’ challenges, best 

practices, and lessons learned.

We conducted this performance audit from April 2014 to September 2015 

in accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.

Page 84 GAO-15-527 State Health Insurance Marketplaces
Appendix II: Health Insurance Marketplace 

Grant Funding and State-Reported 

Expenditures

To help states establish a marketplace, the Patient Protection and 

Affordable Care Act (PPACA) authorized the Department of Health and 

Human Services (HHS) to award federal exchange (now referred to as 

marketplace) grants for planning and implementation activities, as well as 

for the first year of a marketplace’s operation. States were required to 

report marketplace grant spending, including IT spending, to HHS’s 

Centers for Medicare & Medicaid Services (CMS).1

The following table shows the amount of marketplace grants awarded;2

the amount of grants spent or drawn down;3 the amount authorized for IT; 

and the amount spent for IT as of March 2015, for the four different 

marketplace types—state-based, state-based using the federal 

marketplace IT solution, federally facilitated, and federally facilitated 

partnership marketplaces.

1

Within the Department of Health and Human Services, the Centers for Medicare & 

Medicaid Services Center for Consumer Information and Insurance Oversight officials are 

responsible for administering and overseeing the marketplace grant program. 

2

The amount awarded includes awards for all marketplace grants (i.e., Planning, Early 

Innovator, and Establishment Level 1 and Level 2 grants) as of December 2014. PPACA 

prohibits the awarding of establishment grants for marketplace after January 1, 2015. HHS 

has clarified, however, that states seeking federal funding to establish marketplace could 

be awarded such funds until December 31, 2014.

3

CMS provided the amounts spent for states with a state-based marketplace, 6 states with 

a federally facilitated partnership, and 2 states with a federally facilitated marketplace 

operating a Small Business Health Options Program (SHOP) marketplace, as of March 

12, 2015. We used CMS data on the amount drawn down, or transferred from CMS’s 

account to the state’s account, by 25 states with a federally facilitated marketplace and 1 

federally facilitated partnership state, as of October 2014.

Appendix II: Health Insurance Marketplace 

Grant Funding and State-Reported 

Expenditures

Page 85 GAO-15-527 State Health Insurance Marketplaces

 
Appendix II: Health Insurance Marketplace 

Grant Funding and State-Reported 

Expenditures

Table 8: Health Insurance Marketplace Grant Funding and State-Reported Expenditures as of March 2015 

State

Marketplace 

grant funding 

awardeda Amount spent or drawn downb

Amount 

authorized for 

ITc Amount spent for ITc Amount of award returnedd

State-Based Marketplace

California $1,065,683,056 $709,586,314 $324,291,051 $254,679,837 $470,106 

New York 575,079,804 310,813,717 191,955,956 118,618,902 -

Washington 302,333,280 208,008,002 173,447,754 116,991,593 -

Kentucky 289,303,526 181,959,022 176,283,857 107,774,666 530,912

Massachusetts 233,803,787 157,941,600 95,029,024 61,824,931 -

Hawaii 205,342,270 119,017,222 127,954,826 89,466,694 -

Vermont 199,718,542 122,325,496 118,261,146 71,007,937 -

District of Columbia 195,141,151 93,270,792 79,800,641 53,869,056 -

Maryland 190,130,143 141,157,242 86,759,499 86,988,256 -

Minnesota 189,363,527 82,478,292 75,820,343 29,357,263 -

Colorado 184,986,696 134,904,604 101,492,717 69,641,979 -

Connecticut 175,870,421 147,481,172 116,417,689 76,832,735 -

Rhode Island 152,574,494 86,766,775 81,871,006 51,567,415 20,019

Idaho 105,290,745 50,477,275 55,317,610 35,770,590 -

Subtotal 4,064,621,442 2,546,187,525 1,804,703,119 1,224,391,854 1,021,037

State-Based Marketplace using the federal marketplace IT solution

Oregon 305,206,587 293,166,188 78,777,499 78,489,963 -

New Mexico 123,281,600 57,107,864 79,772,448 34,095,639 -

Nevada 101,001,068 61,457,310 61,066,015 37,484,596 -

Subtotal 529,489,255 411,731,362 219,615,962 150,070,198 0

Federally Facilitated Partnership

Illinois 164,902,306 51,176,583 81,072,923 8,839,799 71,412

Arkansas 158,039,122 34,607,568 1,839,023 1,607,023 44,928

Iowa 59,683,889 44,291,394 20,882,919 20,907,431 1,837,625

Michigan 41,517,021 933,779 9,915,298

Delaware 22,236,059 15,648,086 245,095 57,393 -

West Virginia 20,832,828 12,473,579 426,333 394,163 -

New Hampshire 15,919,960 8,495,239 0 0 -

Subtotal 483,131,185 167,626,228 104,466,293 31,805,809 11,869,263 

Federally Facilitated Marketplace

North Carolina 87,357,314 13,836,843 77,879,326 10,488,801 73,520,471

Oklahoma 55,608,456 897,980 54,608,456 0 54,710,476

Mississippie 42,712,661 30,817,357 27,598,656 20,798,404 329,875

Page 86 GAO-15-527 State Health Insurance Marketplaces
Appendix II: Health Insurance Marketplace 

Grant Funding and State-Reported 

Expenditures

State

Marketplace 

grant funding 

awardeda Amount spent or drawn downb

Amount 

authorized for 

ITc Amount spent for ITc Amount of award returnedd

Wisconsin 39,057,947 1,025,565 38,058,074 61,357 38,032,382

Pennsylvania 34,832,212 1,008,488 31,882,212

Kansas 32,537,465 1,010,390 31,537,465 31,527,075

Arizona 30,877,097 16,141,598 12,971,889 12,568,993 -

Missouri 21,865,716 2,279,248 17,428,933 833,725 19,586,468

Virginia 15,862,889 1,778,255 158,487 77,989 -

Alabama 9,772,451 3,487,666 2,203,114 29,835 6,284,785

Tennessee 9,110,165 2,552,497 6,549,951

New Jersey 8,897,316 1,183,490 3,178,300 0 7,713,826

Indiana 7,895,126 6,917,054 950,658 950,658 337,367

South Dakota 6,879,569 1,846,528 1,859,847 735,001 3,795,085

Maine 6,877,676 999,841 5,877,835

Nebraska 6,481,838 2,392,066 2,275,000 195,849 942,000

Utahe 6,407,987 1,338,434 2,699,600 757,960 26,323

Florida 1,000,000 0 1,000,000

Georgia 1,000,000 989,730 10,270

Montana 1,000,000 999,971 29

North Dakota 1,000,000 996,016 3,984

Ohio 1,000,000 918,095 81,905

South Carolina 1,000,000 304,996 695,004

Texas 1,000,000 96,425 903,575

Louisiana 998,416 29,391 969,025

Wyoming 800,000 578,652 -

Alaska 0 0 0

Subtotal 431,832,301 94,426,576 273,407,805 47,498,572 284,779,923

Total 5,509,074,183 3,219,971,691 2,402,193,179 1,453,766,433 297,670,223

Source: CMS data. | GAO-15-527

Notes: Because these data are a compilation of multiple grants, some of which may no longer be 

available for state spending, and due to differences in reporting source and timing, numbers do not 

sum across columns. In some cases, the amount spent for IT was greater than the amount authorized 

for IT because states were allowed to re-budget funds.

a

Marketplace grant awards are as of December 2014 because no grants were awarded after 

December 31, 2014. The amount awarded includes awards for all marketplace grants (i.e., Planning, 

Early Innovator, and Establishment Level 1 and Level 2 grants).

b

CMS provided the amounts spent for states with state-based marketplaces, 6 states with a federally 

facilitated partnership, and 2 states with a federally facilitated marketplace operating a Small 

Business Health Options Program (SHOP) marketplace, as of March 12, 2015. We used CMS data 

on the amount drawn down, or transferred from CMS’s account to the state’s account, by 25 states 

with a federally facilitated marketplace and 1 federally facilitated partnership state, as of October 

2014. According to CMS, these data could lag about 2 months behind states’ actual expenditures 

Page 87 GAO-15-527 State Health Insurance Marketplaces
Appendix II: Health Insurance Marketplace 

Grant Funding and State-Reported 

Expenditures

because states had to close and reconcile their accounting data. Further, some states were 2 or more 

months late in reporting.

c

The amounts authorized for IT and spent for IT are as of March 26, 2015. According to CMS, these 

data could lag about 2 months behind states’ actual expenditures because states had to close and 

reconcile their accounting data. Further, some states were 2 or more months late in reporting. 

According to CMS officials, federally facilitated states were not provided IT marketplace grant funds 

unless these states had planned to be a state-based marketplace. In June 2015, CMS officials within 

the Center for Consumer Information and Insurance Oversight (CCIIO) told us that with the exception 

of Arkansas, Mississippi, and Utah, states with a federally facilitated marketplace or federally 

facilitated partnership are no longer authorized to spend marketplace grant funding for IT because 

they are no longer investing in the long-term creation of a modern eligibility system to be shared 

between a state-based marketplace and the state Medicaid program. According to CMS officials, 

states that initially planned for, but did not pursue a state-based marketplace were required to return 

or re-budget IT funds. For example, according to a state official from Wisconsin, the state returned 

Early Innovator grant funds in January 2012.

d

The amount returned is as of October 2014. According to CCIIO officials, the amounts returned were 

based on a manual entry process performed by HHS officials within the Office of Finance. We did not 

verify the amounts returned, and CMS indicated that the report provided to GAO did not include all 

amounts returned.

e

Two states, Mississippi and Utah, who implemented a SHOP-only marketplace, had a federally 

facilitated marketplace for individuals. For the purposes of this report, the IT spending by Mississippi 

and Utah is included in the amount of IT spending by states with a federally facilitated marketplace.

Page 88 GAO-15-527 State Health Insurance Marketplaces
Appendix III: Comments from the Department Appendix II of Health and Human Services I: Comments from the 

Department of Health and Human Services

Page 89 GAO-15-527 State Health Insurance Marketplaces
Appendix III: Comments from the Department 

of Health and Human Services

Page 90 GAO-15-527 State Health Insurance Marketplaces
Appendix III: Comments from the Department 

of Health and Human Services

Page 91 GAO-15-527 State Health Insurance Marketplaces
Appendix III: Comments from the Department 

of Health and Human Services

Page 92 GAO-15-527 State Health Insurance Marketplaces
Appendix III: Comments from the Department 

of Health and Human Services

Page 93 GAO-15-527 State Health Insurance Marketplaces
Appendix IV: Comments from the

District of Columbia Health Benefit Exchange Appendix IV Authority : Comments from the

District of Columbia Health Benefit Exchange 

Authority

Page 94 GAO-15-527 State Health Insurance Marketplaces
Appendix IV: Comments from the

District of Columbia Health Benefit Exchange 

Authority

Page 95 GAO-15-527 State Health Insurance Marketplaces
Appendix IV: Comments from the

District of Columbia Health Benefit Exchange 

Authority

Page 96 GAO-15-527 State Health Insurance Marketplaces
Appendix IV: Comments from the

District of Columbia Health Benefit Exchange 

Authority

Page 97 GAO-15-527 State Health Insurance Marketplaces
Appendix V: Comments from MNsure Appendix V: Comments from MNsure

Page 98 GAO-15-527 State Health Insurance Marketplaces
Appendix V: Comments from MNsure

Page 99 GAO-15-527 State Health Insurance Marketplaces
Appendix VI: Comments from the Appendix VWashington Health Benefit Exchange I: Comments from the

Washington Health Benefit Exchange

Page 100 GAO-15-527 State Health Insurance Marketplaces
Appendix VI: Comments from the

Washington Health Benefit Exchange

Page 101 GAO-15-527 State Health Insurance Marketplaces
Appendix VI: Comments from the

Washington Health Benefit Exchange

Page 102 GAO-15-527 State Health Insurance Marketplaces
Appendix VII: GAO Contact and Staff 

Acknowledgments

Valerie C. Melvin, (202) 512-6304, or melvinv@gao.gov

In addition to the contact named above, Tammi Kalugdan (assistant 

director), Christie Motley (assistant director), Christopher Businsky, Debra 

Conner, Sandra George, David Hong, Kendrick Johnson, Lee 

McCracken, Monica Perez-Nelson, Jerome Sandau, Brandon Sanders, 

Andrew Stavisky, Karin Wallestad, Merry Woo, and Elizabeth Wood made 

key contributions to this report.

Appendix VII: GAO Contact and Staff 

Acknowledgments

GAO Contact

Staff 

Acknowledgments

(311513) Page 103 GAO-15-527 State Health Insurance Marketplaces
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