Patient Protection and Affordable Care Act: HHS's Process for Awarding and Overseeing Exchange and Rate Review Grants to States
Published: 2013-05-31T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: PPACA required the establishment of health insurance exchanges and a process for the annual review of unreasonable increases in insurance premiums charged by issuers of health coverage in each state. To assist states in establishing exchanges and in enhancing their ability to review issuers premium rate increases, the law established new grant programs under which HHS is authorized to award grants to states through 2014. The law appropriated an unspecified amount of funds for exchange grants, and appropriated $250 million to HHS for rate review grants. GAO was asked to provide information on HHSs processes to award and oversee these grants. In this report, GAO describes (1) the process HHS uses to award exchange and rate review grants to states; (2) the amounts of grants and key activities states funded through the grants; and (3) HHSs process for overseeing states use of the grants.
GAO reviewed laws, regulations, and HHSs procedures that established the processes for awarding the grants. GAO obtained and analyzed data on all exchange and rate review grants awarded from August 2010 through March 2013. GAO also reviewed HHSs procedures for overseeing the grants, and interviewed officials responsible for grants oversight. HHS provided technical comments on a draft of this report, which GAO incorporated as appropriate.
section_title: What GAO Found
paragraphs: The Department of Health and Human Services (HHS) has a structured process for awarding Patient Protection and Affordable Care Act (PPACA) exchange and rate review grants to states. These grants are designed to help states establish exchanges--new health insurance marketplaces through which individuals and small businesses can obtain insurance--and review issuers' proposed rate increases. The grant award process consists of a series of steps during which the agency solicits, screens, and evaluates grant applications, and then makes funding awards. Once HHS deems that applications meet program eligibility criteria, applications go through various reviews, including a review by independent experts and HHS officials. On the basis of these reviews, HHS determines whether states' proposed activities are allowable, and if so, whether the associated requests for grant funding are reasonable. Based on recommendations from the reviews, HHS determines whether to award grants to states, and if so, the amounts of any grants to be awarded.
As of March 27, 2013, HHS had awarded about $3.8 billion in PPACA exchange and rate review grants that states have used or plan to use to develop exchanges and enhance rate review capabilities. This includes nearly $3.7 billion in exchange grants awarded to 49 states and the District of Columbia. Among states that have received exchange grants, the amount of funding provided to states ranges from $0.8 million (Wyoming) to about $911 million (California). Approximately half the states were awarded under $30 million in exchange grant funding, while 10 states were awarded over $100 million. As of February 2013, states had drawn down approximately $380 million of their exchange grant funds. GAO's review of a subset of exchange grantee financial reports indicated that nearly 80 percent of expenditures have been for contracts and consulting services, much of which states spent on key activities for developing exchange information technology systems. HHS also awarded about $159 million in rate review grants to 46 states and the District of Columbia, much of which has funded five key activities, including expanding the scope of rate review programs and enhancing the transparency of the rate review process.
HHS's process for overseeing states' use of PPACA grant funds consists of several mechanisms. The agency regularly monitors states' grant activities though its review of program and financial information reported by states, as well as ongoing communication with grantees. HHS's process also includes mechanisms to periodically verify state-reported information, including its analysis of states' withdrawal of grant funds and site visits. To date, however, use of site visits has been limited. HHS has a number of mechanisms it can utilize, such as restricting a grantee's access to funds, if its monitoring identifies concerns or compliance issues, but agency officials indicated they have not identified any misuse of grant funds or compliance issues to date.

section_title: Letter
paragraphs: The Patient Protection and Affordable Care Act (PPACA),March 2010, contains a number of provisions that may influence the  availability and affordability of health insurance coverage. A central  provision of the law requires the establishment of health insurance  exchanges, referred to as “exchanges,” in each state, through which  qualified individuals and small employers can compare, select, and  purchase health coverage from participating issuers. If a state chooses  not to establish and operate an exchange, PPACA requires the federal  government to do so. Under PPACA, states and the federal government  must establish exchanges by January 1, 2014. PPACA also emphasized  a need to increase the scrutiny of premium rates—actuarial estimates of  the cost of providing coverage over a period to policyholders and  enrollees in a health plan. In doing so, PPACA requires the Secretary of  Health and Human Services to work with states to establish a process for  the annual review of unreasonable insurance premium increases (“rate  review”). PPACA directed the Department of Health and Human Services  (HHS) and the states to implement the rate review process for the plan  year beginning in 2010. If a state is unable to implement an adequate rate  review process, HHS will review issuers’ proposed increases.
To assist states both in preparing to set up health insurance exchanges  and in enhancing their ability to review issuers’ premium rate increases,  PPACA established new grant programs under which HHS is authorized  to award multiple grants to states through 2014. PPACA appropriated an  unspecified amount to HHS for exchange grants, and appropriated   $250 million for rate review grants. HHS began awarding these grants in  2010, and plans to award grants through 2014.
In light of the significant federal dollars available for award through  exchange and rate review grants, you asked that we examine how HHS  awards and oversees the grants, as well as how states have used the  funding. In this report, we describe  1.  the process HHS uses to award exchange and rate review grants to  2.  the amounts of exchange and rate review grants awarded by HHS,  and the key activities states have funded through these grants; and  3.  HHS’s process for overseeing states’ use of these grants, and the key  mechanisms it uses to ensure that states are using the funds in  accordance with program goals and requirements.
To describe HHS’s exchange and rate review grant awarding process, we  reviewed relevant portions of PPACA, HHS’s Grants Policy Statement,  and other federal regulations and guidance that are relevant to the grant- awarding processes. We also interviewed officials from HHS’s Center for  Consumer Information and Insurance Oversight (CCIIO) and reviewed  supporting grant program documentation focusing on the agency’s award  processes. In doing so, we identified the officials, guidance,  documentation, and other outputs that corresponded to each key activity  involved in CCIIO’s grant award process. We reviewed key documents,  including HHS-issued funding opportunity announcements (FOA), which  provided applicants with information about grants for each program, and  CCIIO’s standard operating procedures for awarding grants.
To describe the amounts of exchange and rate review grants CCIIO has  awarded, as well as key activities states funded with the grants, we  analyzed information provided by CCIIO. We obtained data from CCIIO  on all grant applications and grants awarded to states from August 2010  through March 27, 2013. This information represented the universe of all  applications submitted and HHS grants awarded at the time of our  request. We conducted various analyses, and produced information  including  the total amount of funding awarded for exchange and rate review  grants;  for each state, the types and amounts of grant funding originally  requested, and amounts HHS awarded; and  the types and amount of grant funding that states have returned to  HHS.
To assess the reliability of this information, we asked officials responsible  for entering and reviewing the grants information a series of questions  about the data, including questions about actions they take to ensure the  data are accurate and reliable. We also conducted electronic checks to  determine if there were any outliers and other obvious errors in the data.  On the basis of CCIIO officials’ answers to our questions, and results of  our checks, we determined that the grants data were sufficiently reliable  for the purpose of our review.
We also obtained from CCIIO information about key activities that states  funded with their grants. For exchange grants, we reviewed financial  reports that states submitted to CCIIO that highlighted expenditures  across key budget categories. For rate review grants, we reviewed CCIIO  summaries of state-reported information on actions they have taken or  plan to take with the various grants. We analyzed the summaries and  identified key categories of actions states have generally pursued with the  grant funding. To assess the reliability of the financial reports, we  obtained and reviewed instructions CCIIO provided to states for reporting  this information and we conducted electronic checks to determine if there  were outliers or other obvious errors in the data. On the basis of our  review, we determined that information contained in the reports was  sufficiently reliable for the purpose of our review.
To describe HHS’s oversight process and key mechanisms, we analyzed  several key documents. These included HHS’s Grants Policy Statement;  standard operating procedures for the oversight of exchange and rate  review grants; sample progress and financial reports prepared by states  and submitted to CCIIO; and routine programmatic monitoring tools that  CCIIO officials use to track the status of grants, including monthly  summaries of grantee progress, regular analyses of progress reports, and  regular financial reports. We also interviewed CCIIO officials responsible  for the day-to-day oversight of the grants, including those responsible for  monitoring and summarizing grantees’ progress in meeting grant program  goals and requirements.
As part of our review, we identified key mechanisms and internal controls  that HHS uses when evaluating grant applications and overseeing states’  use of grant funds. We did not, however, evaluate HHS’s internal controls  for awarding and overseeing grants, nor did we assess the effectiveness  of HHS’s processes, as such an assessment was beyond the scope of  this review.
We conducted this performance audit from October 2012 to May 2013 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.
subsections: section_title: Background
paragraphs: PPACA includes provisions that are designed to make health insurance  more accessible and affordable for millions of Americans. These include  provisions for establishing health insurance exchanges in each state, and  enhancing processes for the annual review of health insurance premiums.  To facilitate these activities, PPACA created new responsibilities for  states and the federal government, and provided financial resources to  states in the form of federal grant funding.
subsections: section_title: Health Insurance Exchanges and Related Grants
paragraphs: PPACA mandated the establishment of exchanges—new health  insurance marketplaces in each state through which qualified individuals  and small businesses can compare, select, and purchase standardized  health coverage from among participating issuers of health coverage.  These exchanges must begin enrolling consumers by October 1, 2013,  into coverage that begins January 1, 2014. Core exchange functions  include determining eligibility and enrolling individuals, plan management  (certifying qualified health plans), consumer assistance and outreach, and  developing the necessary information technology (IT) infrastructure to  support the exchange. These exchanges may be established and  operated by a state itself as a “state-based exchange.” Such states must  also establish a governing board and standards of conduct. Where a state  is unable or unwilling to establish and operate an exchange, PPACA  directs HHS to establish an exchange—referred to by HHS as a “federally  facilitated exchange.” States in which a federally facilitated exchange will  operate may also enter into arrangements with HHS to assist it with  certain of the exchange’s plan management or consumer assistance  functions. HHS refers to such exchanges as “partnership exchanges.” As  of March 2013, HHS indicates that 18 states will establish their own state- based exchanges and 33 will have a federally facilitated exchange, of  which 7 states are planning to have a partnership exchange.
To assist states in developing exchanges, PPACA authorized HHS to  award grants to states for the planning and establishment of insurance  exchanges. PPACA did not provide a specific amount of exchange grant  funding, but rather, appropriated to HHS, out of any moneys in the  Treasury not otherwise appropriated, an amount necessary to make grant  awards. In doing so, it directed HHS to determine the total amount of  funding that it will make available to each state for each fiscal year.  PPACA authorized HHS to award grants to states through December  2014, and, on the basis of this authority, HHS established four separate  programs for awarding exchange grants to states:
Planning Grants: Provided states with resources to conduct the initial  research and planning needed to build an exchange and determine  how it will be operated and governed. Once awarded, the grant funds  were available for 1 year, and a state could only receive one grant.
Early Innovator Grants: Provided funding to a state or group of  states that were early leaders in building their exchanges to design  and implement the IT infrastructure needed to operate the exchanges.  All exchange IT components, including software and data models,  developed with these grants could be adopted and modified by other  states to fit their specific needs. Once awarded, the grant funds were  available for 2 years, and a state or group of states could only receive  one grant.
Establishment Grants (Level 1): Provide funding to states pursuing  any exchange model. Funding is designed to help states undertake  additional exchange establishment activities, such as making  legislative/regulatory changes, establishing IT systems, and  consulting with key stakeholders. Once awarded, the grant funds are  available for 1 year, and a state may apply for multiple grants.
Establishment Grants (Level 2): Provide funding to states that have  legal authority to implement an exchange and are further along in  exchange development and pursuing a state-based exchange.  Funding is designed to help states develop all exchange activities,  including consumer and stakeholder engagement and support,  eligibility and enrollment, plan management, and technology. Once  awarded, the grant funds are available for up to 3 years, and a state  can only receive one grant.
section_title: Premium Rate Review and Related Grants
paragraphs: Health insurance premium rates are generally established on the basis of  actuarial estimates of the cost of providing coverage over a period to  enrollees in a private health insurance plan. Insurance issuers generally  submit these rates to states as a formula that describes how to calculate  a premium for each person or family covered on the basis of factors such  as age, gender, and geographic location. Individual states are primarily  responsible for ensuring that the rates within their state are reasonable— that is, adequate, not excessive, reasonable in relation to benefits  provided, and not unfairly discriminatory—and they do so by establishing  standards and defining state insurance departments’ authority to help  enforce them. Most states require carriers to submit rate filings to state  insurance departments for review prior to implementation of new rates or  rate changes, although the authority of the departments to approve or  disapprove the filings can vary by state. Some state insurance  departments have the authority to approve or disapprove rate filings  before they go into effect, while others do not have any authority to  approve or disapprove rate filings.
Oversight of premium rates charged by insurance issuers historically has  been primarily a state responsibility; however, PPACA established a role  for HHS by requiring the Secretary of Health and Human Services to work  with states to establish a process for the annual review of unreasonable  premium increases in the individual and small group insurance markets.  HHS has since issued regulations that established a threshold for  determining whether rate increases proposed by insurance issuers  require review, and requiring insurance issuers to report information to  HHS on proposed rate increases. The regulations also establish criteria  and a process by which HHS will determine whether a state has an  effective rate review program and thus meets HHS’s standards for  conducting the rate reviews. Under the regulations, an effective rate  review program must, among other things, utilize sufficient data and  documentation concerning rate increases to conduct an examination of  the reasonableness of the proposed increases, and make a determination  of the reasonableness of the rate increase under a standard set forth in  state statute or regulation. If HHS determines that a state does not have  an effective rate review program, then HHS will conduct the rate reviews.  As of April 2013, HHS has determined that all but nine states have an  effective rate review program for both the individual and small group  insurance market.
To assist states in reviewing premium rates, PPACA also established a   5-year premium rate review grant program beginning in 2010. PPACA  appropriated $250 million for HHS to award grants to states from fiscal  years 2010 through 2014. On the basis of this authority, HHS established two separate rate review grant programs:
Cycle I: Provided states with assistance to enhance their rate review  processes—for example, by ensuring that increases in health  insurance premiums and rate filings are thoroughly evaluated and, to  the extent permitted by law, approved or disapproved through a  comprehensive rate review process. Once awarded, grant funds were  available for 1 year, and a state could only receive one grant.
Cycle II: Further assists states in improving and enhancing their rate  review and reporting processes, and for meeting requirements of an  effective rate review program. Once awarded, grant funds are  available for up to 3 years depending on the date they are awarded,  and a state may be able to receive more than one grant. (See app. I for further details on these grant types as well as the four types of  establishment grants.)
section_title: Award and Oversight of Federal Grants
paragraphs: Federal competitive grants generally follow a life cycle that includes four  stages and several activities within each stage, as seen in figure 1.
The grant process begins with the preaward stage, when the public is  notified of the grant opportunity through a funding announcement, and  potential grantees must submit applications for agency review. In the  award stage, the agency identifies successful applicants and awards  funding. The implementation stage includes grantees drawing down  funds, agency monitoring, and grantee reporting, which may include  financial and performance information. The closeout stage includes  preparation of final reports, financial reconciliation, and any required  accounting for property. Audits may occur multiple times during the life  cycle of the grant and after closeout.
In CCIIO, officials, known as state or project officers, are assigned to  specific grants, and are responsible for managing and overseeing the life  cycle of grants. This includes reviewing grant applications and evaluating  whether the projects funded by the grants are on schedule and meeting  goals. For exchange grants, 17 CCIIO employees work as state officers,  and for rate review grants, 2 CCIIO employees work as project officers.  These state or project officers also work with grants management officials  from CMS’s Office of Acquisition and Grants Management (OAGM) to  oversee the financial and regulatory aspects of the grants.
section_title: HHS Follows a Multistep Process to Award PPACA Exchange and Rate Review Grants to States
paragraphs: HHS’s process to award PPACA exchange and rate review grants to  states involves soliciting, screening, and evaluating applications and  making official grant awards. The steps include the announcement of  grant opportunities; states’ preparation and submission of applications;  application eligibility determinations; objective reviewers’ evaluation of  applications; HHS officials’ evaluation of applications and corresponding  follow-up, or budget negotiations, with states; final grant  recommendations to HHS leadership; and final award decisions and  issuance of official awards.
subsections: section_title: Announcement and Assistance
paragraphs: CCIIO project officers, in collaboration with other HHS officials, review  statutory requirements as well as federal regulations to develop an FOA  to solicit applications for each exchange and rate review grant type. The  FOA contains key items a state needs to review and understand prior to  submitting an application. These include the program eligibility criteria,  the amount of funding available for award, the types of activities that may  be funded under the grants, the instructions for completing applications,  and the process and criteria for evaluating applications. Once completed,  the FOA is posted on the HHS website and Grants.gov, a website run by  the federal government through which states and other entities can find  and apply for federal grants. After posting the FOA, CCIIO project officers  may conduct a conference call to provide guidance to interested states on  items such as the grant review criteria, instructions on preparing project  budget proposals, and other application procedures. Information on this  call is provided in the FOA, and a transcript and recording of the call may  be posted afterward on the HHS website.
section_title: Application Preparation and Submission
paragraphs: States must prepare and submit application materials to HHS through  Grants.gov, as outlined in the FOA. The application must include the  amount of federal grant funding being requested, as well as other  materials including various federal forms; letters of support from the  governor or other applicable state entities, or both; a project narrative; a  work plan that contains milestones and time frames; a proposed budget  that provides line-item costs for various categories of activities to be  performed using grant funding; and an organizational chart of key state  personnel.
section_title: Eligibility Determinations
paragraphs: Upon receiving applications, CCIIO project officers and OAGM officials  conduct an initial eligibility check for all grant applications by screening  them on the basis of specific eligibility criteria described in the FOA and  ensuring that they contain all required documents as described above.  The eligibility criteria vary depending on the type of exchange or rate  review grant being awarded. Table 1 below outlines the key eligibility  criteria for each type of exchange and rate review grant. As the table  shows, the eligibility criteria for Level 2 exchange Establishment grants  and Cycle II rate review grants require greater commitments from states  as compared to the criteria for other grants—for example, to receive   Level 2 Establishment grants, states must commit to establishing a state- based exchange and complete specified steps associated with doing so,  such as obtaining the necessary legal authority to establish and operate  the exchange. To receive Cycle II grants, states must commit to  developing effective rate review programs that meet HHS requirements.
Once applications are deemed eligible, a panel of independent subject- matter experts meets to discuss the applications’ strengths and  weaknesses and evaluate whether they meet grant program  requirements. These reviewers are recruited by CCIIO project officers,  who ensure that the reviewers are unaffiliated with the exchange and rate  review programs but have experience in a wide range of relevant fields  and together possess the subject-matter expertise needed to review the  applications. For example, according to CCIIO officials, panels for  exchange grant application cycles always contain reviewers with   IT-related expertise, due to the significant role IT plays in exchange  establishment. CCIIO project officers assign three reviewers to each  application, but the total number of reviewers within a panel depends on  the number of submitted applications and may therefore vary between  application cycles.
Once reviewers are selected, project officers provide them with  instructions on the process and guidance on the relevant FOA and  statute. In addition, OAGM officials indicated that they advise the  reviewers on the proper procedures to follow in conducting their review.  To then evaluate applications, the objective reviewers use various  methods depending on grant type:
For most exchange grants, reviewers rely on a scoring system  outlined in the applicable FOA to assess the strengths and  weaknesses of various sections of an application. These application  sections are attached to specified review criteria and point ranges,  with a maximum total score of 100 points. For example, the project  narrative portion of a state’s Establishment grant application can be  awarded up to 55 points, depending on factors such as the extent to  which the state clearly describes how its progress toward exchange  establishment to date has informed its current grant proposal (see  table 2 below). The reviewers document their proposed total score for  each assigned application as well as their assessments of the  applications’ strengths and weaknesses.
For rate review grants, reviewers do not utilize a scoring system.
Rather, to assess the strengths and weaknesses of applications and  determine whether they meet requirements, objective reviewers use a  CCIIO-provided checklist that lists the requirements of the grant  program. The reviewers discuss the applications and make  recommendations as to whether the applications are strong enough to  be funded or contain weaknesses that must be addressed prior to  awarding the grant.
CCIIO project officers and OAGM officials sit on the panel meetings but  do not participate; rather, their role is to document decisions made during  the meetings. For example, where applicable, the officials prepare a   rank-order list, or a list of applicants ranked by objective review score.  The officials also prepare summaries of each application’s strengths and  weaknesses as discussed during the review panel (including objective  review scores, where applicable), as well as summaries of  recommendations stemming from the reviewers’ analysis of rate review  grant applications. These summaries serve as official documentation of  the objective review process.
section_title: Internal Reviews and Budget Negotiations
paragraphs: Questions or concerns flagged during this review, as well as those identified during the  objective review, can also help inform HHS officials’ future oversight of states’ use of grant  funds. increase of about $9.7 million. Budget negotiations on rate review  grant applications submitted by August 2012 have resulted in a net  increase of about $8.8 million, with changes ranging from an increase  of about $3,000 to an increase of about $2.5 million.
section_title: Final Recommendations
paragraphs: After budget review and negotiations for exchange and rate review grant  applications have concluded, project officers conduct a final analysis of  the results of previous reviews and prepare funding recommendation  memos for HHS leadership. These memos contain summaries of the  awarding process thus far, including the number of submitted applications  as well as the original budget request, revised budget request (where  applicable), and the final recommended award amount for each applicant.  For example, the August 2011 funding memo describing decisions on  exchange Establishment grant applications due in June 2011 indicated  that 14 states applied for Level 1 grants. All applications were deemed  eligible and thus were recommended to receive awards, with  recommended funding amounts ranging from about $4.2 million to about  $39.4 million (due to differences in the states’ proposed activities and  budgets). The funding memos may also include scores from the objective  review, where applicable, as well as high-level results from any budget  negotiations conducted with states.
In addition, according to HHS officials, before final awards are issued,  CCIIO project officers typically recommend special terms and conditions  that grantees must meet prior to receiving their full funding amount.These recommended terms and conditions are also included in the  funding memo. For example, funding for contractors performing IT-related  activities is initially restricted from all exchange Establishment grants until  certain conditions, such as providing an itemized budget and justification  for each contract, are met and sufficiently documented. In addition,  Establishment grant applicants submitting applications that receive scores  less than 70 during the objective review may have their entire funding  amount restricted until the applicants meet certain requirements as  specified by HHS, such as providing an updated work plan or budget  proposal that more sufficiently meets requirements outlined in the FOA.  For instance, the August 2011 Establishment grant funding memo  indicated that 3 out of the 14 states’ applications received scores of less  than 70, and that 2 of these states were able to address most of their  application weaknesses during budget negotiations. The remaining state  was recommended to have its entire funding amount restricted pending  submission of updated application materials within 60 days of receiving  the award notice.
section_title: Final Award Decision and Issuance
paragraphs: HHS leadership reviews the funding memo and provides the final sign-off  on decisions regarding exchange and rate review grant applications, but  according to CCIIO officials generally does not deviate from  recommendations in the memo. The agency issues an official notice of  grant award to each applicant, outlining the funding amount, project  period, budget period, applicable terms and conditions, and administrative  requirements such as financial and progress reports that grantees must  submit on a regular basis throughout the course of their grant.
section_title: HHS Has Awarded about $3.8 Billion in PPACA Exchange and Rate Review Grants, Which States Are Using for Activities Related to Exchanges and to Enhance Rate Review Capabilities
paragraphs: As of March 27, 2013, HHS had awarded nearly $3.7 billion in exchange  grants to states, much of which will be used to fund activities related to  developing IT systems for states’ exchanges. HHS also awarded about  $159 million in rate review grants to states, which to date has been used  for five key activities related to enhancing states’ rate review processes,  including enhancing the transparency of issuers’ rate review filings.
subsections: section_title: HHS Awarded nearly $3.7 Billion in Exchange Grants to States, Much of Which Will Fund Activities Related to Developing Information Technology Systems
paragraphs: Between September 2010, when exchange grants were first awarded,  and March 27, 2013, HHS awarded 132 exchange grants totaling nearly   These awards included Exchange Planning,  $3.7 billion to 50 states.Early Innovator, and Level 1 and 2 Establishment grants. To date, the  majority of funding (about $3.4 billion, or 92 percent) has been awarded in  the form of Level 1 and Level 2 Establishment grants, while Exchange  Planning grants make up approximately 1 percent of total exchange grant  funding (see table 3).
section_title: HHS’s Process for Overseeing PPACA Exchange and Rate Review Grants Consists of Several Key Mechanisms
paragraphs: HHS oversees states’ use of grant funds by reviewing and analyzing  state-reported information and conducting some limited verification of  state data. HHS has several mechanisms to address identified concerns  or noncompliance identified through routine monitoring and to respond to  requests to amend grants’ terms.
subsections: section_title: Regular Oversight of Exchange and Rate Review Grants to Date Is Primarily Based on Review of State- Reported Information and Some Limited Independent Verification
paragraphs: CCIIO’s regular oversight process for exchange and rate review grants  consists of a variety of mechanisms through which project officers  regularly review information reported by grantees as well as communicate  with grantees. Additionally, this oversight is supplemented by  independent verification through internal analysis and periodic reviews.  CCIIO’s regular oversight mechanisms are listed below in table 5.
As a condition of receiving an exchange or rate review grant, CCIIO  requires grantees to prepare and submit regular progress reports  covering programmatic activities, progress in meeting program goals, and  details about expenditures. CCIIO requires exchange program grantees  to provide progress reports describing the current status of their activities  in areas such as making legislative/regulatory changes, establishing IT  systems, building organizational infrastructure and staffing resources,  establishing an operational budget and management plan, and consulting  with key stakeholders. Originally, states were required to submit these  reports quarterly, but officials indicated that they changed the reporting to  semiannually to reduce the burden on states, since states were providing  information and communicating with project officers frequently. As part of  this progress report, CCIIO requires exchange program grantees to  provide information on the amount of grant funds spent over the life of the  grant across key budget categories. These categories include state  personnel, travel, contractors and consultants. CCIIO also requires  grantees to identify the individual contracts they have awarded with grant  funds. As with exchange grants, CCIIO requires rate review grantees to  provide quarterly progress reports, which include data on their rate review  activities, the grantees’ original goals, deviations or changes to original  goals, accomplishments to date, significant activities undertaken and  planned, and any relevant issues or setbacks that occurred over the prior  12 months. These reports also include expenditure information similar to  that reported by exchange grantees. Further, CCIIO requires that, each  quarter, both exchange and rate review grantees provide financial reports  that detail financial activities, including the amount of cash transactions  grantees made with grant funds during the quarter.
In addition to requiring regular reports, CCIIO project officers have regular  phone communication with grantees to discuss grantee reports and  activities, clarify guidance, and provide technical assistance to grantees  with challenges they encounter, and, according to officials, thereby  maintain an awareness of grantees’ ongoing activities. According to the  standard operating procedures for both programs, project officers call  each grantee at least quarterly. According to CCIIO officials, these  contacts are in practice much more frequent than the minimum for many  grantees under both programs. For example, according to CCIIO officials,  project officers generally communicate at least twice per week with  exchange grant recipients.
As part of their ongoing monitoring, CCIIO officials regularly review and  summarize the programmatic and financial information obtained from  grantees’ progress reports and monitoring calls. For exchange grants,  CCIIO officials indicated that each week, project officers submit internal  project office summaries about the status of the states’ exchange  implementation efforts. Additionally, each month, project officers also  develop detailed narratives for exchange grants, which include  information on how much grant funding the state has spent, the states’  progress, barriers they may face, and any action items to be taken over  the next 30 days. For rate review grants, project officers also prepare  weekly summaries of grantee activities, and quarterly they summarize  each state’s progress in an Excel tracking sheet. This analysis includes  information on how much the grantee has spent, grantee  accomplishments, and issues requiring follow-up. Finally, on a quarterly  basis program staff provide briefings to CCIIO leadership, and issues  regarding grantees’ progress are discussed.
According to CCIIO officials, project officers routinely oversee and assess  exchange and rate review grantees’ financial activities by monitoring the  amount and pace of the states’ drawdown of grants. Each week, OAGM  staff provides project officers with reports from OAGM’s financial system  on the amount of funding each grantee has withdrawn from the grant  account, according to officials. Project officers use the reports to look for  unusual events such as large drawdowns or no drawdowns. Withdrawals  are reported at the overall grant level, not by specific expenditures or  general categories of expenditures. According to CCIIO officials, if review  of these reports highlights potential issues, they will follow up with  grantees and determine whether further action is warranted.
In addition to analysis of grantee drawdowns, CCIIO has other  mechanisms that can provide independent assessments of grantees’ use  of funds. CCIIO officials also indicated that they conduct site visits—on- site assessments of exchange and rate review grantees’ activities—and  that this provides a measure of independent verification of grantee  activities. CCIIO officials indicated that exchange grant site visits are in  their early stages and have been utilized to provide technical assistance  to help grantees establish their exchanges.  For example, CCIIO officials  indicated that as of April 11, 2013, they have conducted 26 technical  assistance site visits at exchange grantees. CCIIO’s draft procedures for  conducting site visits indicate that they will ultimately conduct a site visit  to each state at least once prior to certification of a state’s exchange. The  procedures indicate that the visit should be conducted by a team  consisting of a project officer and key CCIIO and CMS staff, and the site  visit team will review operational aspects of the proposed exchange  including its enrollment process and financial management. Within   4 weeks of completing the site visit, the project officer should prepare a  written report that will include a summary of the site visit, and  recommendations to the state, if applicable.
For rate review grantees, CCIIO’s procedures do not address the  frequency of site visits, but indicate site visits are used to further engage  grantees, monitor programmatic progress toward established milestones,  track fiscal performance, ensure compliance with programmatic and  statutory requirements, and mitigate programmatic risks. The procedures  indicate that selecting grantees for site visits will be determined by a  number of factors including the stage of programmatic implementation  and complexity of the grantee’s rate review proposal, and the need for  more hands-on auditing or budget review, or both. CCIIO officials  indicated that as of April 11, 2013, CCIIO has conducted two site visits to  rate review grantees.
CCIIO requires each state receiving exchange grants to undergo three  Establishment Reviews over the course of its grant period. CCIIO uses  these reviews to assess states’ activities and provide systematic  feedback on their progress towards development of an exchange. The  reviews are conducted at certain readiness benchmarks, rather than  specific times.
Planning. The first review is the planning review generally in the first  quarter after the grant is awarded. The state must demonstrate  preliminary progress towards establishing an exchange, and receives  feedback. The review results in a list of tasks for the state to complete  before the design review.
Design. The second review is the design review, which occurs after  states have selected their key contractors for exchange  establishment, typically about 6 to 9 months after the planning review.
States are expected to have established business requirements and  developed detailed plans and procedures for key activities for their  exchange.
Operational. The final operational review occurs after exchange  development and implementation is complete, to test the exchange  and demonstrate that it is ready to begin operation.
After each of these reviews, CCIIO’s procedures require project officers to  prepare a postestablishment report describing deliverables by both CCIIO  and the grantee. These reports are designed to provide a summary of the  progress the state has made in meeting the necessary requirements  related to establishing an exchange. The report also serves as a guide in  identifying action items and next steps to ensure adherence to mandatory  timelines. According to CCIIO officials, in calendar year 2012 they  completed planning reviews for 24 grantees and design reviews for 28  grantees, covering 31 of the 38 states with Level 1 Exchange  Establishment grants. As of March 2013, they had not completed any  operational reviews, but planned to complete them between August and  September 2013.
Finally, all recipients of these grants are required to obtain an A-133  Audit. According to CCIIO guidance, CCIIO reviews the audit for each  grantee. According to CCIIO officials, they plan to use the A-133 Audit  results as part of their Operational Establishment Reviews for exchange  grants and as part of future Annual reviews for rate review grants. The  guidance also calls for grantees to address any significant findings from  the audit and to develop plans for mitigating future problems.
section_title: HHS’s Oversight Process Includes Several Mechanisms to Address Concerns or Noncompliance Identified through Routine Monitoring and Respond to State Change Requests for Exchange and Rate Review Grants
paragraphs: CCIIO officials indicated that if CCIIO’s regular oversight process  identifies instances when a grantee may not be complying with  requirements of the grant, CCIIO uses a five-tier response to address  them, in which CCIIO advances its response to the next tier if its earlier  responses did not address the issue (see fig. 5).
In the first tier, CCIIO officials indicated they discuss compliance issues  with the exchange or rate review grantee and request a mitigation  strategy, which CCIIO documents in the project records. The second tier  calls for production of management assessment items by the state, such  as a documented business plan to address the compliance issue in a  specific time frame. In the third tier, CCIIO imposes conditions on the  grant award, which identifies the reason for the condition and limits the  grantee’s access to funds, until the grantee provides requested  documentation. In the fourth tier, CCIIO restricts the grantee’s access to  funds until it reviews and approves the grantee’s corrective action.  CCIIO’s final action in the fifth tier is to terminate the grant. According to  OAGM officials, to date they have not had to impose conditions or  restrictions on grants based on their regular oversight. Further, OAGM  officials said that so far they had not identified any misuse of grant funds  on the basis of established program criteria.
If a state seeks to make certain changes to the terms of its exchange or  rate review grant, CCIIO requires that the state obtain prior approval, and  has established procedures to review the appropriateness of any such  requests. CCIIO refers to these as postaward actions, and they include  instances such as when a state wants to alter substantially the allocation  of funds between major activities funded by a grant (called a budget  revision), or extend the time frames for performing grant activities without  changing the award amount (called a no-cost extension). Eight types of  routine, grantee-initiated postaward actions are described in table 6  below.
For example, if a state wants to reallocate more than 25 percent of an  exchange grant among budget categories, CCIIO requires the state to  work with the appropriate project officer to obtain approval by OAGM.  Under its procedures, CCIIO requires the state to provide supporting  documentation to justify the proposed rebudgeting. The project officer will  review the request and make a recommendation to the OAGM. If  approved, OAGM will amend the grant agreement to reflect the revised  budget. Officials indicated that the same general procedures apply to  other types of postaward actions.
Officials indicated that CCIIO also requires states in which the anticipated  exchange type changes (e.g., from a state-based exchange to a federally  facilitated exchange) to obtain approval for a change in the scope of  services permitted under the state’s original grant or to terminate the  grant. As of April 11, 2013, CCIIO officials indicated they are working with  11 states to determine the appropriate adjustments for their grants to  reflect changes in the scope of services they will provide. For example,  CCIIO officials indicated that Arizona was originally awarded funding to  establish a state-based exchange, but the state subsequently decided to  default to a federally facilitated exchange. CCIIO and the state are  currently determining the extent to which the state will continue to  participate in the grant program.
section_title: Agency Comments
paragraphs: We provided a draft of this report to HHS for its review and comment.  HHS provided technical comments, which we incorporated as  appropriate.
As agreed with your offices, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies of this report to the  Secretary of Health and Human Services. In addition, the report will be  available at no charge on the GAO website at http://www.gao.gov.
If you or your staff have any questions about this report, please contact  me at (202) 512-7114 or dickenj@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 key contributions to this report  are listed in appendix V.
section_title: Appendix I: Overview of PPACA Exchange and Rate Review Grants to States
subsections: section_title: Grant type Grant name Exchange Planning
paragraphs: Purpose  Provided states with 1 year of funding to assist  with background research and initial planning  activities related to the potential  implementation of a state-based exchange,  including plans for stakeholder involvement,  governance structure, technical infrastructure,  and necessary policy actions related to the  exchange. States could only receive one grant.
Award amount  $0-1 million; depends on states’  proposed activities and budget  (along with the Department of  Health and Human Services’   assessment of the  proposal).
Early Innovator  Provided 2 years of funding to a select number  of states or groups of states that demonstrated  leadership in establishing state-based  exchanges, in particular by beginning  development of cutting-edge, cost-effective,  consumer-friendly IT for their exchanges.  Awards were intended to allow the states to  develop rigorous IT models and best practices  that could be adopted and tailored by other  states. States could only receive one grant.
Variable; depends on states’  proposed activities and budget  (along with HHS’s assessment of  the proposal).
Provides up to 1 year of funding to support  states’ continued progress in carrying out  activities in connection with a state-based or  federally facilitated exchange, including a  partnership exchange. Funding is awarded to  help states undertake specific establishment  activities relevant to a state’s chosen exchange  model. For example, states pursing state- based exchanges may receive funding for  activities within 12 categories, including legal  authority and governance, consumer and  stakeholder engagement and support, and plan  management. States preparing to support  federally facilitated exchanges are eligible to  use grant funding for a subset of these  activities, as outlined in the funding opportunity  announcement. States may receive multiple  grants.
Variable; depends on states’  proposed activities and budget  (along with HHS’s assessment of  the proposal).
Provides up to 3 years of funding to states that  are further in their exchange establishment  process and are specifically establishing   state-based exchanges. Funding is awarded to  help states undertake all exchange activities.  To be eligible, states must have met certain  milestones, including (1) obtaining the  necessary legal authority to establish and  operate the exchange; (2) establishing a  governance structure for the exchange; and   (3) submitting (to HHS) an initial plan for  funding the long-term operational costs of the  exchange. States may only receive one grant.
Variable; depends on states’  proposed activities and budget  (along with HHS’s assessment of  the proposal).
section_title: Grant type Grant name Rate review Cycle I
paragraphs: Purpose  Provided 1 year of funding to states or U.S.  territories to help develop or enhance their rate  review processes as well as their processes for  reporting their rate increase patterns to HHS.  States/territories could only receive one grant.
Provides up to 3 years of funding (depending  on the date of award) to further assist states or  U.S. territories with developing or enhancing  their rate review and reporting processes, with  the specific purpose of helping states meet  HHS’s criteria for effective rate review  programs. To be eligible, states that at the time  of application do not have effective rate review  programs in their individual or small group  health insurance markets, or both, must  commit to using grant funds to develop  effective programs within 12 months of  receiving the grant. States that at the time of  application meet the effective rate review  requirements must commit to using grant funds  to further enhance their rate review programs.  States are eligible for a second Cycle II grant if  they have drawn down at least 60 percent of  their previous Cycle II grant by August 1, 2013,  and if HHS determines that sufficient funding is  available after all eligible applications are  considered for an initial Cycle II award.  Additionally, California is eligible for two Cycle  II grants because it has two regulatory  agencies that are each primarily responsible for  regulating a portion of the state’s private health  insurance market.
Total award amounts are made  up of the following subawards:  Baseline award: $3 million   (for grants awarded in 2011) or  $2 million (for grants awarded  after 2011).  Workload award: variable;  depends on states’ population  and the number of health  insurance issuers with 5 percent  or more market share in the  state.  Performance award:  approximately $600,000 (for  grants awarded in 2011) or  $400,000 (for grants awarded  after 2011); given to states that  have the legal authority to  disapprove unreasonable rate  increases in their individual or  small group markets.
section_title: Appendix II: PPACA Exchange Grant Types Awarded by State as of March 27, 2013
section_title: Appendix III: Projected Exchange Type and PPACA Exchange Grant Funding Awarded, Drawn Down, and Returned by State
subsections: section_title: Projected exchange type as of March 7, 2013 State-based exchange
section_title: Projected exchange type as of March 7, 2013
paragraphs: Amount of award   returned to HHS as of   March 27, 2013 (dollars)
section_title: Appendix IV: PPACA Rate Review Grant Funding Awarded, Drawn Down, and Returned by State
section_title: Appendix V: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Randy DiRosa, Assistant  Director; Priyanka Sethi Bansal; David Lichtenfeld; Laurie Pachter; and  Stephen Ulrich made key contributions to this report.