Kusserow on Compliance: Payments made to qualified health plan users under the ACA were ineffectively controlled by CMS

The HHS Office of Inspector General (OIG) issued an audit report that found CMS’s internal controls for calculating and authorizing financial assistance payments were not effective during the first four months that these payments were made (January 1, 2014, to April 30, 2014). At that time, CMS was using an interim process for approving financial assistance payments to ensure the accuracy of nearly $2.8 billion in aggregate financial assistance payments made to insurance companies under the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148). The internal control deficiencies identified by the OIG limited CMS’ ability to make accurate payments to qualified health plan (QHP) issuers. Without effective internal controls for ensuring that financial assistance payments are calculated and applied correctly, a significant amount of federal funds are at risk. The OIG noted that their report was part of a broader set of reviews examining various aspects of Marketplace operations, including payment accuracy, eligibility verifications, management and administration, and data security.


The ACA established Health Insurance Exchanges (commonly referred to as “Marketplaces”) to allow individuals and small businesses to shop for health insurance in all 50 States and the District of Columbia. The ACA allows insurance companies (issuers) to offer individuals private health insurance plans in the form of QHPs and enroll individuals in those plans. CMS operates the federal marketplace and is responsible for reviewing, approving, and generating financial assistance payments (i.e., advance premium tax credits (APTCs) and advance cost-sharing reductions (CSRs)) for the federal and state-based Marketplaces.

OIG findings

CMS’s internal controls for calculating and authorizing financial assistance payments were not effective, in that, CMS:

  • Relied on issuer attestations that did not ensure that advance CSR payment rates identified as outliers were appropriate;
  • Did not have systems in place to ensure that financial assistance payments were made on behalf of confirmed enrollees and in the correct amounts;
  • Did not have systems in place for state Marketplaces to submit enrollee eligibility data for financial assistance payments; and
  • Did not always follow its guidance for calculating advance CSR payments and does not plan to perform a timely reconciliation of these.

OIG recommendations

CMS should correct these internal control deficiencies by:

  • Requiring its Office of the Actuary to review and validate QHP issuers’ actuarial support for index rates used to calculate advance CSR payment rates that CMS identifies as outliers;
  • Implementing computerized systems to maintain confirmed enrollee and payment information so that CMS does not have to rely on QHP issuers’ attestations in calculating payments;
  • Implementing a computerized system so state Marketplaces can submit enrollee eligibility data;
  • Following its guidance for calculating estimated advance CSR payments; and
  • Developing interim reconciliation procedures to address potentially inappropriate CSR payments.

CMS concurred with the second, third, and fifth recommendations; the agency generally agreed with the first and fourth recommendations, but indicated that the recommendations are no longer applicable because of regulatory action already underway. The OIG noted that the action may appropriately address the findings related to those recommendations, however the OIG will need to test new advance CSR payment calculation described in the regulation, before accepting the CMS position that they are moot because of actions already taken.

Richard P. Kusserow served as DHHS Inspector General for 11 years. He currently is CEO of Strategic Management Services, LLC (SM), a firm that has assisted more than 3,000 organizations and entities with compliance related matters. The SM sister company, CRC, provides a wide range of compliance tools including sanction-screening.

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Copyright © 2015 Strategic Management Services, LLC. Published with permission.