Cover Oregon health exchange will need $16.2 million in grants

SALEM — State officials organizing a new health insurance exchange are planning to ask for more federal grant funding to plug a projected $16.2 million shortfall.

The shortfall stemmed from an accounting error that caused state budget and fiscal analysts to misproject when the state would use up funding from a grant to partially launch a computer system for the exchange.

Oregon's exchange, called Cover Oregon, is an online marketplace where individuals and small business owners can comparison shop for health insurance and apply for financial assistance.

Start-up costs for the exchange are funded by a series of grants from the federal government.

The misprojection caused a ripple effect, resulting in three months of costs that weren't accounted for when Cover Oregon later applied for a larger $226 million grant.

The shortfall should not have an immediate effect on the exchange, which is scheduled to begin open enrollment in October, said Triz delaRosa, Cover Oregon's Chief Operating Officer.

The exchange, which eventually will sustain itself through fees, has federal grant funding until 2015. This gives state officials time to plug the projected gap.

Cover Oregon officials have not finalized when they will submit a request for more funding.

If the state does not receive extra funding, delaRosa said, the exchange still could fully operate, although staffers would need to find ways to cut future costs.

Decisions about cuts have not been finalized.

"If we need to cut back in certain areas, we can look at finding ways to still continue to execute," delaRosa said. "But obviously we would like to not have to do that and be able to move foward with the plans that we have in place."

Meeting notes from the exchange's Finance & Audit Committee in June indicate the shortfall would have "heavy impacts on staffing and marketing" but that the exchange could live within budget if extra funding wasn't received.

In 2011, Oregon received a $59 million "Early Innovator Grant." The grant partially funded a joint project that worked on the development for the exchange's computer system and a web portal that included allowing Oregonians to apply for Medicaid and food stamps online. The Early Innovator grant was supposed to cover 60 percent of the joint project until those funds expired. Other federal and state funds would pay for 40 percent of costs during that period, according to an initial agreement with the federal government.

But because analysts misinterpreted how the costs should be allocated, the grant for the exchange was only funding an average of 45 percent of the joint project's cost for the designated time period.

Because state officials thought they were saving enough money that they could stretch the funding, they did not apply for as much money as they should have in a later grant to fund the exchange.

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