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State Exchanges in the Shadows
Some have established exemptions from transparency rules that normally follow tax dollars.

Nevada Health Link exchange site

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Health and Human Services secretary Kathleen Sebelius said last month that it was “possible” felons could work as Obamacare navigators. So I tried to find out if there were any felons so employed in Nevada, but I was stonewalled.

Nevada’s health exchange referred me to the Division of Insurance, which in turn invoked “deliberative process privilege” to deny the release of information about whether any navigators had criminal histories. Earlier, when I had called the Division of Insurance’s public information officer and asked him what statute might allow Nevada to employ someone with a criminal history as a navigator, he told me it would be “inappropriate” for him to answer that question. And when I later pressed him on why it would be “inappropriate,” he hung up on me.

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Such obstruction is hardly surprising, considering the lacking transparency within many of the state exchanges. Sixteen states and the District of Columbia have established state-based exchanges at enormous cost to taxpayers. Yet these exchanges are legally classified in a way that opens the door for them to circumvent the normal transparency standards that follow tax dollars, creating a confluence of big money and small accountability.

The state exchanges are obviously — obviously­ — a government endeavor, one of the tools being used in the broader state takeover of the health-insurance market. They also depend heavily on taxpayer money. The federal government has awarded more than $5 billion in grants to the 16 states establishing their own exchanges, and in some instances, exchanges are permitted to receive further state tax dollars, though they’re expected to be self-supporting eventually. Furthermore, even the structure of these exchanges suggests their government functions: Though the exact rules vary, in most states board members are appointed or approved by the governor and lawmakers, and exchanges are also commonly expected to submit audits and reports to their respective legislatures.

If it looks, walks, and quacks like government — well, never mind that, say several of the state legislatures. Of the 16 states operating their own exchanges, twelve have decided to call them “quasi-governmental entities,” and Hawaii considers its to be a “nonprofit.”

The problem is these weird classifications blur the line, opening the potential for secrecy and creating a justification for state exchanges to potentially withhold information about their activities, agents, finances, and contracts. Worsening the situation, some states have exempted their exchanges from the normal sunshine rules.

Hawaii’s Act 205, which established its exchange, outlines the most secretive transparency policy for any exchange in the nation — even though the law permits the state government to continue directing taxpayer money to the exchange once its $205 million in federal grant money runs out. Act 205 explicitly outlines how “the Connector shall not be an agency of the State and shall not be subject to laws or rules regulating rulemaking, public employment or public procurement.”

Because it is classified as a non-profit, Hawaii’s exchange is not required to respond to the open-record laws that normally apply wherever tax dollars are spent. And though the exchange does open its meetings to the public and publish minutes, it’s unclear whether that’s a legal requirement. It’s noteworthy, too, that the Hawaii Health Connector’s budget had allotted nearly $500,000 to pay for a public-relations consultant. In other words, taxpayers are being asked to pay someone $250 an hour to spin them a story.

As I reported earlier this week, following the Hawaii Health Connector’s troubled launch, the exchange has refused to answer many tough but necessary questions from the state’s reporters. Gina Mangieri, a reporter with Hawaii’s KHON2, told me that when she appealed to the state’s Office of Information, “which is very progressive, they just throw up their hands: ‘Sorry, can’t help, wish we could.’” Act 205 allows them to withhold information.

Likewise, California’s law establishing its exchange notes that several activities “shall be exempt from disclosure under the California Public Records Act,” including “processes, discussions, communications or any other portion of the negotiations” for contracts with the exchange, as well as “records that provide instructions, advice or training to employees.”

Several other states subject portions of the exchange to open-records and open-meetings laws — but offer broad exceptions. Some are commonsense. For example, applicants’ personal and health information should not be public record. Yet, in many instances, contract negotiations are not public — which is worrisome as many of these exchanges partner with labor unions and left-leaning groups that may well have political agendas.

And in other states, the board often chooses to go into “executive session,” which allows members to hold discussions that are not open to the public. For example, when Patty Fontneau, the Colorado health exchange’s executive director, requested a pay raise last week, the board’s deliberation was not public. Fontneau already earns a $190,550 annual salary, and the health exchange’s enrollment remains below its own lowest projections.

States’ complicated and disparate rules undermine efforts to hold their exchanges accountable. The odd classification of many state exchanges offers further opportunity for withholding information directly relevant to taxpayers. Government doesn’t hold itself accountable — and it’s a good guess that “quasi-governmental entities” won’t, either.

— Jillian Kay Melchior is a Thomas L. Rhodes Fellow for the Franklin Center for Government and Public Integrity.



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