This screen image shows the website for Maryland's online health care exchange. (AP)

The cost to taxpayers of flaws in Maryland’s online health insurance exchange is coming into focus, with officials estimating at least $30.5 million in unnecessary Medicaid spending and conceding that they have no idea how much it will take to get a system that works.

The state has paid $65.4 million to the contractor hired to build the system and fired this week because of the protracted problems. Costs are likely to keep rising as Maryland figures out how to fix or replace the system.

Costs were outlined Thursday in a routine budget review presented to state lawmakers after months of outrage and political finger-pointing over the health-exchange debacle. Hopes of developing a site that would be a model for the nation have melted away as the exchange has become a major embarrassment for Democratic Gov. Martin O’Malley and Lt. Gov. Anthony G. Brown.

The review of the Maryland Health Benefit Exchange, by the legislature’s budget analysts, found that state spending on the site has exceeded expectations. The report says the state is seeking to tap $30 million from the federal government that was not to be allocated until later. Also, the rate of spending is unlikely to taper off next year, as planned, because of the problems.

“At this time, it is impossible to know if the funding” Maryland has appropriated and proposed for the health exchange “will be adequate to achieve what needs to be done,” the report concludes.

Read the report


See the Maryland report from state budget officials. Read it.

Maryland’s decision to build the complex online exchange on a tight deadline was a “high-risk undertaking” from the outset, budget officials wrote in their report. Maryland made the process more challenging by trying to add features — like a Medicaid renewal function — to the health insurance marketplace.

The report warns against overreaching and dallying as the state searches for solutions.

“It seems like we’re shooting in the dark,” Del. Adelaide C. Eckardt (R-Dorchester) said during a budget hearing Wednesday in Annapolis. “All that I see is more and more money being put into something when we don’t have a definite plan.” A second hearing was held Thursday.

Joshua M. Sharfstein, Maryland’s secretary of health and mental hygiene, tried to reassure lawmakers that the situation is getting better. Five months after the launch of the site, he said, state officials are in a position to evaluate the options.

Sharfstein said Eckardt’s “shooting in the dark” reference was once accurate. But, he said, “the lights are on. . . . We can use actual information about how different systems are doing in order to inform this decision.”

Among the system’s problems, according to health officials, it cannot identify Medicaid recipients who should be removed from the rolls because their income has increased.

To avoid dropping people incorrectly from the program, Maryland received a six-month extension to confirm the eligibility of recipients. Budget officials say the delay is expected to cost Maryland $17.8 million in unnecessary payments this fiscal year and $12.7 million in fiscal 2015, which begins in July.

The site has also been problematic for Medicaid applicants, who have struggled with “incorrect eligibility determinations, stuck cases, difficulties in choosing managed care organizations, as well as with sending enrollment data” to the federal Medicaid hub, according to the budget report.

Because of the challenges posed by the new health system, the federal government, which shares Medicaid costs with the states, had offered them all a three-month grace period beyond the deadline for confirming the eligibility of existing Medicaid recipients.

Maryland officials asked for twice as much time.

O’Malley was an early and enthusiastic supporter of the Affordable Care Act, legislation championed by President Obama. The governor wanted Maryland to be among the states building their own health insurance exchanges — 14 have done so — rather than relying on the federal site.

Despite high goals and expectations, however, the site has been beset by flaws that have hindered thousands of Marylanders seeking coverage. The exchange’s governing board this week fired Noridian Healthcare Solutions, the lead contractor, and state officials have said they reserve the right to sue or penalize Noridian and other firms that worked on the project.

The report says officials must decide quickly what to do about the broken health exchange and have five options: Fix the system; develop a new one; adopt technology that was successful in Connecticut, Kentucky or other states; join a multistate consortium; or use the federal marketplace.

State lawmakers have said health officials are leaning toward adopting another state’s technology or joining a consortium.

But those options “do not appear to specifically address” the need to quickly verify the income of existing Medicaid recipients, according to the report, which was prepared by Maryland’s Department of Legislative Services, a nonpartisan agency that advises the General Assembly on policy and budget decisions.

In addition, adopting Connecticut’s technology, for instance, would “likely take at least 9 to 12 months,” the report says. That means the exchange might not be working well in time for the next open enrollment period for buying health coverage, which starts Nov. 15.

Medicaid enrollment is always open.

“Not having a solid back-up plan could lead to a similar situation faced by the State in October,” the report states, referring to the Oct. 1 debut of the Maryland site, which crashed almost immediately.

The exchange was supposed to be completely built and functioning by the end of June, which would have shrunk the project’s budget substantially. The need to overhaul or replace the system upends that plan.

Maryland has received $182.2 million from the federal government to pay for the exchange, and those funds are suppose to cover expenses through the end of the year. Exchange officials recently asked state lawmakers for permission to use more than $30 million that was not supposed to be available until later. The money might be needed to make repairs to the exchange in the spring, officials said.

It is likely that Maryland will ask the federal government for more money, budget officials wrote in the report. The state might also try to redirect money that was intended to pay Noridian to help cover the costs of improving the system. Noridian has submitted invoices for $12.6 million more than what it has been paid.

Sharfstein told lawmakers that the state is working closely with federal health officials, who are “very aware of the challenges” Maryland faces.

“We are sharing our plans with them,” Sharfstein said, “and they have basically said that if what we are doing is sensible and necessary for the exchange, that they will do their best to continue to fund us.

“The key thing that this hinges on is the decision about which direction we go.”