Government Watchdog Group Puts States on Notice Over Obamacare

States are legally liable for how they spend federal grants meant for Obamacare implementation


A government watchdog group sent letters to three governors on Tuesday warning them about potential legal liabilities facing their states because of Obamacare.

Cause of Action sent letters to the governors of Ohio, Florida, and Pennsylvania outlining the various ways that they could violate the law and expose them to whistleblower lawsuits.

“We seek to notify the State of Ohio, as well as entities, contractors, subgrantees, subrecipients and subcontractors who are utilized in furtherance of federally-facilitated exchanges, of potential liabilities that might apply if any of these entities or their agents misuses the taxpayer funds it receives,” the letter to Ohio Governor John Kasich said.

The letters are the latest in a series of liability alert letters Cause of Action is sending to states. The group has sent seven letters, with the other four going to the governors of Arizona, New Hampshire, and North Carolina and the general counsel for California’s health insurance exchange Covered California.

All of the states are receiving millions of dollars in federal grants for the implementation of Obamacare. The misuse of this money could expose these states to civil suits under various federal laws and regulations such as the False Claims Act.

“Cause of Action is prepared to bring challenges against crony nonprofits that are misusing our federal tax dollars,” said Cause of Action executive director Dan Epstein.

The federal grants have created a situation very similar to another federal program, Communities Putting Prevention to Work, in which federal grant money given to states was ultimately used illegally, Epstein said.

“What ended up happening, as we feared and were right, [was that] an enormous amount of money was being used for lobbying,” Epstein said. It is illegal to use federal money to lobby.

Cause of Action released a report on the program earlier this year after a 19-month investigation.

“The same story is now true under the healthcare law,” Epstein said.

The states have not violated any laws yet, Epstein said. “We basically want to notify them before these exchanges open,” he said.

“A lot of these states and localities don’t understand what the law is,” he said.

The goal of the letters is twofold: to inform the state governments of their legal obligations and to deter them from wasting federal money.

“There’s a high chance that our tax dollars get wasted, embezzled, misused,” Epstein said.

Epstein noted that there’s a greater risk for misuse of federal dollars when they are given in grants and not contracts. Groups under contract have to produce results, while oversight of grant recipients is laxer.

“Our goal here is to kind of send out a warning shot to the state governments that are running these exchanges,” Epstein said.

The Department of Health and Human Services, which is giving out the grants, did not return a request for comment.

Andrew Evans   Email Andrew | Full Bio | RSS
Andrew Evans is an assistant editor at National Affairs and a former reporter for the Washington Free Beacon, where he covered government accountability and healthcare issues.