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HHS asks Colorado's health exchange to return $9.7M of federal funds

The U.S. Department of Health and Human Services asked the Colorado marketplace to refund about $9.7 million of establishment grant funds to the federal government, saying the funds were not spent in accordance with the federal requirements.

The department said the state was granted $183.7 million for the establishment of a health insurance marketplace under President Barack Obama's healthcare law. The marketplace improperly charged $4.5 million for hardware and software operational support and maintenance contracts, contrary to the guidelines of Centers for Medicare & Medicaid Services that prohibit such use of the funds.

In response to the department's inquiry, Connect for Health Colorado said it "identified the prepaid support and maintenance costs benefitting the period subsequent to December 31, 2014, and credited the amounts back against future payment requests of federal funds." The Colorado marketplace also disagreed with the department's findings that about $4.4 million in costs charged to the establishment grants were not adequately documented.

Colorado's exchange agreed with the auditor's recommendation for procedural changes but disagreed with the recommendation that it refund $9.7 million.