Arkansas Insurance Commissioner Allen Kerr announced today that the state would have to repay $1 million billed to the federal government for expenses not allowed under a grant for a program to set up the health insurance marketplace in the state.

He issued this prepared statement:

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Arkansas Insurance Commissioner Allen Kerr today released the following statement on the determination by the Arkansas Insurance Department (AID) and the Center for Medicare & Medicaid Services (CMS) that federal grant funding was allocated contrary to federal regulations as part of the state’s transition between the Arkansas Health Connector and the Arkansas Health Insurance Marketplace (AHIM), and a settlement of $1,059,739 had been reached:”

The settlement with CMS does not require new tax dollars, and will be paid from resources within the Department of Insurance budget.”

Arkansas got $35 million in federal money for the Arkansas Connector, a free-standing operation that was to provide the framework to enroll people in the new federal-state health marketplace in Arkansas that provides subsidized health insurance under the Affordable Care Act.

That money could be spent only through Dec. 31. But Arkansas continued to draw on the money through June 30, when the transition of all responsibilities to the Arkansas Health Insurance Marketplace was complete.

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Commissioner Allen Kerr said in a telephone interview that the state was clear as of Dec. 31 (before the new administration took office) that the funding ended then. Kerr, who was tapped to succeed Jay Bradford in mid-December before Gov. Asa Hutchinson took office, said there were inevitable expenses in winding down the program. He said CMS officials had indicated frequently in telephone conversations that they understood the program was in transition.

“We asked, ‘We’re going to have ongoing expenses, are they going to be covered?’ On the phone they would tell us, ‘yes, we’re going to work with you.’ Then as time went on, they started tightening screws. We’d send e-mails and ask for guidance. Nothing.”

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Kerr said the state’s goal had been to protect the $35 million already invested. Had the state come to a “hard stop” on spending, it likely would have meant a loss of insurance coverage for eligible people, he said.

Ultimately, CMS did make official its belief that money had been improperly spent and would have to be repaid. The amount originally sought was $3 million. Negotiations brought the figure down to the $1 million quoted today. But Kerr said he was still negotiating and hoped to reduce the amount owed further. He said CMS began seeking reimbursement of one-year budget amounts in some categories rather than the amount actually spent in the first six months of the year, for example.

The repayment will come from the Insurance Department’s money, which isn’t taxpayer money strictly speaking, though it becomes appropriated public funds. The department operates on insurance company fees. They’ve experienced a growth in business thanks to Obamacare. Kerr said the insurance companies were “fine” with use of money for the reimbursement.

I’ve sought a comment from CMS, but been unable to reach a press spokesman.

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I’d heard about this dispute some weeks ago and asked for documents. That produced some specifics  today.