By Yuval Levin
Thursday, October 17, 2013
Over the last few days, I have spoken in some detail
about the state of the federal Obamacare exchanges with several officials of
the Center for Medicare and Medicaid Services (the HHS agency that is running
the exchanges), and with a number of reasonably well placed insurance company
officials in Washington. The picture they paint of how the rollout of the
exchanges has gone is similar in its broad strokes to what has emerged in other
reports in recent days, so I don’t think I’ll be breaking much news here,
though some of the details have (I think) not been reported. For what it’s
worth, I offer below the basics of what they had to say and some reflections on
its implications. This is a long post, with apologies, but I thought some of
the particulars would be of interest.
First, a couple of words of caution: I do not present
this as a broad sampling of people involved in the rollout or a comprehensive
overview. The CMS people I spoke with are people I know (from having worked on
health policy for some time in and out of government), and who in turn know me,
which means they know that (unlike all of them) I am an opponent of Obamacare.
This may have led them to tell me some particular things and not others, or it
may not—I have no way of knowing. The assessment below summarizes conversations
with five CMS officials and three insurance-industry insiders, all of which
took place on the understanding that I would publish such an overview, without
their names attached. (I approached several additional people at CMS who
politely declined to discuss the exchanges on these terms.) The CMS officials
are all career agency personnel, not political appointees; they are fairly
senior people but not so senior as to be routinely privy to political
discussions. All are involved in the exchange project in different ways. What
they see is the nitty gritty operations of the program. But they are policy and
management people, not information-technology experts.
This latter point turns out to be quite important. The
reaction of these individuals to what has happened in the last two weeks is the
reaction of people who are coming to realize that their expectations and
understanding of web development were mistaken. They believed (as I did too, I
admit) that whatever technical problems the exchange sites encountered at first
could be cleared up quickly and simply once things got going—that the
contractors developing the websites could just respond to problems on the fly,
as they became apparent. It is now increasingly obvious to them that this is
simply not how things work, that building a website like this is a matter of
exceedingly complex programming and not “design,” and that the problems that
plague the federal exchanges (and some state exchanges) are much more severe
and fundamental than anything they imagined possible. That doesn’t mean they
can’t be fixed, of course, and perhaps even fixed relatively quickly, but it
means that at the very least the opening weeks (and quite possibly months) of
the Obamacare exchanges will be very different from what either the
administration or its critics expected.
Some blame the contractors involved for not being upfront
about the potential for such fundamental difficulties, but some say the
contractors did offer warnings, and especially that the contractors believed
the time they were given for development was totally inadequate. It seems
clear, though, that the administration was not warned to expect quite what has
happened here, and was not prepared for it.
What has happened, at least so far, presents itself in
several layers. One key problem, which to date has been the most prominent in
public, has to do with a late-in-the-game decision to require users to go
through a complex account-creation process before even reaching any coverage
options. Administration officials apparently went back and forth several times
on this question, and the ultimate decision required the creation of a series
of patches over an already developed site in a very short time. Most of the
problems people have faced so far are a function of that decision, and have had
to do with creating user accounts and so getting through the very first steps
involved in purchasing coverage. Some journalists and analysts have speculated
that this decision was made in order to prevent people from seeing premium
costs before they could also see any subsidies they might be eligible for, so
that the shock of higher prices could be contained and so that simply curious
observers and journalists couldn’t get a picture of premium costs in the
various states. This explanation strikes me as plausible, and it struck several
of the people I spoke with as plausible, but none of them could confirm it. It
may be true, but it’s surely not the only possible explanation. Whatever the
cause, that decision has created crippling problems that are still largely
unresolved.
Many of these problems were reported in an October 12 New
York Times story that detailed some serious dysfunction in the development
process. The people I spoke with all confirmed that nearly all of the details
in the story were correct, though several of them did strenuously deny one
claim—that CGI Federal, the biggest contractor involved in building the site,
was not provided with the information it needed to start writing code for the
site until the spring of this year. This detail in the story aroused some shock
and surprise among outside web developers, and these CMS officials say it’s
just not true.
The people I spoke with did all confirm the importance of
one other detail in the Times story: that CMS did not hire a general contractor
to manage the exchange project but handled that overall technical management
task itself. None of the people I spoke with wanted to get into how this
decision was made or at what level, but all of them agreed that it was a very
bad idea and was at the core of the disaster they have so far experienced.
The problems people are now facing with the basic
interface have taken up most of the time that CMS and its contractors have
devoted to troubleshooting so far, and although things have improved a little
on this front quite serious problems remain. But there are very serious
problems beyond that, which are more like the sorts of problems people were
predicting before the launch: database problems at the nexus of several federal
and industry data sources. The federal data hub itself is so far doing
reasonably well at its basic tasks, and that has come as a relief to CMS. But some
of the site functions that rely on the hub, both in the federal exchanges and a
number of the state exchanges, remain highly problematic. The calculation of
subsidies continues to fail tests, and it’s pretty clear that some actual
consumers have made actual purchases with bad information, which will become
apparent to them when they get their first bills. If the interface problems are
addressed and the volume of purchases increases, this calculation problem could
become a huge concern.
Meanwhile, the back-end communication between the
exchanges and the insurers has been terrible, as is increasingly being
reported. The extent of these problems has also been a surprise to CMS, and
here too an increase in volume if the user interface issues are solved could
lead to huge problems that would be very difficult to correct. CMS officials
and the large insurers thought at first that the garbled data being
automatically sent to insurers must be a function of some very simple problems
of format incompatibility between the government and insurer systems, but that
now seems not to be the case, and the problem appears to be deeper and harder
to resolve. It is a very high priority problem, because the system will not be
able to function if the insurers cannot have some confidence about the data
they receive. At this point, insurers are trying to work through the data
manually, because the volume of enrollments is very, very low. But again, if
that changes, this could quickly become impossible.
In a couple of ways, then, the severe user-interface
problems at the front end of the federal exchange has actually had some
advantages from CMS’s point of view, because by keeping enrollment volume low
it has kept some other huge problems from becoming instantly uncontrollable.
But that low volume is mostly a very bad thing for
Obamacare, of course, since the viability of the exchanges depends on a certain
size and demographic mix which cannot be attained unless these problems are
resolved very quickly. I couldn’t get enrollment numbers from any of the people
I spoke with, but I was told that the uptake model that HHS built (using CBO
projections) to predict how the exchanges would work made a low-end estimate
that just under half a million people would enroll nationwide by October 31st,
and that enrollment would then accelerate dramatically between November 15 and
December 30th. The October 31 target, which was thought to be modest, now looks
essentially impossible to reach, but their bigger worry is that period in
November and December.
If the problems now plaguing the system are not resolved
by mid-November and the flow of enrollments at that point looks like it does
now, the prospects for the first year of the exchanges will be in very grave
jeopardy. Some large advertising and outreach campaigns are also geared to that
crucial six-week period around Thanksgiving and Christmas, so if the sites are
not functional, all of that might not happen—or else might be wasted. If that’s
what the late fall looks like, the administration might need to consider what
one of the people I spoke with described as “unthinkable options” regarding the
first year of the exchanges.
All of the CMS people I spoke with thought the state-run
exchanges are in far better shape than the federal system under their purview.
But the insurers do not seem that much happier with many of those state
exchanges. Back-end data issues seem to be a problem everywhere, and some of
the early enrollment figures being released by the states are not matching up
with insurance company data about enrollments in those states, which suggests a
breakdown in communication that is only beginning to be understood. The
insurers believe that only Nevada, Colorado, Washington state, and Kentucky
have what could reasonably be described as working systems at this point.
Still, there is no question that on the whole the states with state-run
exchanges are in better shape than those with federal ones.
The tone of the CMS officials who spoke with me was a
kind of restrained panic. Among the insurance company officials (who, I should
stress again, work in the Washington offices of some large insurers, and so are
basically policy people and lobbyists), there was much less restraint. The
insurers are very, very worried about the viability of the exchange
system—especially but not exclusively at the federal level.
One key worry is based on the fact that what they’re
facing is not a situation where it is impossible to buy coverage but one where
it is possible but very difficult to buy coverage. That’s much worse from their
point of view, because it means that only highly motivated consumers are
getting coverage. People who are highly motivated to get coverage in a
community-rated insurance system are very likely to be in bad health. The
healthy young man who sees an ad for his state exchange during a baseball game
and loads up the site to get coverage—the dream consumer so essential to the
design of the exchange system—will not keep trying 25 times over a week if the
site is not working. The person with high health costs and no insurance will.
The exchange system is designed to enable that sick person to get coverage, of
course, but it can only do that if the healthy person does too. The insurers
don’t yet have a clear overall sense of the risk profile of the people who are
signing up, but the circumstantial evidence they have is very distressing to
them. The danger of a rapid adverse selection spiral is much more serious than
they believed possible this summer. They would love it if the administration
could shut down the exchange system, at least the federal one, until the
interface problems can be addressed. But they know this is impossible.
And they believe, as the CMS officials I spoke with do,
that all of these problems will not be addressed immediately. No one wants to
say how long it might take, and no one would share with me what estimates they
might be getting from their contractors (whom they no longer trust anyway), but
there has so far been relatively little progress and it seems like everyone
involved is preparing for a process that will take months, not weeks. An
extension of the enrollment period for coverage, now set to end on March 31,
seems to be almost taken for granted. A delay of the individual mandate
penalty—which effectively begins in the middle of February—is not thought to be
a crazy idea (though the people I spoke with said they have not seen internal
preparations for such a move at this point).
The nightmare scenarios, the “unthinkable options,”
involve larger moves than that—like putting enrollment on hold or re-starting
the exchange system from scratch at some point. No one seems to know how this
could work or what it would mean, but everyone involved is contending with a
far worse set of circumstances than they were prepared for. This is a major
disaster from their point of view, not a set of glitches, and they simply do
not know how long it will take to fix. They dearly want to see progress day by
day, but they are generally not seeing it.
The fate of these sites is the fate of Obamacare, for
reasons that may not be immediately obvious. Health insurance is highly
sensitive to the integrity and robustness of the market in which it is sold:
though we don’t often think of it this way, health insurance is a financial
service, a protection against risk, so the nature and structure of a given
insurance plan is highly responsive to the scope and the character of the
demand for it at any given time. It is in this sense rather different from most
consumer products. This means it is not possible to think of the exchange
websites as just sites where products are sold, and to believe that the product
is fine but the site has some glitches. If the site doesn’t work, the product
cannot work, and the insurance market created by the law cannot be sustained.
So a great deal is at stake here, and it now seems a great deal is at risk.
All of that said, I want to end with a caveat. The
character of the conversations I had with these very knowledgeable individuals
in the last few days reminded me of something: It reminded me of the daily
intra-governmental video conferences and calls in the wake of hurricane Katrina
in 2005. I was witness to many of those, as a White House staffer. What I saw
in the first days of the disaster quickly fell into a pattern: local, state,
and federal officials on the ground would report on what they knew
directly—which was often grim—and then they would pass along information they’d
heard but hadn’t gotten first hand, which was often much more grim but almost
always ultimately turned out not to be true. Some of these stories went public
(remember the shootings at the Superdome? They never happened). Some didn’t.
They were often reported with a kind of detached authority that made them
believable, and they were a function of living in panic amid an unbelievable
situation over time.
Obviously what’s happening here is nowhere near that
scale or significance, but for the people involved—for the officials in charge
of running this system—this is a category 5 nightmare, and in a number of
instances they traded in stories they’d heard from others which struck this
outsider as basically impossible. They have been witness to problems in recent
days that they would not have believed a month ago, and so they believe things
about the extent and depth of their problems that may not be true.
The combination of these conversations over a week has
therefore left me thinking that it may not be clear to anyone exactly how deep
and lasting these problems will prove to be, which could mean they’re worse
than they seem but could mean they’re not as bad as they seem. The technical
architecture of the federal exchanges and to a lesser extent the state ones has
been very badly screwed up. The problem may be so bad as to render Obamacare’s
rollout impossible in practice at this point. But it may not be. And right now
no one knows if it will or will not. My gut sense after listening to these
insiders, for what little it’s worth, is that it’s not likely that the
situation will prove to be much worse than it now seems, and it’s more likely
that it will prove to be less bad than it now seems.
But I don’t know, and no one else does either. The
administration believes it will be possible to roll through a difficult period,
get as many people as they can into the system, and just hold out until things
stabilize. The insurers are not sure this will be possible. Everyone involved
is guessing.
For me, and for other critics of Obamacare, the problem
with the law was never about these technical matters. I didn’t think the system
wouldn’t work because the government couldn’t build a website, but because the
basic health economics involved is deeply misguided and would take the (badly
inadequate) American health-financing
system in the wrong direction. So these problems only seem like a prelude to
other, larger problems. But Obamacare was also always going to be a test of the
sheer capacity of the administrative state to actually do what it claims the
authority and ability to do. At this point, it looks as though we may be
witnessing a failure of the administrative state on a level unimagined even by its
staunchest critics. We may be. But we’ll have to see.
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