Obamacare Needs a Drop-Dead Date

By Megan McArdle

Monday, October 14, 2013

Exactly how bad are things on the federal health-care exchanges? The working assumption among most journalists, including me, is that they would be fixed in a few weeks -- that is, by the end of this week. But yesterday’s New York Times brought a deeply reported piece from Robert Pear, Sharon LaFraniere and Ian Austen. There is too much information in the piece for an excerpt to do it justice, so I’ll summarize, with some editorial comments -- but you should read the whole thing to get the full flavor:

-- One person familiar with the project says it’s only about 70 percent of the way there, and has heard estimates of somewhere between two weeks to two months to fix it. As a programmer I know points out, “two weeks to two months” is the programming equivalent of “40 days and 40 nights”: “A long time, but I have no way of knowing how long.” When I used to hear estimates like that, I used to assume it would be coming in on the late end of that range, earliest.

-- The administration delayed writing major rules until after the 2012 election, because it didn’t want to give Republicans any ammunition for their campaign. (This actually was noted at the time: “When it comes to health care, delaying regulations could help the president politically by avoiding discussion of the controversial health reform law. But that makes life difficult for states and industries that need to prepare for the coming changes,” wrote the National Journal. But most of us didn’t understand just how badly this was affecting implementation.)

-- Despite evidence to the contrary, the administration kept insisting that everything was absolutely on track to launch Oct. 1.

-- This passage is so extraordinary that it requires excerpting:

    “Deadline after deadline was missed. The biggest contractor, CGI Federal, was awarded its $94 million contract in December 2011. But the government was so slow in issuing specifications that the firm did not start writing software code until this spring, according to people familiar with the process. As late as the last week of September, officials were still changing features of the Web site, HealthCare.gov, and debating whether consumers should be required to register and create password-protected accounts before they could shop for health plans.”

Suddenly, two months sounds optimistic.

-- The Centers for Medicare & Medicaid Services inexplicably decided to take on the role of central project manager itself, assuming responsibility for integrating all the various software pieces they’d subcontracted, rather than assigning that role to a lead contractor. CMS is not known to maintain a pool of crack programming talent with extensive project management experience that can be deployed to this sort of task.

-- Henry Chao, the Health and Human Services Department's digital architect of the insurance marketplace, seems to have been sounding the alarm bells internally. (He certainly was externally; he famously told a group of insurers in March that “I’m pretty nervous -- I don’t know about you. … Let’s just make sure it’s not a third-world experience.”) Chao was worried that the systems wouldn’t work, a concern to which higher-ups apparently responded by basically telling him in effect that, according to the Times piece, “failure was not an option.”

-- Neither the consumer side nor the insurer side is working. A New York Times researcher made more than 40 attempts from Oct. 1 to Oct. 12 to log in, with no luck. Meanwhile, the Times confirms Bob Laszewski’s report that insurers are getting virtually no usable data from the exchanges. As the Times puts it, “just a trickle of the 14.6 million people who have visited the federal exchange so far have managed to enroll in insurance plans, according to executives of major insurance companies who receive enrollment files from the government. And some of those enrollments are marred by mistakes. Insurance executives said the government had sent some enrollment files to the wrong insurer, confusing companies that have similar names but are in different states. Other files were unusable because crucial information was missing, they said.”

Insurers began warning in 2012 that they were worried about these systems making their delivery dates, a concern that the Government Accountability Office echoed in June. Now we know why: The systems weren’t on track to meet their delivery dates.

This is stunning. It’s far worse than I imagined, and I am pretty cynical. The law’s supporters are engaged in some high-speed blamestorming: It’s the Republicans' fault for not giving the law more money, or it’s the fault of Republican governors who didn’t build their exchanges, or maybe it’s one of the vendors -- CGI, the firm with the largest contract, is the most favored target, but at various times, the administration has clearly been teeing up to blame Experian or Oracle. Or perhaps the fault lies in federal procurement rules, which prevented the government from getting the right kind of staff and service. A lot of that shows up in the article; there’s a long prelude about the political barriers that the administration faced. But ultimately, the litany of mistakes that the administration made overwhelms these complaints.

I’m a longtime critic of federal contracting rules, which prevent some corruption at ruinous expense in money, quality and speed. But federal contracting rules are not what made the administration delay writing the rules and specifications necessary to build the system until 2013. Nor to delay the deadline for states to declare whether they’d be building an exchange, in the desperate hope that a few more governors might decide -- in February 2013! -- to build a state system after all. Any state that decided to start such a project at that late date would have had little hope of building anything that worked, but presumably angry voters would be calling the governor instead of HHS.

Federal contracting codes, so far as I am aware, do not emit intoxicating gases that might have caused senior HHS officials to decide that it was a good idea to take on the role of lead contractor -- a decision equivalent to someone who has never even hung a picture deciding that they should become their own general contractor and build a house. Nor can those rules explain their lunatic response when they were told that the system was not working -- “failure was not an option."

Nor can you really blame the Republicans -- an argument that makes sense only if you don’t examine it very closely. It starts by assuming (but never stating) that the administration passed a law that didn't work as written, and then posits a civic duty for the opposition not to oppose laws that they oppose, but instead to help the majority party turn an unworkable law into something more to said party’s liking. This is absurd. Moreover, it’s not even a very good explanation for most of these problems. Maybe CMS turned lead contractor because they couldn’t get more funds to hire private help, but lack of funds does not explain why HHS took so long to write regulations and specifications, keeping insurers at loose ends until as late as this summer, and preventing their biggest contractor from writing code until spring. It does not explain why officials decided to launch a system that was so badly behind schedule, or to keep insisting, against all evidence, that it wasn’t broken. What explains this long train of poor decision-making is some combination of bureaucratic inertia, a desire to hide what they were doing from voters who might not like it and a terrifying insouciance about how easy it might be to build a system of this size and complexity.

My best guess is that by the time HHS officials realized that they hadn’t left enough time, the only possibilities were: 1. Ask Republicans for a delay; or 2. Launch a not-very-well-built-or-tested system upon an unsuspecting public. No. 1 would have been unpleasant for several reasons. Obviously, it would have been a huge political black eye. Republicans would probably have responded by joyously agreeing to a delay -- of a year or more, which would either mean launching right before the 2014 elections or possibly never launching at all. Administration officials weren’t going to put the president’s signature achievement at risk that way.

After all, if they launched a nonfunctioning system, at least the state exchanges would hopefully work, and if enough people in the states signed up, it would be too late for Republicans to demand a rollback. They’d get the system working in a few weeks, and then everything would be fine. I’m guessing that even at the end, the senior officials didn’t realize just how bad this was.

But given that they didn’t even announce that they were taking the system down for more fixes this weekend, I’m also guessing that it’s pretty bad. Bad enough that it’s time to start talking about a drop-dead date: At what point do we admit that the system just isn’t working well enough, roll it back and delay the whole thing for a year?

Yes, I know what I’m suggesting is a major, horrible task. And I’m aware that since I opposed the law in the first place, people will take my suggestion with a huge grain of salt. Fair enough, but hear me out.

If the exchanges don’t get fixed soon, they could destroy Obamacare -- and possibly, the rest of the private insurance market. The reason that the exchanges were so important was that they were needed to attract young, healthy people into the insurance system. The worry was that if insurance is hard to buy -- if you have to do your own comparison shopping and then call the insurance company, and fax in some paperwork and two years of tax returns -- that the young and the healthy simply won’t do it. Sick people and old people who were getting huge subsidies -- and maybe the ability to buy insurance on the private market for the first time in a long while -- would overcome any obstacles, because if you’re spending $15,000 a year on health care, it’s worth a lot of your time to make sure that you have insurance. But if your biggest annual health-care expense is contact lens solution, you may just decide to skip it and pay the fine.

The administration estimates that it needs 2.7 million young healthy people on the exchange, out of the 7 million total expected to apply in the first year. If the pool is too skewed -- if it’s mostly old and sick people on the exchanges -- then insurers will lose money, and next year, they’ll sharply increase premiums. The healthiest people will drop out, because insurance is no longer such a good deal for them. Rinse and repeat and you have effectively destroyed the market for individual insurance policies. It’s called the “death spiral,” and the exchanges, like the mandate, were designed to keep it from happening.

Without the exchanges, the death spiral seems almost assured. The amount of work required to find a policy, figure out your subsidy, buy coverage and file the paperwork will be very high. And it’s unlikely that folks who can’t even be bothered to go to ehealthinsurance.com right now will do it. The Affordable Care Act made the task of signing up young healthy people on the exchanges even harder with its much-loved requirement that companies allow kids to stay on their parents’ policies until they’re 26, which took millions of potential buyers out of the pool. The ones who are left are going to be disproportionately poorer and less well educated than the middle-class offspring who can get cheap insurance through mom and dad. There’s a reason that virtually every person you’ve seen written up in an article as they tried to get insurance at a community center or clinic is some combination of over 55, retired or afflicted with a serious chronic condition.

Once the death spiral happens, it’s very difficult to recover from. That’s why if the exchanges don’t work soon, we need to hit the reset button and try again next year. This will be very, very difficult: Insurers are already selling policies under the new regulations, and those regulations have driven up costs for existing buyers. People who have been counting on being able to buy insurance through the exchanges will have to spend another year without. And of course, it will be politically embarrassing. But it will be even more politically embarrassing to get to December and find out that we have commanded millions of Americans to buy insurance on a system that doesn’t work. And it is not a good bargain to cover some people now, but in doing so, to make insurance unaffordable for millions more in a few years. If we can’t launch the system correctly, then we need to wait until we can.

In the private sector, this system would already have been rolled back, probably less than 48 hours after it was rolled out. The government has more time, but not that much more, because every day they wait adds to the chaos that will occur if they have to pull the plug in December. If the system cannot reliably process 50 percent of its users on Nov. 1 -- and I mean from end to end, including sending a valid enrollment file to the insurer -- then the administration should ask for a one-year delay of Obamacare’s various regulations, including the individual mandate. Congress, including Republicans, should be ready to give it to them, with no strings attached.

Perhaps Nov. 1 seems too aggressive to you. I chose that date because it’s when Jon Kingsdale, who ran the Massachusetts exchange for its first five years, said we would be “really in deep doo-doo.” Well, let’s say Nov. 15 -- the date when almost all the experts I’ve heard say we really need to be running at full speed, to handle the crush of applications sure to come between Thanksgiving and the mid-December deadline for buying insurance that starts in January.

Whatever it is, that date needs to be set now. Otherwise the political temptation will be -- as it clearly has been all along -- to declare that everything’s fine and we should keep going just in case it all works out in the end. The administration’s desire to avoid a giant political embarrassment is entirely understandable. But the rest of us have an even deeper and more important interest in a functioning market for health insurance.