What if the Exchanges Aren’t Ready On Time?

On Oct. 1, millions of Americans are supposed to be able to go online and acquire health insurance on electronic exchanges in the states where they live. But a new GAO report is raising an issue I raised in the Wall Street Journal last month: What happens if the exchanges aren’t ready?

The report itself was full of bureaucratic gobbledygook, but AP reporter Ricardo Alonzo-Zaldivar translated it nicely:

[M]ost of the specs have been written, but the all wiring hasn’t been laid, and what will happen when they flip the switch nobody really knows. And remember, Oct. 1 is less than four months away.

Already, the Department of Health and Human Services has thrown in the towel on small-business exchanges that were supposed to allow employees to choose among competing health plans. The opportunity to make those choices has been put off for at least a year, leaving small-business employees with only their employer’s plans as options.

As for individuals acquiring insurance on their own, the only states that have functioning exchanges at the moment are Massachusetts and Utah. Both developed their exchanges independently of the Affordable Care Act, and they may not be able to do everything the federal government requires. Fifteen other states are trying to develop their own exchanges with varying degrees of success. The other 33 states have either completely ceded responsibility to the federal government or a have entered a partnership that gives the federal government responsibility.

There are five reasons why the supply side of the market may not be ready when the buyers are ready to buy.

Oh, the movie never ends.
It goes on and on and on and on.



Cost. One problem is that too little money was budgeted for creating the exchanges. The Congressional Budget Office originally estimated that setting up the exchanges would cost between $5 billion and $10 billion. California alone is spending more than $900 million, yet the health-reform law allocated only $1 billion for the country as a whole. The Obama administration has been cannibalizing other federal health budgets in a mad rush to find more for the exchanges.

Complexity. A second problem is that the Obama administration wants something the federal government has never done: a computer system that connects HHS, the Internal Revenue Service, the Social Security Administration, Homeland Security and perhaps other departments. This is a herculean task with unclear benefits.

For perspective, consider that the Veterans Administration converted to electronic medical records in 1998 and the VA and the Defense Department tried without success to share records until February, when then-Secretary of Defense Leon Panetta announced that the plan would be abandoned.

Meanwhile, has anyone asked why we need to link all these agencies in order to operate an exchange? We allow people to self-report their incomes on income-tax returns without checking all the databases the government has at its disposal. Why should health-insurance applications be different?

Incompetency. A third and much bigger problem is that the federal government is probably the worst entity possible to design an exchange.

In July 2011, Fortune magazine reported that the government is spending $80 billion a year on buying and operating information technology, and much of it is simply wasted. The government has accumulated 24,000 websites and more than 10,000 separate IT systems. Servers in some agencies are idle 93% of the time. Uncle Sam’s first chief information officer, Vivek Kundra, who was appointed by President Obama in 2009, told Fortune: “We found that billions of dollars in information technology projects were years behind schedule…and after the money was spent weren’t even working.”

Re-inventing the Wheel. One of the worst mistakes the federal government makes is the tendency to try to reinvent systems the private sector has already invented. The government has been true to form under the health-reform law, completely ignoring private exchanges that are up and running.

EHealth, for example, operates an online site that has allowed three million people to acquire health insurance, 40% of whom were previously uninsured. BenefitMall has been operating a private health-insurance exchange in Maryland since 2000 and it currently competes against two other private exchanges in the state. Nationally, Mercer and Aon Hewitt are running private exchanges for large employers. Overall, there are 100 private exchanges in existence today.

Anti-Private Sector Bias. For reasons that are hard for an ordinary mortal to understand, individuals and families who earn too much (more than 400% of the poverty level) to qualify for a subsidy will be allowed to go through private exchanges to purchase insurance. Health and Human Services has explicitly given the federal-allied exchanges the option to use private website companies as portals, but so far no state exchange has allowed a private company to serve as an entry point for anyone who is entitled to a subsidy.

Meanwhile, the Obama administration is going to spend millions of dollars on “navigators.” These will be people trained to locate those who are eligible for subsidized health insurance and help them get into a health plan — although in most cases the task of actually signing up for a plan will fall to enrollees.

Writing in Forbes, Rick Ungar sums up the situation this way:

eHealthInsurance.com — along with smaller websites providing similar services — is, in virtually all respects, an existing healthcare exchange and has operated as such for long before the Affordable Care Act introduced the concept of the health insurance exchange into the vernacular of national health care policy…[Yet] while states such as California and Maryland had initially indicated that they would move forward in a relationship with eHealthInsurance.com — the largest privately run health insurance exchange in the nation — these states have recently backed off their commitment to bring the web-based company into the mix right from the start, suggesting instead that they might permit eHealth to participate in “a year or so.”…by failing to include companies like eHealthInsurance.com, the state exchanges are dramatically increasing the odds that the first year of ObamaCare may be less successful than it could be were they to open up to the participation of the private sector. Whatever the reason for the reluctance of the state created exchanges to include private business participants, the end result is that taxpayers will spend millions of dollars unnecessarily while fewer people are likely to be enrolled in qualified health insurance programs — and that is just wrong.

Comments (21)

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  1. Dewaine says:

    What? It will cost more than originally estimated? No way!

    Cannibalizing other health budgets will alleviate some of the outcry over spending beyond the budgeted amount. I wouldn’t be surprised if the victim programs don’t get flack over reduced services and quality. Blame is rarely properly assigned.

    • Dewaine says:

      All of these are different sides of the same problem: government involvement in health care. Instead of trying to force a square peg into a round hole (government into health care), we should allow the private sector to bring down costs and expand service.

  2. Randall says:

    Just more government acting inefficient and wasteful. Government has a purpose, just not to interfere with the market or try to do better than the market. We cannot afford to make these mistakes and just throw money away.

    • JD says:

      It honestly is amazing to think about how much inefficiency and crowding-out that the government introduces. It is completely reasonable to conclude that they stunt technological growth and human advancement on a daily basis.

  3. John Fembup says:

    Our government says it’s creating markets.

    This is how it actually does.

    Watch. And learn.

  4. Maserdj says:

    This article screams to be shared with all who are concerned about the state of health care in this country. Irrespective of one’s political views on Obamacare, the implementation is not comforting. Sadly, Mr. Goodman you didn’t write enough about the “Anti-Private Sector Bias.” Why must government always reinvent the wheel? Hope you will have more on this specific topic later.

  5. Kwami says:

    “A second problem is that the Obama administration wants something the federal government has never done: a computer system that connects HHS, the Internal Revenue Service, the Social Security Administration, Homeland Security and perhaps other departments.”

    – Talk about a nightmare!

    • Jim says:

      You’re not joking! Imagine if there was a problem with one system… viruses would probably percolate to all the other systems and contaminate everything!

    • Greg Scandlen says:

      State Medicaid programs, too.

  6. Studebaker says:

    Who will be inconvenienced when the Exchanges aren’t ready? A short list consists of:
    o small employers who are over-joyed at the thought of the federal government taking over the job of health insurer.
    o Sick individuals that wants someone else to pay for their unhealthy behaviors.
    o Late middle-age workers who will jump at the chance to retire early without having to pay much for costly health coverage.
    o Young adult women who didn’t think they need health insurance and discover they are pregnant.

    The next question is: Who won’t care the exchanges aren’t ready?
    o The young healthy individuals who policymakers hope will enroll in droves so the aforementioned high-cost individuals (who are eager to enroll) will get a bargain.

  7. Tom says:

    “In July 2011, Fortune magazine reported that the government is spending $80 billion a year on buying and operating information technology, and much of it is simply wasted.”

    Just shows how uncertain and worrisome this massive new reform is.

  8. Bruce says:

    Of course the exchanges aren’t going to be ready on time. What else is new?

  9. Uwe Reinhardt says:

    I am familiar with eHealthinsurance and have written good things about it in the past; but let’s keep in mind what it does and does not do.

    eHealthinsurance is a completely passive electronic broker whose sole product is providing organized information on health insurance policies offered by sundry insurers in the non-group market.

    I like their side-by-side comparisons, but the fine print always points out that for details on the particular policies one should study the insurer’s policies and the fine print there.

    Furthermore, the products offered on this exchange are medically underwritten, which prices many sicker applicants out of the market. The Milliman study cited a while ago showed that in Indiana (for which the study was written) 13% of people aged 35-39 and 24% of people aged 55-59 were rejected outright by the insurers there.

    The exchanges under the ACA are tasked with implementing a whole new social contract in the non-group market — basically, the same social contract that has long been de rigeur in the employment-based system, including the system enjoyed by, say, Senators Ted Cruz and Orrin Hatch, who most likely deplore community rating in the non-group market.

    You may not like the new social contract in the non-group market, but for better or for worse, it is the law of the land now. Voters had a change last fall to reject the deal, but they did not. So, stop whining and get used to it.

    eHealthinsurance is good at the very limited things it does, but it is not comparable to the insurance exchanges called for under the ACA. They are so complicated because Americans want pluralism and choice among insurance contracts (strangely enough, not so much among doctors and hospitals) and choice complicates things and costs money.

    Get used to that, too.

    • John Fembup says:

      “stop whining”

      That’s good advice.

      People who don’t like this, need to figure out what they might do to change things.

      Same is true for people who do like this and are dismayed at the increasingly likely failure of the government to implement the law either timely or effectively.

      But whining? Waste of time.

  10. Mike Braun says:

    Uwe, I think you missed the point of the article and others. We are spending too much money for this social contract. Polices as a reault of PPACA, are becoming more standardized and there is less competition on the marketplaces on the exchanges. It is a one size fits all approach to insurance across the country. In my experience of providing insurance to individuals, 90% of the people choose the lowest costing plan option. No website is going to make that easier. The Fed exchanges will be complicated and cumbersome to most buyers.

  11. wanda j. Jones says:

    John and Colleagues:

    While we are thinking about the exchanges not being ready, even worse is likelihood that the provider network is not ready. How can they be, when they don’t really want more patients who will underpay them.

    Uwe: You reveal your true character–you want government to have hegemony over private lives.

    Wanda Jones

  12. Charlie Bond says:

    Hi John,
    Anybody ever ask why they are called “exchanges.” Just what is getting exchanged? Are we exchanging the uninsured for the underinsured? Not really. I don’t think we are solving that problem.
    Are we exchanging employer-based care for individual care? Certainly a lot of employers are pushing employees into the individual market.
    Are we exchanging unmarketable individual coverage for state-subsidized marketing of individual insurance? Individual insurance cost a fortune to market. So the health plans not only got the government to mandate that everybody buy their product they got the states to pay for their channels of distribution. Wow!
    Are we creating a marketplace so carriers can play sleight of hand tricks with health coverage the same way Medicare drug coverages get swapped and dealt? Last I checked states were having a hard time getting uniformity of coverage so consumers could compare to apples to apples. The coverages are more like comparing grapefruit to lemons–both sour.

    I know that well-meaning folk have put great thought into the exchange concept, but imagine what this country could do if it took the same dollars and same energy to create real health care Coops, like the original Group Health program in Washington. It was modeled on the Grange, the midwestern all-American institution based on neighbors helping neighbors. In such organizations there would be a real exchange–not just of money for care, but of human capital–people helping people. Doctors could be secured a living, just as they are through successful concierge practices, hospitals would enjoy community support without resorting to rapacious over-charging, or playing the variable pricing and cost-shifting game. Imagine what all that federal money could do to create real community based health care.

    We will ultimaately come to this–or some variation of it. All health care is local. It has to be organized locally and sustained locally. Hopefully, this localization will occurbefore the nation takes a detour over the real financial cliff and before we lose the existing local infrastructures upon which to build such community systems.

    Those interested in such radical, populist, free-enterprise ideas should feel free to contact me at cb@patientphysicianalliance.org.
    Charlie Bond

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