Healthcare.gov Headaches — What You Need to Know

This snafu could have long-lasting effects

It’s been a little over three weeks since Americans have started shopping for health insurance under the auspices of the Affordable Care Act. When Healthcare.gov launched on Oct.1, it was supposed to be an efficient marketplace for uninsured and self-employed Americans to shop for the insurance they are required to have under the new law.

To say it’s been a little rocky would be an understatement.

In a major blow to the Obama administration, Healthcare.gov has been an unmitigated disaster. The site has been basically inoperable for most who have tried to use it.

After the GOP was unsuccessful in defunding Obamacare by means of a government shutdown and national default, it has moved into public outrage over the technical debacle of Obamacare’s website. On Thursday, the federal contractors charged with building the site were hauled in front of Congress in order to answer for their incompetence.

The spokespeople for CGI Group (GIB), the lead contractor on the project, and Quality Software Services (owned by UnitedHealth Group (UNH) did not accept responsibility for the website’s failure, instead arguing that it was the government overseers at the Centers for Medicare and Medicaid who failed to ensure a complete “end to end” test run before the launch on Oct. 1. CGI has a particular interest in projecting competence, as its CEO told investors as recently as July that ballooning government contracts were the key to its future growth. (Read this for more on CGI.)

The other two contractors who testified escaped unscathed. Serco, a British company that is processing the paper applications, and Equifax, which is verifying the income of applicants, both reported no problems with their part of the project.

What Happens Next?

While CGI works around the clock to fix the website bugs, President Obama, his supporters, his opponents and many Americans are wondering how this will end.

The worst-case scenario is that problems continue to plague the site for the next six months, which would make it nearly impossible to enforce the “individual mandate” part of the law that begins in 2014. In other words, the Obama administration will not credibly be able to penalize people for failing to buy insurance when they were actually not able to do so. This would put Obama in the awkward position of delaying the individual mandate. However, the part of the law that requires insurance plans to cover everyone, no matter how sick and expensive you are, will remain. This dynamic is known as the “death spiral” — premiums for everyone would rise because the young and healthy did not enter the system and lower the prices. Once premiums rise, the young and healthy will be even less likely to join in the future.

On the other hand, if the system is fixed relatively quickly (optimists are pointing to Thanksgiving as a possibility) much of this hysteria will be forgotten.

No matter what happens with the website, however, the law will only work if enough healthy people sign up for insurance. Obamacare’s marketing team has gone so far as to target the healthy young men that notoriously eschew health insurance. Brosurance, anyone?

The Future of Healthcare Reform

While political operatives may be most interested in how the failure of Healthcare.gov will play out politically, the more important consequences may be felt in future policymaking. One healthcare economist points out that virtually all attempts at healthcare reform have required a similar dynamic: of means-tested, subsidized insurance bought on a competitive market. If this basic idea proves unworkable, it will be back to the drawing board for everyone.

Another observer makes the case that the end result could be a vast expansion of Medicaid and Medicare, leaving a small portion of the population to buy on the open market.

Some on the right have feared (and those on the left have hoped) that this debacle will pave the way for a single payer system. While it’s too early to tell, Bloomberg’s Megan McArdle persuades us that the entrenched interests of the health insurance industry forbid this conclusion. Indeed, Obama invited the CEOs of three major insurance companies (Aetna (AET), Wellpoint (WLP) and Humana (HUM)) to the White House this week. Jay Carney, Obama’s spokesman, assured reporters that the companies were “very important players in this process.”

At the time of publication, Simmons had no positions in the securities mentioned.


Article printed from InvestorPlace Media, http://investorplace.com/investorpolitics/healthcare-gov-obamacare/.

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