Angry Exchange

As a general matter, I enjoy watching the political theater of Washington pile-ons, but I try to avoid being too gratuitous in participating in them.

Perhaps the lobbyist in me sees too many shades of gray, and I get worn down by the sanctimonious 20-20 hindsight of the chattering class. That said, what Republican insurance lobbyist didn’t love the “Saturday Night Live” and Jon Stewart takedowns of the botched Obamacare exchange rollout?

First, a few comments on it, and second, what will it all mean to commercial insurance benefit brokers, anyway?

On February 7 of this year, the head of the federal exchange, Gary Cohen (technically the director of the Department of Health and Human Service’s Center for Consumer Information and Insurance Oversight), kindly spoke and answered questions at The Council’s legislative conference in Washington. We’ve known Gary since his days as the general counsel of the California Department of Insurance during Eliot Spitzer’s painfully uncomfortable inquisition on broker compensation. Gary’s a consumer activist at heart but a good and fair and incredibly dedicated civil servant. Tim Byrne of M3 Insurance in Madison, Wis., (currently our chairman of the Council of Employee Benefits Executives) gently prodded Cohen on the issue of the exchange rollout—something to the effect of, “Notwithstanding all your optimism and hard work, what if the exchange just isn’t ready to launch in October?”

Cohen’s answer was unequivocal. “It will be open for enrollment on October 1,” he said, with a dramatic emphasis on the word will.

I’m struck by that moment because now, with the benefit of hindsight, it was crystal clear that no matter what—no matter how ill-prepared the website was—this was a man with a loaded gun to his head. The federal exchange had to go online in October even if it was a mess. And we all know now how much of a mess it was.

Everybody has their thoughts on what went wrong, but two items strike me. The first is the point articulated by our colleague, David Merritt, of Leavitt Partners. David noted the subcontractors for the exchange are the kinds of firms that are very good at responding to federal government Request For Proposals. Notably, those subcontractors did not include technology innovators like Google, Facebook or Amazon. The biggest expansion of the Great Society in decades begged for more than standard-issue government procurement.

The smoking gun to underscore this failure was a memo The Washington Post reported about in November. The memo was written by David Cutler, a Harvard economist and health-reform advisor to the 2008 Obama campaign, and addressed to Larry Summers, then the White House’s top economic advisor. “For health reform to be successful, the relevant people need a vision about health system transformation and the managerial ability to carry out that vision,” Cutler wrote. “I do not believe the relevant members of the administration understand the president’s vision or have the capability to carry it out.” Cutler’s memo was eerily prescient, as he wrote it on May 11, 2010.

The second observation that has reverberated with me was the chronicle (in The Wall Street Journal and other publications) of how complex the database issues really are. It’s easy to cackle about the ineptitude of the website designers (to hear Stewart describe it, working with code circa the 1980s Pac-Man era). But the website has to interact with databases at Homeland Security (are you legal?) and the IRS (how much is your income?) and Medicare and state Medicaid and state CHIP programs … on and on and on.

I’m seldom one given to quoting Sen. Rand Paul of Kentucky, but he had it right on November 3: “I think government is inherently inept because they don’t work on a profit motive,” he said on ABC’s “This Week.”

“The government has to do certain things. There’s a certain safety net. There’s national defense; there are roads; there’s a judiciary; there’s Congress, and I’m plus-minus on whether or not we should fund Congress. But I would say there are fundamental things government can do, but government shouldn’t take on new opportunities or new things to do when it’s not managing what it has now.” There’s the essence.

Finally, for all of the schadenfreude, what does this mean for the employer-provided group health insurance marketplace? On the one hand, with the delay in the employer mandate to 2015, arguably it doesn’t make that much of a difference, assuming the system somehow limps into a semblance of working in the coming months. Depending on your position on the political constellation, everyone’s cherry-picking exchange rates to demonstrate how Obamacare is either a fiasco or a godsend.

To the 85% of Americans who receive their health insurance through work and mostly like it just fine, the sad rollout of the federal exchange doesn’t look that threatening. It’s beyond dispute that most major insurers have decided (for the sake of market share) to take the gamble and offer rates that are generally within the realm of reason. It will take a couple years of claims experience for insurers to figure out whether the exchanges are an adverse-selection nightmare or whether they’re the future.

The flip, of course, is the slippery-slope argument—that the feds will use their power (particularly in the case of self-insured plans) to further dis-incent private plans to prop up the government-run exchanges. It’s a valid threat.

Perhaps the more interesting question headed into the midterm election year regards the attention span of the average voter. One week it was the Tea Party shutting down the government. The next week it was the disastrous website launch. The next week it was the cancellation of individual policies. The next week it was the breakup of the Jonas Brothers.

Save for perhaps the clairvoyant memo-writer David Cutler, nobody knows what will dominate the minds of voters come November 2014. But one immutable law of congressional politics is the squeaky-wheel rule. My bet is the Atlantic had it right in November: “The upper-middle-class self-employed people in the individual market can stir up a lot of dust, even if they represent a tiny fraction of the population.”