There's really no way to sugarcoat it -- it's been a very unimpressive and largely ugly start to the enrollment in Obamacare.
Between state and federally run exchanges, 10 of the state-run exchanges have reported some moderate levels of success as they deal with, in most cases, more sporadic and less serious glitches in their software. The federally run exchanges, on the other hand, have been the government's worst nightmare.
Composed of 36 states, Healthcare.gov has been a work in progress for the past 19 days with some people, like the Fool's own Steve Symington, seeing the off-gray screen of death for 30 minutes or more at a time. Despite the Department of Health and Human Services noting that some 17 million people had visited the federally run exchange since Oct. 1, HHS still refuses to report enrollment figures, only adding to the speculation that the magnitude of the glitches is keeping a good chunk of interested Americans on the sidelines, unable to sign up.
The other big concern here would be that these glitches are blocking the only chance Obamacare has of successfully courting healthy young adults which are needed to balance out the adverse selection process which will have the sickest and most in need of care people signing up for health insurance first. Since insurers can no longer deny coverage to those with preexisting conditions, this tech-savvy group of young adults might see these technology problems and simply give up for a very, very long time which would be extremely bad for the sake of Obamacare.
Federal health exchange costs are soaring Then came yesterday's findings from NBC News that the contract which was divvied out to the U.S. arm of CGI Group Inc. (USA) (NYSE:GIB) to construct the architecture behind Healthcare.gov has more than tripled from a cost of $94 million in 2011 to a whopping $292 million as of May 2013.
Why has this cost ballooned so rapidly you ask? When the Patient Protection and Affordable Care Act, better known as Obamacare, was first signed into law in 2010, the expectation was that while some states would relent joining in, about half or even more states would opt into the system and design their own health exchange. That estimation versus what would actually happen weren't even in the same ballpark. Ultimately, only 16 states chose to design their own health exchange, and two of those states eventually dropped into the federal system since they didn't have the time to complete the build-out of their own health exchange. With 36 states and the government essentially gumming up the works for CGI Group, it's been unable to respond quickly enough to fix the log jam.
CGI isn't alone, though, as Experian and UnitedHealth Group Inc. (NYSE:UNH) subsidiary Optum (which owns Quality Software Services) have also come under fire. UnitedHealth's QSS, for instance, is responsible for certifying that health plans being offered on the exchanges remain in compliance with the rules set by the PPACA. The problem QSS is having is based on a combination of servers being overloaded and the architecture behind Healthcare.gov not navigating consumers properly throughout the system. You might say UnitedHealth's QSS is guilty by association, but it's nonetheless dealing with some finger-pointing.
Is there an end in sight? The real concern here has to be the quickly rising costs associated with this rollout and when they might abate. You're probably familiar with the longtime business motto that "you have to spend money to make money." In this case it appears that the government is going to have to keep spending and spending, yet there's no guarantees that a near-term end to the glitches on the federally run exchanges are anywhere in sight.
Over less than a two-year period the projected Healthcare.gov costs rose 211% over initial projections. There's no reason to believe this won't scoot well past 400% by the time we get another update and approach close to $500 million. Obviously this is purely speculation on my part, but keep in mind that these estimates were taken in May, long before CGI Group was in crunch time and well before the government brought its last-minute changes to the table, which included pushing back the employer mandate for another year.