The President’s Big Lie

As it becomes clear that no single leader oversaw implementation of the health law’s signature online marketplace–a complex software project that would have been difficult under the best circumstances–the accounts of more than a dozen current and former officials show how a disjointed bureaucracy led to the site’s disastrous Oct. 1 launch. Problems persisted Sunday. A federal data hub that verifies the identity and income of people applying for subsidized insurance from 14 state-run exchanges and 36 exchanges run by the federal government failed when the company hosting the hub lost its network connectivity, the administration said.

Divergent agency cultures, political directives that clashed with operational deadlines, a compressed timeline and dispersed geography led to the federal site’s technical failures, those people said. The glitches have locked out millions of users, left insurers to sift through flawed data and given new ammunition to Republican detractors of the health law. A White House official said its experts were involved in policy making and some interagency coordination. They were briefed on the website’s development, but relied on the technical team of CMS, as the Medicare and Medicaid agency is known, for operational decisions, the official said …

Key work to create the website was given to CMS, which had experience running a site for Medicare drug plans. But the agency, which is overseen by Health and Human Services Secretary Kathleen Sebelius, had a siloed management structure, and no single unit was designed to pull off a mammoth task like HealthCare.gov. In one camp were computer experts reporting to a veteran CMS official, Michelle Snyder, who were among the first to recognize the scale of the problems facing the website, current and former officials say, such as errors in the calculation of insurance prices and eligibility determinations. But a separate policy arm built the road map for what the exchange needed to accomplish, with strained communication with its computer counterparts; that team reported to Gary Cohen, a former California lawyer…

When CMS presented HealthCare.gov to White House officials over the summer, they displayed a demonstration version of the website composed of screen-shots of the real exchange and overlaid with interactive features. That version recreated the user interface, but didn’t include the underlying mechanics–such as identity verification and eligibility determinations–that have foiled the site’s launch. Displaying such versions for demonstration purposes is common in the computer industry. But it left senior officials unaware of the more complicated and ultimately troubled workings of the exchange.

The Obama administration’s management troubles with the site trace to the first days after the law cleared Congress in March 2010, people familiar with the matter say. That April, a new Health and Human Services agency was formed to oversee the laundry list of health-law provisions affecting private insurance. … But the office cycled through four leaders in three years. Mr. Cohen, the current chief, was appointed in August 2012. Less than a year after its inception, the insurance office was subsumed by CMS in part to protect the new office from congressional budget axes, then wielded by a new Republican House majority, former officials familiar with the matter said. The combination of the two agencies led to a culture clash as parts of exchange development were assigned to career civil servants in other units of CMS, people from both sides say.

President Obama’s advisers, including his most prominent health aide, Jeanne Lambrew, frequently weighed in on regulations and website design carried out by the insurance office, but weren’t focused on computer issues, said former White House officials and others familiar with the matter.

The yawning gap between what the IT people knew and what everyone else seems to have realized is staggering. … I’ve never seen a gap this complete – one in which the entire IT organization seems to have been panicking about the impossibility of their task, and then the inevitable failures, while the folks issuing the orders were blithely issuing last-minute change orders and telling everyone they could find how swell this was all going to be. Usually, when things are going this wrong, you do more than casually mention it; you sit the folks on the business side down and explain that unless the project is pushed back, it’s going to be an unmitigated disaster.

There’s been some talk in the blogosphere recently about whether this calls the liberal project into question. I think that’s going a bit far, but I do think it calls into question the competency of President Barack Obama’s technocrats. This is the first big program they had to implement from scratch: They had to actually make something happen, unlike the stimulus, which mostly consisted of writing checks, usually through programs that already existed. And so far, it’s a complete failure. The only parts that are even arguably working are some minor tweaks to coverage rules and the Medicaid expansion, which consists of, yes, writing checks through a program that already existed.

You occasionally hear conservatives sneer about Obama’s socialist tendencies, but if anything, I think it is the lessons of free-market economics that have undone him. Obama surrounded himself with policy folks who thought a great deal about incentives; the whole idea of the insurance-market reforms is that if you line up all the insurance incentives just so, the market will, like a well-tuned machine, produce exactly the results we want. They were open to discussing which levers might be incorrectly aligned. But it doesn’t seem to have occurred to them that there is much more to markets, and policy, than just twiddling levers. It’s no accident that their greatest policy successes came from Treasury banking programs for which twiddling the financial levers really is pretty much all you need to do … or that some of their greatest failures came when they tried to transfer those programs into industries such as cars, where success or failure relies on a lot more than simple math.

Don’t get me wrong: I believe that the White House understood that implementation matters – intellectually. But I do not think they understood it viscerally, because the president prefers to surround himself with talkers and designers rather than doers. That’s not a slam on talkers and designers; you will notice what profession I myself chose. But before I became a journalist, I worked in private firms for a decade, which gave me a lot of training in all the ways that something that looks good in the design lab can go wrong when you try to roll it out across a big company.

Some have claimed that the sequester “exempts” ObamaCare’s subsidies from spending reductions. That is only half true. The Budget Control Act does exempt from sequestration the premium subsidies for households with incomes up to 400% of the federal poverty level ($94,200 for a family of four) and that meet other eligibility criteria.

But other ObamaCare subsidies, paid directly to insurance providers on behalf of eligible beneficiaries, are subject to the sequester–namely “cost-sharing subsidies.” These include subsidies for households with incomes below 250% of the federal poverty level ($58,875 for a family of four) to reduce copayments and deductibles. They also include subsidies to reduce out-of-pocket expenses for households with incomes up to 400% of the poverty level.

The Obama administration has acknowledged that the cost-sharing subsidies are subject to sequester reductions. A May report from the White House Office of Management and Budget estimated that the sequester would reduce the subsidies by 7.2% in fiscal year 2014. That amounts to a $286 million reduction through next September–the first nine months of ObamaCare.

However, the administration hasn’t issued guidance on how it will implement the required cuts. Appearing before the House Energy and Commerce Committee on Aug. 1, Centers for Medicare & Medicaid Services Administrator Marilyn Tavenner declined repeated requests to explain how the cost-sharing subsidy reductions would be applied. She did, however, pledge that the administration would release more information before the Oct. 1 start of open enrollment in ObamaCare. But that deadline came and went without more information.

Clearly, someone will be left holding the bag, and the administration doesn’t want to address who that someone will be.

There are two possible outcomes. The first is that individuals who have managed to enroll in subsidized health insurance will find they’ve been misled about their copays and deductibles. Families who currently think their plan will charge a $20 copayment for doctor visits may instead face a $25 charge when the sequester kicks in. Individuals who now believe they face maximum out-of-pocket costs of $2,000 may end up paying hundreds more. The other alternative is that insurers may be stuck with the sequester cuts.

The ongoing malfunction of HealthCare.gov has led some to wonder whether Obamacare’s exchanges are headed for a “death spiral”–one in which only highly motivated sick people enroll, resulting in higher premiums, which further drive out healthy individuals. But there’s another “death spiral” to be worried about–one in which insurers drop out of the insurance marketplaces altogether.

Insurers may still be able to withdraw from the federally run exchange through this Thursday. The contract between qualified health plan issuers (QHPIs) and the Centers for Medicare and Medicaid Services (CMS) includes this provision:

“Termination with Notice by QHPI. At any time prior to midnight on October 31, 2013, QHPI may terminate this Agreement upon sixty (60) Days’ written notice to CMS if CMS materially breaches any term of this Agreement, unless CMS commences curing such breach(es) within such 60-Day period to the reasonable satisfaction of QHPI in the manner hereafter described in this subsection, and thereafter diligently prosecutes such cure to completion.”

Other language in the contract could give insurers grounds to declare a “material breach.” Part II of the contract states that “CMS will undertake all reasonable efforts to implement systems and processes that will support QHPI functions.” Getting flawed and incomplete data reports from the CMS database–such that insurance companies are having to hire temporary workers to repair flawed reports by hand–may well qualify as a “material breach.”

The contract does state that, if insurer(s) attempt to terminate their contracts due to a material breach, CMS has “fifteen days from the date of the notice in which to propose a plan and a time frame to cure the material breaches, which … shall be accepted by QHPI unless the same is substantially unreasonable on its face.”

HealthCare.gov may be limping along to full viability, but Medicaid is flying off the shelves.

New Medicaid enrollment is far outpacing new insurance customers under Obamacare so far, a subtle sign that the program could play a greater role in the law’s coverage expansion than first anticipated. Some people are signing up for the Medicaid expansion created by the president’s health law. Others were already eligible for their state’s current Medicaid program, but until this outreach campaign about health coverage, they had never signed up.

In Washington state, for instance, the overwhelming number of people signing up for health coverage are eligible for Medicaid, state figures show. Of the 35,528 state residents who had signed up in the first three weeks of enrollment, 55 percent were part of the Medicaid expansion population, and 32 percent were eligible for the state’s existing Medicaid program. Only 13 percent signed up for a new private insurance plan.

In Kentucky, another state running its own exchange, 26,174 people had enrolled in new coverage as of Thursday. Four out of five had enrolled in Medicaid.

So far, only a few states have released enrollment figures. And the federal government doesn’t plan to put out figures for the 36 states where they are running the exchanges until next month. But the figures in a few states could be emblematic of a national trend …

Medicaid also doesn’t have a premium — and is the only option for people who are eligible. Customers shopping for private plans on HealthCare.gov — if they can get through — most likely have multiple plans to choose from. And they have premiums to pay in nearly every case, even if they get federal subsidies.

“This is not really a surprise, but free is easier to sell than low cost — and Medicaid enrollment is free,” said Alan Weil, executive director of the National Academy for State Health Policy. “It’s a lot easier to close the deal if at the end of the process, you can offer someone a product without a premium — even if the exchange premium is highly subsidized.”