(Updates second paragraph to correct estimated federal grants versus state contracting awards.)
Service disruptions in the final hours before the March 31 deadline for health insurance enrollment generated fresh public-relations troubles for the Obama administration. Once again, healthcare.gov and some state exchanges’ websites failed to work properly. Yet as Obamacare’s supporters and opponents sniped at each other, one group stayed above the fray: the tech companies that actually built the dysfunctional health-exchange websites.
Glitches, delays, and spiraling costs have plagued state-level insurance websites developed by companies including Maximus (MMS) and IBM (IBM) in Minnesota, Oracle (ORCL) in Oregon, and Xerox (XRX) in Nevada. While a number of the websites have improved since their October debuts, some still struggle with verifying applicants’ eligibility for insurance. Some sites don’t provide e-mail receipts or other notifications, so applicants can’t be certain the systems received their information. In 2010 the consulting firm Deltek projected that states would have to pay contractors roughly $600 million to set up exchanges; the states have already been granted $4.7 billion and have awarded $2.6 billion to contractors to account for extra work. “Everyone is sort of floundering about,” says Robert Booz, an analyst at researcher Gartner. Barely a quarter of the exchanges are fully functional, he says; some of the most poorly performing sites likely won’t be fixed until closer to the next insurance enrollment period, in November.
Oracle has been involved in several exchanges deemed successes, including the one in California. It’s also the largest contractor for one of the most trouble-prone: Cover Oregon. Thanks to persistent glitches since its launch on Oct. 1, many Oregonians haven’t been able to sign up directly through the site. They’ve often had to fill out applications using third-party insurance brokers or wait to get an approval through the mail.
Oracle has been working on the $214 million site since 2011, but it massively underestimated the work required, often missed deadlines, and delivered malfunctioning software, according to an independent review of the project commissioned by Governor John Kitzhaber. “We are very disappointed with the quality of their work,” Kitzhaber said at a March 20 press conference he held to discuss the review findings. (The report also blamed the state for mismanaging the project.) Oregon is withholding $25.6 million of the $69.5 million due for work Oracle completed between November and the end of February, and Kitzhaber says his attorney general is considering legal action. Oracle declined to comment.
Nevada likewise has paid Xerox only about $12 million of its $75.4 million contract, citing continued delays. “This is a very hard and complex undertaking,” says Dave Hamilton, a group president for government health-care solutions at Xerox, which has added staff to resolve the problems in Nevada. In December, following complaints by Minnesota Governor Mark Dayton, IBM agreed to provide the state’s exchange, MNsure, with 4,000 free hours of labor to fix software problems. In late February, after thousands of applicants received incorrect tax information, Maryland fired its primary contractor, Noridian Healthcare Solutions. It has paid the company almost $65 million for its work. “Noridian has complied with its contractual obligations under tremendous pressure and constant changes by the state,” the company’s chief executive officer, Tom McGraw, said in a statement.
States aren’t blameless—last-minute changes to contracts have caused some delays and added expense, says Alan Weil, executive director at the National Academy for State Health Policy. The exchanges are also ambitious projects. Still, he says, the contractors are huge companies familiar with complexity, and in most cases they’ve had years to address the sites’ problems. “Let’s just say they don’t always put their A team on every project,” Weil says.
Some of the more successful exchanges, such as AccessHealthCT in Connecticut, are starting to consult for other states, providing baseline software and operational expertise. For now, residents in Oregon, at least, are getting a slight reprieve: They have been given another month to sign up with the state exchange before the tax penalty kicks in.