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Five Reasons the Federal Insurance Exchange Glitch May Not Be That Big Of A Deal. Knock On Wood.

The Wall Street Journal broke the news Thursday night that a “pricing glitch” is plaguing the federal health insurance exchange software … with less than two weeks to go before the exchanges are supposed to launch.

Basically, the exchange’s calculator can’t do a pretty important piece of math: How much each consumer will need to pay for his or her specific coverage.

Glitches had been somewhat expected—there had been rumblings of technical problems, despite officials’ public vows of confidence—but it doesn’t make the Journal‘s scoop less of a story. Opponents of Obamacare will use any delay to raise fresh concerns about the law’s implementation, and even the most ardent supporters of the ACA acknowledge that having working software is crucial to a working rollout on Oct. 1.

And what happens to enrollment targets if the glitches aren’t quickly resolved and would-be customers get frustrated and turn away?

There are several potential interpretations and implications here, given that this story is bound up in both politics and policy. From my perch, I’d offer these five quick reactions to the Journal‘s scoop.

1. This news is not a surprise.
When reporting on the ACA’s rollout, especially since the Supreme Court’s ruling last June, officials and analysts kept raising the same question with me: Will the exchanges be ready in time?

  • Keep in mind, the exchanges are intended to combine an unprecedented mix of eligibility verification systems, subsidy calculations, and thousands of insurance products.
  • Add an additional factor—the pace of ACA implementation lagged between 2010 and 2012 because of the ongoing uncertainty over whether the law was even constitutional—and the level of complexity involved in getting the exchanges off the ground really is astounding.

There have been hints that these systems might not be ready. Federal officials announced over the summer that they would scale back the exchanges’ verification requirements until 2015. And the contractors charged with designing the systems might as well be working on the Siberian insurance exchange, given how they’ve ignored media requests.

2. The federal exchange isn’t the only one with glitchy software. State exchanges are having problems, too.
Oregon has already announced that it plans to delay the formal roll-out of Cover Oregon to continue beta-testing, and California (a state that has moved exceptionally quickly to implement health reform) was weighing contingency plans for Covered California, too.

As Caroline Pearson of Avalere Health told me a few weeks ago, “if California’s talking about contingency planning, then we need to acknowledge that any number of state-run exchanges may not be fully operational by Oct. 1.”

However, the federal exchange software takes on extra importance given the sheer number of states (36) and potential customers (32 million uninsured) that will be shopping through its exchange.

3. But the fear that disaster is looming may outpace the reality.
In interviews, dozens of experts have told me that the exchange software needs to be working as soon as possible, lest would-be consumers get scared away by negative news and ACA implementation suffer a major blow.

(In response, I always ask for a historical example of bad press killing a law like the ACA; outside of the MCCA, I still haven’t heard a great answer.)

Overwhelmingly, the Americans who will be shopping through the exchanges this fall are the ones who have pined for this moment for months, if not years: The chronically ill who wanted coverage but couldn’t get it, or the low-income Americans who couldn’t afford it. They likely won’t be deterred by a few software glitches.

And I’m also struck by how another major reform, Medicare Part D, was treated in the press and by critics when it launched versus how we view it today. As theWashington Post‘s Sarah Kliff notes, while Part D’s 2005 rollout was hardly smooth, now it’s a much-beloved program by beneficaries and industry experts alike.

4. If the software’s not ready to go, there will be workarounds.
There already were a mix of offline ways to purchase coverage through the exchanges, whether through call centers or in person; the AP notes that 30% of applicants were expected to use paper.

But software delays may spur additional solutions, too. Oregon, for example, will rely on insurance brokers to help state residents obtain coverage until the state’s exchange website is ready to go.

And an enormous number of stakeholders want the exchanges to be successful, from insurers that are hoping to see new business to hospitals that want to lower their uncompensated care costs. Basically, CMS can raise a virtual volunteer army if necessary.

Meanwhile, the enrollment period runs through March 31. There’s no “early bird special” as Dave Morgan, a California employee benefits adviser, pointed out on Twitter; premium prices for 2014 will be the same whether you’re purchasing coverage on Oct. 1 or Dec. 15.

5. The most important variable isn’t whether the software’s perfectly functional. It’s who’s buying into the exchanges.

Drawing on CBO estimates, the White House has set a target of getting 7 million people enrolled through the exchanges for 2014. Given that 25 million-plus Americans are eligible for exchange subsidies, that seems like a very achievable figure, experts like Avalere’s Pearson have told me.

(Wall Street is significantly more pessimistic, Lewis Krauskopf notes at Reuters.)

And unless the press is really, really bad—or the software glitches turn out to be really, really hard to solve*—history won’t much remember that the exchange websites weren’t working on day one if they’re working by day 10.

Instead, the success of the exchanges rests heavily on factors like keeping premiums low, even as participating health plans begin to cover millions of Americans with pre-existing and chronic conditions. Which means:

  • Those expensive patients will need to be cross-subsidized by other new patients who won’t utilize as much health care: young Americans.
  • And understanding that the people most motivated to shop for coverage on the exchanges are likely older and sick, will the young and healthy buy into the exchanges, too? Especially if broken software gets in the way?

That bears watching in the coming weeks and months—especially because the software problem probably won’t.

Necessary disclaimer: All bets are off if the software problem isn’t fixed in a few days or weeks. The exchanges were touted with the promise that they’d be like Orbitz or Amazon, just for buying health coverage.

Imagine the effect on the publishing industry if Amazon stopped working and the nation had to go back to buying books through mail-order catalogs. And purchasing health insurance is a significantly more complicated process than purchasing a copy of “Harry Potter.”

Dan Diamond is Managing Editor of the Daily Briefing, a CaliforniaHealthline columnist, and a Forbes contributor. This  post originally appeared in The Daily Briefing Blog.

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10 replies »

  1. My basic frustration with conversations like this are that they equivocate on the word “healthcare” (could be two words, not quite sure) between the payment system and the care those payments enable. Health exchanges are all about the payment system, doing nothing to change the root problem in the system: the cost and ineffectiveness of the care it enables. Having more insured people does nothing for the reality of the bad care paid for by those insurance companies. When the house is burning down, you don’t cut the lawn. The ACA addresses access to insurance and hence to “care.” This is not a bad goal to have, but it does nothing to deal with all of the expensive bad care being encouraged by the payors. In other words, we are giving a whole lot more people access to a self-destructive system. Is that really a good thing? Should that really be our goal?
    I am personally agnostic about the ACA, as it has some good and bad about it, but seems more like a bunch of lawn-cutting than firefighting.

  2. “I am very curious to see whether insurance on the exchanges will be more or less expensive than insurance off the exchanges.”

    So am I. I doubt it though.

    Here in NC BCBS is advertising that it will provide coverage under the ACA, there is only one other carrier doing the same. NC has decided not to participate in state run exchanges so I’m perplexed that BCBS is offering when our only (other) choice will be federal exchange (with the glitches). BCBS is very shrewd (helps if you’re a state monopoly) so I’m thinking they know what the federal exchanges will price at.

    This all comes down to risk pools. The risk as a nation (or a state) is “the risk”, but insurance used to (still will?) carve out that risk into profit pools. I don’t see that changing under the ACA except that the Govmunt is going to subsidize the risk for some people, but leave others paying for the inclusion of high risk into the “new” pools.

    My wife’s work insures with BCBS yet I can buy a BCBS policy cheaper on their individual market than I can through the group insurance at her work.

    Go figure that one.

  3. Aurthur is correct about the danger of adverse selection in the exchanges.
    As he implied, the persons who are kicked out of high risk pools will not let a few glitches prevent them from going to the exchanges. In the demographics of health insurance, it takes about 7 healthy persons for every
    person with a chronic illness to keep premium growth moderate. (this is why corporate and school district plans for early retirees have been so expensive.)

    I am very curious to see whether insurance on the exchanges will be more or less expensive than insurance off the exchanges. This used to be an easy answer if insurers in some states could underwrite coverage and exclude pre-existing conditions. That fact would attract the healthy and repel the sick from underwritten plans.

    The ACA has some regulations to prevent this from recurring. But I suspect things are happening behind the scenes today.

  4. “But-at AHCJ’s annual conference this year, Jonathan Gruber projected that we might see innovation from the exchanges in the 2nd or 3rd years…”

    Well then m, keeping with the “topic”, maybe you could enlighten us on those “innovations” in health insurance exchanges that will bring the price down (the purpose of the exchanges), other than the old tried and true method of reducing coverage.

    Tell us how the risk will be reduced.

  5. Aurthur and Peter1: Judging by your comments, the glitches certainly won’t sway you one way or the other. And since that’s the point of THIS discussion…insert something about beating a dead horse.

    As far as Amazon-like sites to purchase health insurance? That sort of sounds like a dream (really, a dream) at this point.

    Doesn’t hurt to aspire to this though–but maybe a lofty goal for the first year, and sort of silly to have advertised this already. Even (realistic) progressives weren’t expecting magic like this. Am I correct or simply projecting?

    But-at AHCJ’s annual conference this year, Jonathan Gruber projected that we might see innovation from the exchanges in the 2nd or 3rd years…

    Assuming we make it that far (quite an assumption, especially on today of all days)–and Amazon-like sites are built for the marketplaces…

    Reviews of health plans in the first year might be possible–and certainly very helpful for coming years.

    But-back to the reality of glitches. And 11 days until kick-off.

  6. Aurthur, I have been saving for health care for many years by paying premiums into my bank account. Paid for a new hip joint that way. I don’t intend on jumping into ACA for the first year “savings”, if any, against what I save now for my health care.

    Being forced to buy into the most expensive system in the world was not my idea of health care reform.

    Obama and friends kept the bankers out of jail and the health care industry in tact. We’ll be tithed to them for many decades.

  7. Mr. Peter1, I believe you are looking at this backwards. The first year exchange rates will be artificially low since they are based on the expectation of millions of younger males that are not insured now buying into the “pool” at rates that subsidize the older and sicker. If the exchanges make it to a second enrollment, I believe the rates will have already begun the death spiral. Good luck with your strategy.

  8. “The chronically ill who wanted coverage but couldn’t get it, or the low-income Americans who couldn’t afford it. They likely won’t be deterred by a few software glitches.”

    Well duh.

    I’m going to sit out at least the first year and just pay the penalty. I won’t get a subsidy, and am not sick. If the ACA is intended to operate like any other insurance program I’m not going to be the first one in the old, sick pool and pay corresponding rates that are already excruciatingly high.

    The ACA protects the incomes of doctors, hospitals, insurance, the poor, the sick, but is not protecting my income at all.

  9. It was inevitable that the fist sign of trouble (okay, this isn’t quite the first sign of trouble, but the first verified, documented sign we can all point at ) the critics would start jumping up and down and screaming “government incompetence” “cluelessness” – “stupid bureaucrats can’t run a web site.”

    Reading over the details, I imagine this is something that has been known about for some time. The hope was that it would be fixed without the story coming to light. That obviously didn’t happen, which would lead one to suspect that isn’t going away. Depending on how serious the glitch is, I’m not sure I agree with Dan. It’s hard to see how the exchanges can go live with consumers not knowing what the price tag is for what they’re buying ..

    I’m rather surprised that more detail wasn’t available about the “glitch.” To draw an analogy, in financial services, there is a significant difference between a software glitch that gets the price of a stock wrong and one that goes nuts and causes a financial market to implode. There are “glitches” and there are “glitches” – just like there are “upgrades” and there “upgrades .

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