(Bloomberg View) — The U.S. Department of Health and Human Services Office of Inspector General (HHS OIG), the watchdog agency in charge of tracking the Centers for Medicare & Medicaid Services (CMS), has issued a new report on what went wrong with the Obamacare insurance exchanges. Or, rather, one thing that went wrong: How the agency mismanaged the contracts so that they experienced significant cost overruns.
You can take this report as a searing indictment of the agency and its contracting personnel. I took something rather different away from reading it. One lesson is that the federal contracting laws are crazy, but another is that the architects of the law were incredibly naïve.
Why do I say the architects were naïve? First of all, because it seems clear that no one — neither legislators nor administrators — had any idea that the exchange they wanted was a very hard technical problem. They specified a site that would do real-time verification of identities and subsidies, price search, and handle payments to insurers.
This system had to be built in three years, and moreover, it could not be built the way Silicon Valley would do it: Start small, roll something out, see what works and what doesn't, then iterate, experiment, and scale until you finally arrive at the site you wanted to build. No, this site had to work on Day One, in every state in the nation that declined to build its own exchange. That was a very tall order, and no one seems to have given it much thought. Even when a manager in CMS tried to get the administration to scale things back, officials refused, and apparently simply failed to consider the possibility that trying to do too much would mean they ended up with nothing at all.
There were also big holes in the mandating bill itself. For example, there wasn't actually any money to build the federal exchanges, or adequate time to put the contract out for open bid under the usual process. This was an artifact of how it was passed.
When Scott Brown won Ted Kennedy's seat and supporters no longer had the votes to bypass a Republican filibuster, they went ahead and passed a draft law anyway, on the assumption that they could fix any problems later. They couldn't, because they still lacked the votes to break a filibuster, and in 2012, Obamacare cost them the House of Representatives.
To get around these problems, and Republican opposition, they used an expedited bidding process restricted to firms already under contract to CMS, and fragmented the management of the project, running policy out of one place, technology out of another.
That meant they had only a handful of contractors bidding, and the worst sort of management structure to manage them: The sort that almost guarantees the ideas folks will generate wish lists that the implementation people can't deliver in the time and budget specified.
