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The High Costs of the HealthCare.gov Debacle



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The cost of HealthCare.gov has likely risen beyond $1 billion, writes Larry Seltzer, a contributing editor at the information-technology publication ZDNet, after browsing a recently released Government Accountability Office report.

The report says (page 9) that, through March 2014, the total cost of the project was $946 million. $840 million of this was spent by the CMS (Centers for Medicare and Medicaid Services), with the rest by the IRS and Department of Veterans Affairs. But the development costs continue to rise and are likely already over $1 billion.

Clearly CMS was put in a bad spot having to build a major first-of-its-kind system in a compressed time frame. One implication of this was that the bidding process had to proceed without completed specifications. CMS made many risky decisions in order to meet their goals, such as the use of “cost-plus-fixed-fee” contracts in the bid process and an Agile software development model, which was new to CMS. As the report notes (footnote 23), in 2009 the Office of Management and Budget released a Memorandum (M-09-25) calling for a reduction in the use of such high-risk contracts.

A theme pervades the report: These decisions might have been reasonable, but the risks they created increased the requirements for oversight. The report finds that the agency failed utterly in its oversight responsibilities. Over and over, procedures called for the creation of quality assurance surveillance and other oversight mechanisms, but CMS did not do so. The result was huge cost overruns, the main potential downside of cost-plus-fixed-fee contracts.

I’d suggest that the final cost to taxpayers of HealthCare.gov’s tumultuous launch may actually be even higher than most reports suggest. That’s because, in the rush to enroll and absent a functional website, the federal government had to rely more heavily on non-tech contractors, too.

For example, Serco, which processed paper applications for health coverage, had a multi-year contract worth up to $1.249 billion. It remains debatable how much of that large sum belongs in back-of-the-envelope cost calculations for the HealthCare.gov launch debacle. (Of course, it’d be interesting to know what Marilyn Tavenner thought about these rising supplemental costs. Alas.)

Unfortunately, the Obama administration’s takeaway from HealthCare.gov’s disastrous launch is that the government should get more involved in tech, not less, and spend more money on creating a “digital experience” for citizens, as the Wall Street Journal editorial page writes today:

The Administration admits the genesis of its new U.S. Digital Service—a team of “our country’s brightest digital talent”—was the HealthCare.gov tech fiasco that “reminded” officials that technology matters. The White House says the new service will be led by Mikey Dickerson, the Google engineer who was recruited last year to manage the rescue of HealthCare.gov, to the extent it was rescued. Mr. Dickerson and his digital SWAT team will now roam Washington spreading “best practices” and tech “plays” that will ensure a “customer-focused government” with “exceptional service delivery.”

… Beneath this technology ballyhoo, however, is the conceit that the solution to government’s woes can be found in a better app. The real problem with ObamaCare isn’t the website. It’s the belief that bureaucratic mandates, regulation and price controls can better deliver health care than can a system based on individual and market choice. No amount of digital savvy at Veteran’s Affairs will fix a government health service that inevitably rations care and then gives bureaucrats the incentives to lie about the waiting lists.

Seltzer doesn’t have high hopes, either:

I expect government to do a bad job in general, and I’m not surprised that it’s bad at building IT systems. What disappoints me is the lack of appreciation of just how bad a job the administration, an administration once reputed to be “tech savvy,” did on their most prominent project. A couple of CMS officials were allowed to resign and the contractor was replaced (after taking in hundreds of millions of dollars), but I’d say nobody has really paid a price for the HealthCare.gov debacle — other than the taxpayers who paid for it.

— Jillian Kay Melchior writes for National Review as a Thomas L. Rhodes Fellow for the Franklin Center. She is also a Senior Fellow at the Independent Women’s Forum.



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