Obamacare Is Wide Open to Fraud – and They’re Not Going to Fix It

Obamacare Is Wide Open to Fraud – and They’re Not Going to Fix It

REUTERS/Jessica Rinaldi

As mysteries go, the responsibility for the failure of the Department of Health and Human Services’ rollout of the Affordable Care Act exchanges doesn’t exactly have the same inscrutability of an Ellery Queen novel. In fact, it doesn’t even reach the range and wit of an Encyclopedia Brown short-story whodunit for young readers.

Despite having three and a half years to implement the central core of Obamacare, along with $400 million in funding to develop its web portal for consumers, the massive bureaucracy at the Centers for Medicare and Medicaid Services (CMS) laid an egg on October 1, 2013. A whopping six people managed to navigate their site to enroll for insurance that day, as millions of Americans struggled to comply with a new federal mandate to purchase health insurance.

Related: Affordable Care Act Hasn’t Made Health Care Affordable, Study Finds

Initially, HHS and the White House tried to blame the failure on tight timeframes and a purported need for an unprecedented level of technological innovation. Leadership wasn’t the problem, officials insisted – a renewed effort to close the programming gap was needed. CMS invested in a “tech surge” in the weeks following the disaster, and claimed victory when enrollments began working several weeks into the open enrollment period.

More than two years later, the Inspector General of HHS has prepared what it calls a “case study” of the failures with Healthcare.gov and the 40 months that preceded its rollout. The IG reviewed several thousand internal documents and interviewed dozens of HHS, CMS, and contractor personnel to find the culprit. And it wasn’t the butler who did it or Colonel Mustard with the pipe in the study. The solution is much more elementary, dear Watsons.

It was Big Government, in the bureaucracies, with unaccountability.

The report’s executive summary notes, “The development of Healthcare.gov faced a high risk of failure, given the technical complexity required.” Perhaps, but the report fails to note that several insurance companies operated similar web portals on their own prior to Obamacare’s launch. The primary complicating factor for Healthcare.gov was its planned connection to the IRS database for income verification needed to calculate the taxpayer-provided subsidies that supposedly made Obamacare insurance affordable at all. 

Related: Obamacare Enrollees Are Reeling from High Deductibles

The lack of that functionality forced CMS to remind consumers to keep updating their income estimates to prevent overpayment of subsidies, which triggers penalties when completed tax returns are factored in. In fact, the IG case study notes, “The income estimates of half of consumers were too low during the first year of enrollment and these consumers consequently owed income taxes for 2014 following the first year of reconciling estimated to actual income.”

The actual problem in Obamacare’s execution was leadership, not technology. “Most critical was the absence of clear leadership, which caused delays in decision making, lack of clarity in project tasks, and the inability of CMS to recognize the magnitude of problems as the project deteriorated,” the IG found. Competing visions of the project and a move inside the hidebound bureaucracy of CMS stunted innovation.

Even the supposed “tech surge” was actually an emergency reorganization designed to streamline the bureaucracy that had choked off productivity. “CMS didn’t need a technological surge,” one official told the IG. “We needed an organizational surge.” The IG report makes that stunningly obvious.

Related: Collapsing Obamacare Co-ops Signal Big Trouble to Come

It found that repeated warnings to bureaucrats had an interesting effect – they “became desensitized to bad news about progress … CMS leadership and staff took little action to respond to warnings, remaining overly optimistic about the launch, and developing few contingency plans.” Warnings came in abundance, The Washington Post’s Amy Goldstein reports, including “a series of 11 scathing reviews from an outside consultant — among them a top-10 list of risks drawn up in the spring of 2013” --  months before CMS knowingly rolled out a failing system.

Of course, this covers ground from two years ago. What about today? As Goldstein notes at the end of her coverage, CMS has finally begun to roll out the back-end payment system that the Obama administration insisted was just weeks away as early as spring 2014. Two years later, that functionality finally exists, but only as a pilot program. Transfers of account information between insurers and consumers still gets described as one of the “ongoing challenges” of Healthcare.gov, despite its core consideration in efficient data management.

But that’s not all, either. As it turns out, the IG isn’t the only sleuth looking into mayhem on the Obamacare Express. The Government Accountability Office conducted an audit of the system and discovered that CMS hasn’t bothered to build in oversight to combat subsidy fraud. According to NBC News, eligibility for subsidies gets determined by information passing through a “data services hub” that accesses systems in “federal agencies such as Social Security, IRS, and Homeland Security to verify their personal details.” CMS has no oversight in place to analyze and track this information even though it authorizes payments of billions of dollars in subsidies.

Related: Obamacare Is Now on Life Support

The bureaucracy “has assumed a passive approach to identifying and preventing fraud,” according to the GAO report. The Obama administration admitted to the problem, two and a half years into paying those subsidies, but that’s all they do. House Energy and Commerce Chair Fred Upton called this response “unsettling … the agency has no urgency or plan to fix these critical errors.”

Any insurer who failed this badly at setting up a web portal for its products, and who two years later still didn’t have anti-fraud protection in place, would be as bankrupt as the Obamacare co-ops that collapsed this year. We have spent hundreds of billions of dollars just to discover that government isn’t terribly good at creating consumer-products marketplaces, and flat-out terrible at running a business and accounting for outcomes, while eliminating any potential competition.

Opponents of the Obamacare takeover of the health-insurance markets predicted this all along, so don’t expect us to feign surprise at the big reveal of the culprit. No one sincerely surprised by these outcomes really doesn’t have a Clue.