How Healthcare.gov Doomed Itself By Screwing Startups

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Healthcare.gov, a government-run e-commerce website for the Affordable Care Act, does not actually need to exist. The still-dysfunctional federal site could have offloaded all of the work to startups, which were already building more sophisticated price-comparison alternatives to the official site, just like Orbitz does for airline companies.

Healthcare.gov was supposed to be an information hub for the needs of millions of uninsured citizens who are now legally required to have a healthcare plan. The federal website ended up offering insurance directly, after 24 states (mostly Republican) refused to design their own e-commerce websites for their residents. Unfortunately, at launch, the federal and state sites crashed.

Three weeks later, Obama’s signature law, the Affordable Care Act (“Obamacare”), is in danger of losing public confidence and the enrollment numbers it needs to meet its promise of cheap, quality insurance. But, it’s unclear why the state and federal exchanges websites were built in the first place.

“It’s akin to the state wanting to build a search engine,” says Gary Lauer, CEO of health insurance e-commerce site, eHealth. eHealth is one of a handful tech companies certified as “web-based entities,” which are legally allowed to act as alternatives to the federal and state e-commerce sites.

Yet, as the regulations were designed, startups take a backseat to government websites. State exchanges are given the option to interface with private partners. Two of the largest states, California and New York, have delayed tech partnerships for about two years. “In the first year, we can’t custom interface, we don’t have enough bandwidth, we don’t have the technological capacity,” Covered California spokesperson, Anne Gonzales, told USA Today.

People familiar with Healthcare.gov argue that government-run websites are necessary to conceal the IRS income data that exchanges use to calculate discounts. Obamacare is principally designed for the 48 million uninsured Americans; most enrolling will have some discount based on their age, family status, and income. To protect consumers, the government argument goes, only Healthcare.gov should have access to income data.

However, there are plenty of existing federal systems that securely transmit personal information with private companies. If you use H&R Block or TurboTax to complete your tax return, you already have confidence that tech companies can safely deal with your most sensitive data. “There’s nothing new in this privacy area, nothing new that we haven’t been doing for years and years,” says Lauer.

For instance, ID.me, which facilitates military veterans for discounts, has been a White House boasting point on how startups can handle the identity verification process. CEO Blake Hall tells me in an email that his system could have securely dealt with IRS data. “On the healthcare side, we could absolutely verify identity and attributes, like income, in order to match the profile of an individual with health care plans.”

But it’s unclear why states didn’t prioritize tech companies in the first place. The federal and state governments were overwhelmed with the monstrous task of building a new database for millions of consumers. To this day, most exchanges are still offline.

The implications of Healthcare.gov’s failure represents an existential threat to Obamacare. First, Healthcare.gov’s own calculator may be steering individuals into a cheaper plan that could bankrupt them in the future. “People may be totally motivated by the cost of the policy and spend not an adequate amount of time looking at the deductibles and the co-pays and what is covered,” Kenneth Davis, CEO of Mount Sinai hospital, told me.

Tech startups, such as Fuse Insurance, are designing more sophisticated calculators to help consumers find a health plan that takes into account their specific circumstances. “We built a recommendation engine that compares user needs to plan structure, says Fuse Insurance founder Will Ritchie. “Healthcare.gov does a good job of listing plans, but it doesn’t go so far as to recommend any of them.”

But for some reason, the states figured these essential features of FuseInsurance and other tech companies could wait a few years.

Worse yet, Obamacare desperately needs the spritely young bodies of 18-34 year olds to subsidize the healthcare costs of their decaying elders. But it’s cheaper for young’uns to pay the one-time legal fine of $95 (or 1% of income) rather than shell out $200/month for health insurance, so Obamacare risks higher healthcare costs for everyone if glitchy websites send frustrated consumers away permanently.

The Department of Health and Human Services has unleashed an army of celebrity ambassadors and field brokers (“navigators“) to fish young invincibles into the exchanges, but it seems like tech companies have better ideas. eHealth, for instance, is integrating with the maker of TurboTax to persuade young taxpayers to buy insurance at the moment they have to pay a fine. TurboTax can know if a citizen is uninsured and alert them to an easy-to-purchase health plan right before they pay $95.

At least a few states see the benefit of outsourcing the difficult work. Secretary of Maryland’s Health and Human Services, Joshua Sharfstein, tells me in an email, “We’re looking to move forward with these partnerships because we identified two areas of value,” he writes. “1) The ability of private partners to increase outreach; and 2) the ability of private partners to bring innovation to plan selection.”

These types of solutions will be entirely absent from California and New York. Ironically, the president’s chief technology officer, Todd Park, often espouses the principle of “Joy’s Law,” named for legendary founder of Sun Microsystems, Bill Joy, which states that “no matter who you are, most of the smartest people in the world work for somebody else.”

For a year, Park has been reorganizing the entire federal IT system to put data in the hands of private developers, rather than have government websites be the central hub. It is bizarre that the president’s signature initiative would ignore its own principles.

A version of this article appeared in The Daily Beast