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We've done an in-depth investigation into the software development effort behind the Massachusetts Health Connector, the Obamacare web site in Massachusetts that failed spectacularly, along with most other federal and state web sites.
Since most states had completely separate web site software development projects, it would seem almost impossible that almost ALL of them could fail so spectacularly, so there must be a common cause.
We've found that the common cause is a tsunami of money granted by the Obama administration. Contractors received $150-500 million for each web site that really needed only $10-20 million to develop. With all the money available to them, spending the money became the objective. Thousands of programmers were hired, most of whom apparently were completely incompetent. As each web site disaster unfolded, corruption and fraud to the point of criminality took over.
Originally, we had intended this article to be simply about Healthcare.gov. However, as the research proceeded, we expanded it to other Obamacare topics.
A lot of the material developed for this article was too technical for a journalistic article, so all of this technical material has been put into a companion article, "For academics: Subversion, sabotage and fraud in software development projects". The words "companion article" in this article refer to that article.
The companion article contains a great of information of interest to academic researchers and software development managers on dysfunctional software development projects.
I had planned for this to be just an article on Healthcare.gov, but I soon was drawn into related subjects, including a review of the entire Obamacare model. The conclusions are as follows:
All of the above is described in detail in this article. The companion article "For academics: Subversion, sabotage and fraud in software development projects" contains a great deal of additional information of interest to academic researchers and software development managers on dysfunctional software development projects.
Researchers should be aware that there were four "successful" Obamacare exchanges, and all of them were implemented by Deloitte Consulting. This situation provides the closest approximation to a controlled experiment that anyone is ever going to get. You had several contractors tasked to solve the same problem -- build an Obamacare exchange -- and all failed except one. Researchers can compare the methodologies to determine what worked and what didn't. Unfortunately, Deloitte refused my requests to comment on this situation.
Fortunately, one other company was willing to comment, eHealth Insurance, which provides a private insurance exchange that operates in all 50 states. eHealth is not as directly comparable to the Obamacare exchanges, since it was a private company rather than a government project. Still, there are undoubtedly lessons that researchers can learn from the eHealth experience. This is discussed in this article.
On October 1, 2013, Healthcare.gov went "live," and was soon revealed as the biggest IT (information technology) and computer software disaster in history. That it was a disaster was clear, as President Barack Obama was completely humiliated after announcing that the slow response was because millions of people were signing up for insurance.
Although over half a billion dollars had been spent developing the web site and its back end, the web site could only enroll six people on the first day, and a similar number on days to come. Months later, when hundreds of millions of dollars more had been spent and the web site was staggering along, it was still an empty shell with little working back end capability. All the back end functionality had to be handled by the insurance companies with manual paperwork. Millions of individual consumers were screwed.
Two months after the launch, I wrote "1-Dec-13 World View -- Obamacare: 500M lines of code, $500M, only 60% completed". In that article, I said that the reported number of 500 million lines of code was impossible. It was impossible to develop a working web site with 500 million lines of code, and anything that size would be unsupportable anyway. I added:
"I get a picture in my mind of 1,000 monkeys sitting at computers typing code, without worrying about whether or not it works. Given the size of the catastrophe, some variation of that must have happened."
I was thinking "criminal fraud" when I wrote that article, but I didn't use those words without any proof. Now, almost two years later, we finally have reports coming out that provide evidence of criminal fraud. There weren't thousands of monkeys typing random code, charging $200/hour each, but there might as well have been.
We now know exactly why Healthcare.gov was such a disaster:
There's little doubt in my mind that if the Obama administration had granted $20 million per web site instead of $150-500 million per web site, then they would have gotten working web sites to start with. By pouring out a tsunami of money, they got a disaster and major humiliation, which is what they deserved.
The above conclusions were based on a detailed examination of the Massachusetts Health Connector project, and briefer looks at other Obamacare exchange projects.
In the case of the Massachsetts Health Connector project, there was development contractor, CGI Corp., and an overseer contractor, the University of Massachusetts Medical School. The evidence from the whistleblowers indicates that both these contractors allegedly committed criminal fraud, and furthermore that they were allegedly in a criminal conspiracy to defraud the government.
I particularly want to thank Josh Archambault at the Pioneer Institute. I've depended on his extensive research for much of the information in this article. (See report).
This story is full of criminals and a few heroes. The heroes are the ones who told their bosses that the project was in trouble, and were ordered to keep quiet, or were treated abusively and fired. The criminals are the ones who lied and cheated, committed fraud, and conspired to commit fraud.
I'm very passionate about this story because I've been a Senior Software Engineer for decades, and I well understand how software development efforts work, and how criminality would have brought about the Healthcare.gov disaster.
I'm perhaps uniquely qualified to do this Healthcare.gov analysis. I'm an apolitical, non-ideological, highly analytical writer. My background is both as a Senior Software Engineer and a technology journalist. The following is a very brief summary: Over the years, I've successfully developed dozens of software products from operating systems to compilers to web sites to complex enterprise-wide systems, working as both a consultant and an employee. (Resume: jxenakis.com/resume) I was Boston Bureau chief for InformationWeek magazine for two years, and Technology Editor for CFO Magazine (part time) for ten years, and I've interviewed hundreds of CEOs, CIOs, CFOs software developers and managers. (Examples: http://ww2.cfo.com/author/john-xenakis/).
I contacted eHealthInsurance Services, Inc. (https://www.ehealthinsurance.com/) because I wanted to do a technical comparison between an Obamacare exchange developed by private industry versus the catastrophic failure of the Obamacare exchanges built with billions of dollars of Washington money.
eHealth sells Obamacare insurance online in all 50 states, and they have 20 million online users.
I spoke to Tom Tsao, the Chief Technical Office at eHealth, to ask how their development effort compared with the development efforts of the government exchanges. Tsao didn't want to comment on the government exchanges, but he summarized eHealth's effort:
"I think from a Silicon Valley eCommerce technology company, what you said makes sense to me, which is that we as software engineers want to get from point A to point B in the most efficient and agile and lean way. So we want to be a minimal, viable product, get the connections up and running, test it, iterate, move on.
And that's exactly what a company like eHealth is focused on. If there's something that needs to be built, we simplify it, we understand it, we validate with customers, we validate the connections, we validate the data is working, we validate that the money is being passed, and we iterate on it. That's the best way to start with a very small product and a very small investment, 10 or 12 engineers, and really get something going."
Tsao said that once the initial development was done, the technology was moved from the PC to mobile devices:
"When we first built it was mainly for the desktop PC. But now we're seeing over 30% of our customers are accessing and buying health insurance, and shopping for it, using their mobile phones or their tablets.
So when we first built the road from A to B, it was more optimized for the PC, but now we're going to use all that road so that it not only works for PCs, but it's responsive and it's designed for any device size, any screen type, and it can work for mobile phones and mobile tablets. So you want to continue to now only scale up as we have more and more customers, but you want to innovate and keep up with the times. So we're able to do that in a very lean and agile way."
Tsao's description makes some important points.
First, the eHealth online marketplace was developed in a "very lean and agile way," with 10-12 programmers, and they got it working pretty quickly. This is in contrast to Healthcare.gov, where thousands of programmers were involved across all the sites, and the project was a disaster, which is what was deserved.
But there's a second point that isn't mentioned often. Healthcare.gov is already old technology. What's the Obama administration going to do now? Will they suggest spending another $5-10 billion to enhance all the government exchanges to work well on mobile phones and tablets?
This is what always happens with government projects. Even if they work in the first place, Congress doesn't want to pay to maintain and enhance them. That's why there are so many crumbling roads and bridges.
So maybe Healthcare.gov will work correctly and completely some years from now. But even so, it will be antedeluvian technology. The same problems will apply to all aspects of Obamacare.
Now let's turn to what happened to the Massachusetts Health Connector web site.
There were two contractors involved. CGI Corp. was responsible for coding and implementation, and the University of Massachusetts Medical School (UMass) was hired to do oversight on CGI's work.
"Dave" was the Interface Manager at UMass early in the Mass Connector development. He ended up being a whistleblower, and he asked me not to use his real name. He said that a small team could have done the Mass Connector for very little money:
"One of the last conversations I had with the program managers was that I said I wanted to take this over. I said that we don't need 200 or 300 people that CGI is using. You can't herd information through 300 people fast enough for them to develop anything. They'll never get it done. Give me six people, and we'll get it done, and it will work. I was fired the next day."
This is an important statement, and it explains why I wrote the comment about the "1,000 monkeys" typing random code in my original article. It's literally impossible to spend the kind of money that the Obama administration was pouring out to its supporters to get a technical project done. As Dave says, "You can't herd information through 300 people fast enough for them to develop anything."
Like Dave, I could have developed the Mass web site or the federal web site within a few months, working with a team of five to ten people. And it would have actually worked.
This explains why I'm personally so contemptuous of the Obama administration for disbursing billions of dollars to do these web sites. They thought they were being so smart, guaranteeing a successful project, and all they did was sabotage themselves. By disbursing a tsunami of money, all they did was create a tsunami of corruption and fraud, and they got what they deserved.
Let me just give one example of information from Josh Archambault's report. Early in 2014, after it was clear that CGI Corp.'s development effort was a total disaster, the State of Massachusetts transferred the project to a new consultant firm, Optum Inc. CGI was paid $17 million for the task of turning the work they had completed over the Optum But when but Optum received CGI's code, they unable to use any of it -- it was complete garbage. So CGI had already spent close to $200 million for a $10 million project, and with that money they produced nothing but garbage. And they were paid ANOTHER $17 million to turn the garbage over to Optum. As cynical and jaded as I am, this is almost too much to bear. It illustrates the level of corruption and fraud throughout the Healthcare.gov project.
Much of the incriminating information that has been developed about UMass and CGI was obtained from Josh Archambault's report. Archambault says that he used a variety of sources to establish the behavior that led to the disaster. According to Archambault:
"We didn't just rely on the whistleblowers to tell us what happened. We obtained internal audits that were done during the entire implementation process. Anything that the whistleblowers told us we made sure we found some sort of evidence of that in the internal audit, and they backed that up. The problems were early, persistent, and they were infrequently addressed.
[It was duplicity to the point of criminality,] and we don't say this lightly. [We] talked to many lawyers, including a former HHS general counsel, and in his opinion from what we found we found two very specific instances in which there were presentations given to the federal government by about their progress - how they were doing on the project. What we found was that it was impossible for the claims to the federal government to be backed up, and we found ample evidence of that."
By the fall of 2012, problems were beginning to mount up. The Mass Connector was to be more than a web site. The web site servers had to be able to communicate with other servers in order to enroll people in their requested insurance policies. Each of these connections was called an "interface" or a "work track." There were a total of 97 work tracks, and Dave was the Interface Manager responsible for 57 of the 97. His job was to approve plans for development of each work track, and to make sure that the work track was implemented correctly.
According to Dave, the whistleblower:
"One work track was connecting to the federal data services hub in Washington. One was interfacing from the shopping experience to Blue Cross Blue Shield. Also, there were interfaces to all 15 insurance companies. There were interfaces to several state agencies, like the Registry of Motor Vehicles, and the Department of Revenue."
CGI was responsible for implementing these interfaces, but it never even got that far. CGI never even performed the previous steps -- writing the specifications that described how the interfaces would be implemented. And if you're too incompetent to write specifications for interfaces, then you're too incompetent to develop code for the interfaces.
Dave began reporting to his own management that CGI was missing one deadline after another, but his warnings were ignored:
"I was reporting to management, calling meetings, and we had a JIRA [problem reporting] system set up. Report in JIRA, escalate it, escalate it. So when UMass said they didn't know that CGI was missing deadlines, that's absolutely not true - there were meetings and JIRA reports."
This is a very important statement, and it's corroborated from other sources. UMass claims they didn't know that CGI was missing deadlines and cheating on tests, and that's a total lie. UMass managers were completely informed about what was going on. But they did nothing about it. Instead, in order to hide their own incompetence and to keep the flow of money pouring in, they silenced and fired the heroes who told them what was going on. If this is not criminal fraud and criminal conspiracy to commit fraud, then it's very close.
So, according to Dave, and corroborated by Archambault's research, the following happened:
Even as early as Fall 2012, CGI and UMass misrepresented material facts and harmed the state and federal taxpayers by accepting millions of dollars in payments for work that was never performed. This is already criminal fraud, and the project had hardly started.
Early in December, Dave was asked to approve some design specifications that CGI had written. Dave, who has extensive expertise in systems master data management, knew that CGI's design wouldn't work, and refused to approve. There were two other people who also had approval responsibility, and when Dave detailed why the design wouldn't work, they refused to approve it as well. According to Dave:
"There was a big battle. It came down pretty high from the leadership on the project that they wanted us to pass it, to approve it. I said if you want this passed, you have to remove me as an approver. So they did, and they got the other two guys removed too. After that, management just approved it themselves. I don't know who signed off. I still had a job, but I was removed as approver."
One thing that comes through to me over and over is that CGI really didn't have a clue what they were doing. They didn't write specs, their designs were faulty, and they never implemented anything useful. When they had to run a test, they cheated. All they did was accept hundreds of millions of dollars for worthless code.
Finally, in December 2012, a real test had to be performed. CGI was responsible for implementing servers with firewalls that only very carefully specified types of messages could pass through. Setting up these firewalls was a fairly sophisticated task that apparently CGI was unable to perform. The federal systems in Washington were similarly implemented. The test was to send an dummy enrollee's information from one of CGI's servers through its firewall over the internet, through the federal system's firewall, reaching the federal systems server, and then get a correct response in return, over the same network path.
Since CGI was not able to perform this test, they proposed to cheat, and lie to the federal government. Instead of sending a message from their server, they were going to use an open source program called SOAPpy, running on an ordinary laptop computer, and send the message that way. They were going to pretend that it was a valid test, without telling the government personnel that they were cheating.
According to Dave:
"I refused that, because they weren't going to give full disclosure what they were doing ... that's lying to the feds. That's when I was canned, because that was the time when the failures would have left the office. That's when it would have been apparent that the project was not moving in the right direction. It was not where they were claiming it was.
They fired me before they actually did the test. I wouldn't let them do the test they way they wanted to. I'm assuming they went forward and did it that way after they fired me, because they couldn't do it the right way."
As for Dave, he was hired by Blue Cross Blue Shield, where he helped their successful implementation of the Obamacare functionality. This incredibly tawdry tale is filled with crooks, but Dave at least is the one who comes across as totally honest.
Archambault's report tells of many additional problems after Dave left. I'll just summarize:
CGI had hired hundreds of programmers in order to spend the money they received. My conclusion, based on years of experience as a Senior Software Engineer and as a tech journalist, is that CGI had been unable to find that many skilled programmers, and so hired unskilled people to fill the programmer slots. These unskilled programmers could not even write the specifications for the tasks, indicating that they had no idea what was going on.
By February 2014, there were 50,000 applications for health insurance sitting in a pile. Each one of those applications would have to be handled manually, and would require two hours to process.
Jean Yang, the executive director of the Massachusetts Health Connector, was in tears. Crying, she said:
"These people came here to lead and innovate, and instead they’re doing manual workarounds, and they are embarrassed to tell friends and family that they work for the Health Connector."
Gee. If the Mass Health Connector folks hadn't spent hundreds of millions of dollars committing fraud and screwing the public, I might actually feel sorry for poor, weepy Yang. But I don't feel sorry for any of these people.
Ironically, prior to Obamacare, Massachusetts already had a health insurance exchange, the RomneyCare web site set up by Mitt Romney when he was governor. If they had simply modified that web site for Obamacare, then they wouldn't have had a disaster, but that wouldn't have given them an opportunity to spend hundreds of millions of dollars.
No, Yang can cry all she wants, but I don't feel sorry for her at all. Boston Globe (13-Feb-2014)
If a software development project is behind schedule, then management has an overwhelming desire to add more people to the project to get it done more quickly. In some cases that's ok, as when you're adding data entry clerks to the project. But in most cases, it not only doesn't help, it actually makes things worse.
Brooks' Law says "Adding manpower to a late software project makes it later." Brooks' Law is well known in the software engineering community due to the ground-breaking 1975 book, “The Mythical Man Month: Essays on Software Engineering” by Frederick P Brooks Jr., the manager of software development for the massive IBM mainframe operating system in the 1960s. There's a great deal more information on Brooks' Law from an academic point of view in my companion article, "For academics: Subversion, sabotage and fraud in software development projects", but here's a summary:
These things evidently all happened in the development of the Mass Health Connector. CGI Corp hired hundreds of programmers because they had hundreds of millions of dollars to spend. Those programmers were undoubtedly under-qualified, didn't know what they were doing, and were unable to communicate with each other in a useful manner. They were probably graduates in such majors as women's studies or sociology, but had taken a computer course at one time. Any skilled, competent programmer would have been forced to spend all his time explaining what was going on to dozens of these people, and would probably have gone somewhere else rather than stay with that clown circus.
If CGI had just hired a team of 10-20 skilled programmers, they would have successfully completed the project, and saved the Obama administration from enormous humiliation. But then they wouldn't have been able to spend all that money.
Did CGI know that what they were doing was going to end in disaster? Well, obviously they did. The whistleblowers report that CGI was missing deadlines and cheating on tests almost a year in advance, while UMass was covering up for the deadlines and cheating. There's absolutely no way that they didn't know that they were committing fraud.
Which raises the question: Does CGI regret doing what they did? Being an extremely cynical, jaded person, I doubt it. Sure, CGI screwed Obama, but they walked off with many millions of dollars, so what do they care? There are lots of people who would screw anyone for millions of dollars.
If they had it to do over again, would they do the same thing? Sure they would.
Hell, if someone offered me hundreds of millions of dollars for a $10 million software development project, I'd take the money too. Why wouldn't I? Why shouldn't I? BUT, BUT, BUT ... I would have the good sense to form a small of group of 5-10 programmers to do the actual project implementation, and then keep the other 290 programmers doing busy work. That way, I'd get the millions of dollars, and the project would be successful anyway. And then I wouldn't be guilty of criminal fraud, either.
We've been discussing the situations in Massachusetts, so let's briefly discuss some other Obamacare exchanges.
I have to make an important observation here. Based on the whistleblower information and Archambault's report, it's clear that CGI and UMass were covering up missed deadlines and cheating on tests. But there's no Archambault's report for the other exchanges I'm describing, and the media reports seem to imply things like missed deadlines were well known at that they were missed. So it may be that the the other contractors developing Obamacare exchanges didn't always lie and cheat on tests, or at least didn't lie and cheat as often, even though their efforts still ended up in disaster. This could serve as a lesson to contractors that if you're missing deadlines, then you really have nothing to gain by committing fraud and lying about them. You might as well just tell the truth.
There's another possibility. It may be that media reports did find evidence of fraud and criminality in other Obamacare exchanges, but were afraid to report it for fear of retaliation by the Obama administration. As we'll see in the case of Sharyl Attkisson, any reporter who criticizes Obamacare risks massive retaliation by the Obama administration, often taking the form of constant abuse, harassment and even being fired. So it may be that other Obamacare exchanges had just as much criminality and fraud, but it was covered up by the media.
What's clear is there should be full-scale investigations of all the Obamacare exchange disasters. I'm just one person who has to make a living, and don't have the resources to do more than I've already done in preparation for this article, but somebody really should take on the responsibility. I'll be happy to help if I can.
All the Obamacare exchange disasters suffered from the same core problem: They were given hundreds of millions of dollars each to implement a $10 million web site, and they failed miserably in state after state. I'll just comment on some other state exchanges, based on information in media stories.
Sharyl Attkisson was a CBS News investigative reporter who won several Emmy awards for award-winning reports on the Bush administration, but was drummed out of CBS when she started doing similar reporting on the Obama administration.
According to a detailed investigative report by Attkisson, California received over $800 million to develop the Obamacare exchange, known as Covered California, and it was a total disaster. California then had to ask for another $155 million, for a total of $1.06 billion dollars. Out of that money, $454 million was for the IT implementation, for a project that should have cost $10-20 million. Daily Signal - Sharyl Attkisson (20-Apr-2015)
Attkisson documents multiple forms of outright fraud by Covered California. When the web site and the call centers all crashed on launch day, October 1, 2013, Californians had to fill out 33-page paper forms to get insurance. Covered California lied repeatedly about enrollment and re-enrollment figures in order to hide massive financial, enrollment and implementation problems.
As an illustration of the incompetence of the programmers at Covered California, Attkisson reports that electronic forms and paper forms couldn't be coordinated because of a major design flaw. As in the case of the Mass Connector, the California programmers were so incompetent, they couldn't even write specifications for everyone to follow.
This is not surprising in view of something reported by AP: Covered California's executive director Peter Lee awarded $184 million no-bid development contracts to his pals - firms with professional ties to Lee. In view of the results that actually occurred, it's pretty certain that these contractors were incompetent, but took the money anyway. But it doesn't matter, as they'll be able to go on and take money to be incompetent at other government jobs. AP (12-Oct-2014)
Attkisson reports on two other factors that I've found to be common in software development project disasters:
Today, Covered California is in serious financial trouble because enrollment is so low. In 2015, they're no longer supposed to receive additional grants of hundreds of millions of dollars each; instead, the law requires them to support themselves by charging fees on premiums. Originally, they promised to charge a 3% fee on premiums in 2014, and later hoped to reduce that to 2%. But because of low enrollment, the fee is $13.95 per month. Orange County Register (22-Apr-2015)
Even worse, Covered California is sabotaging itself by refusing to let companies like eHealth sell subsidized insurance online.
According to Tom Tsao, Chief Technical Office at eHealth, Covered California has refused to provide eHealth with the APIs that would allow eHealth to sell subsidized insurance plans online, although eHealth can do that in other states. Instead, if a user wants to purchase a subsidized plan, the user has to call an insurance broker hired by eHealth to take the information over the phone and fill out a paper form.
When Tsao told me this, I assumed it was because Covered California didn't want eHealth to get the fees. But, according to Tsao, Covered California gets the fees either way -- the same $13.95 per month per user:
"Covered California makes the same money -- they charge $13.95 per member per month fee for every qualified health plan when someone enrolls in California, Whether they buy it at eHealth, or from Covered California. So if we were allowed to enroll them online, we could generate a lot of revenue for them."
Tsao says that Covered California hasn't given eHealth any explanation for why they refuse to provide the necessary APIs, and he didn't want to speculate on the real reason.
So I'll speculate for him: Covered California, which has already spent almost $500 million for a $10-20 million software development project, and ended up with a major disaster, isn't providing the APIs because their programmers are too incompetent to provide them. It's the same story as in Massachusetts, where CGI was too incompetent even to write specifications. When you have hundreds of millions of dollars to spend on a $10 million project, then you hire hundreds of programmers who majored in Home Economics, and took an elective computer programming course, but they still have no idea what they're doing.
Covered California enrolled 1.4 million people in 2014, and officials claimed that they would increase enrollment in 500,000 in 2015, but only 7,000 have signed up. As a sign of how pathetic Covered California is, all seven Democrats on the state assembly’s rules committee voted against a bill that would have required legislators to enroll in Covered California. As usual, politicians protect themselves, even when they screw the public. Daily Signal (20-Apr) and New American (27-Apr)
The Obama administration has spent billions of dollars on Healthcare.gov, which is the greatest IT disaster in history, with plenty of clear evidence of criminal corruption and fraud. And yet, there are almost no investigative reports. Sharyl Attkisson may be the only mainstream reporter who has even attempted an investigation.
Sharyl Attkisson was a CBS News investigative reporter who won several Emmy awards for award-winning reports on the Bush administration. She won an Emmy in 2009 for an investigative report on the Bush administration's questionable practices in the 2008 bank bailout. In 2013, she won an Emmy for investigative reporting on Republican freshmen fundraising from the extremely wealthy donors. CBS News (28-Jan-2009) and CBS News (16-Mar-2012)
But when she started doing similar investigative reports on the Obama administration, her bosses at CBS News refused to air them, because they refused to criticize the Obama administration for any reason. She was treated abusively by members of the Obama administrations for the things that did air, and her CBS bosses would pile on. CBS execs had a rule that liberal analysts were always to be labeled "analysts," while conservative analysts were always labeled "conservative" or "right wing." NY Post
One anecdote is particularly funny. Attkisson did a story on school-lunch fraud. It had absolutely nothing to do with White House or the Obama administration, but it was trashed by CBS News anyway because Michele Obama had at one time been an advocate for good school lunches. This indicates almost delusional paranoia at CBS News.
Attkisson was the investigative journalist who first reported that Healthcare.gov had only signed up six people on the first day of the launch. By coincidence, this number "six" had been mentioned in a spoof on Saturday Night Live just after the launch, so the number six was a source of continuing humiliation to the Obama administration, which infuriated a lot of people at Attkisson.
Attkisson had free rein to report on anything she wanted during the Bush years, but she was called "anti-Obama" and treated increasingly abusively during the Obama administration. The Obama administration increasingly threatened CBS News over her reporting and, according to Attkisson, Obama administration officials called her up to literally scream at her while she was working the story.
Attkisson was treated so abusively at CBS News, that early in 2014 she finally quit, and became an independent investigative reporter. She's one of the few who have done reports on Obamacare fraud, such as her report on Covered California that we referenced in an earlier section.
Attkisson is a triple-whistleblower. She's a whistleblower on Obamacare (as well as numerous other Bush and Obama scandals). She's a whistleblower for CBS News, who loved what she did during the Bush administration, but treated her abusively when she did similar things during the Obama administration. And she's a whistleblower on the Obama administration, which even liberal and left-wing reporters are calling the most hostile and abusive to journalists in history, especially after NY Times reporter James Risen and Fox reporter James Rosen were both criminally investigated after publishing news stories that the administration disliked. Washington's Blog and Washington Post
As far as I know, I'm the first journalist to write about the massive corruption, fraud and criminality in Obamacare, but I'm hardly considered mainstream. There should have been thousands of stories about this in the mainstream media by now, but there have been almost none. As the Sharyl Attkisson story shows, any mainstream reporter who even attempts to write anything that even smells of criticism of Obamacare risks massive retaliation by the Obama administration. I guess we can consider ourselves lucky that we don't live in Iran, where Obama would be throwing us into jail and torturing us.
In this sense, the Healthcare.gov disaster is no different than the financial crisis. NY Times economics writer Gretchen Morgenson published in 2011 her book "Reckless Endangerment - How Outsized Ambition, Greed, and Corruption Led to Economic Armageddon."
Morgenson described in detail, including names and dates, how government officials, especially in Fannie Mae and the Federal Reserve. Her book documents how a number of famous officials took enormous salaries and bonuses or political favors essentially to lie. Fannie Mae CEO Jim Johnson was singled out more than anyone else, but there were plenty of others: Mass. Rep. Barney Frank, Nobel Prize-winner Joseph Stiglitz (whom I criticized in 2008 for clearly lying about his role in the financial crisis), Deputy Treasury Secretary Larry Summers, Conn. Senator Chris Dodd, and Countrywide CEO Angelo Mozilo, Timothy Geithner and others.
Tne Washington Post book review of Morgenson's book summarizes the situation as follows, identifying some CBO staffers as heroes:
"Fannie’s lobbying efforts were resisted by some government officials, who are the heroes of the book. CBO Director June O’Neill is praised for refusing to stop the release of the 1995 study by CBO staffer Marvin Phaup showing that federal support increased Fannie’s profits by $2 billion. O’Neill reported that Fannie executives “Frank Raines and Bob Zoellick came and met with me and the people from CBO. All of us had the same feeling — that we were being visited by the Mafia.”
Another hero is “none other than John W. Snow, the Treasury secretary,” who in 2003 “urged the creation of a new federal agency to regulate and supervise the financial activities of the government-sponsored enterprises” and thus aligned the Bush administration with Fannie’s adversaries. After that, with the 2004 presidential election in full swing, “Bush’s unpopularity gave Fannie’s supporters their greatest hope,” the authors write."
There was sleaze at almost every level in the financial crisis. The sleaze was propagated by huge sums of money at every turn. The Washington Post review says: "They made campaign contributions and charitable donations to co-opt groups like the community action organization ACORN, which 'had been agitating for tighter regulations on Fannie Mae.'"
The same was true in the Healthcare.gov disaster. There was sleaze and corruption at every level. The Obama administration made unimaginably huge amounts of money available as grants to any organization that supported him, irrespective of whether they were qualified. The sleaze and fraud at every level were enormous. For those who enjoy Schadenfreude, you can say that President Obama got exactly what he deserved when he was humiliated, but unfortunately millions of people had to suffer as well.
Morgenson's book is only one of many that have been written about the financial crisis disaster, but there have been no similar books on the Healthcare.gov disaster. One reason is that almost no journalists have the technical expertise to write about an IT disaster.
And the second reason is that any mainstream journalist risks massive abuse and retaliation from the Obama administration for any such exposé. This is a serious problem, as the Obama administration has criminally targeted reporters from the NY Times and Fox News, and used the IRS to target political enemies.
As I wrote earlier, my decades of experience make me perhaps uniquely qualified to do this kind of exposé. And at this point in my life, I guess that I've decided that I'm so furious about this that I'll just have to live with whatever abuse and retaliation I receive in return.
The development of the Vermont Health Connect (VHC) was just as disastrous as the development of the Mass Health Connector and Covered California. Once again, CGI Corp. was the developer, and once again the failing project was transferred to Optum Inc., this time in fall of 2014.
Vermont's State Auditor Douglas Hoffer, who is a Democrat, has written a scathing report on the VHC disaster, and most of the following information comes from Hoffer's report. Doug Hoffer's report (PDF)
According to Hoffer, the Obama administration provided Vermont with grants totalling $198.7 million for VHC development and operations. Right away you can see the same core problem as in the Massachusetts and California cases: Giving hundreds of millions of dollars for a $10-20 million software development project. And as in the other cases, the objective became to spend the money, rather than get the web site working, leading to disaster -- which is what the Obama administration deserved for wasting all that federal money.
After CGI's attempt at VHC crashed and burned, after spending hundreds of millions of dollars, the effort was turned over the Optum. Optum has received an additional tens of millions of dollars in payments, but it's still failing, for the same reason. You just can't spend that kind of money on a software development project.
According to Hoffer:
"Optum’s documentation deliverables have not been timely. In addition, the State’s contract with Optum for the 2015 releases does not include metrics to measure the contractor’s performance."
Hoffer does not say so, but this appears to be exactly the same kind of problems that plagued CGI in Massachusetts. What it looks like is that Optum is missing its deadlines, doesn't know what it's doing, and is hiding what's going on. If the programmers are so incompetent that they can't provide documents and specifications, then they'll never write working code.
In fact, Hoffer makes it clear that he expects Optum to fail this year:
"While the new systems integrator, Optum, has since implemented changes to the VHC system, major requirements remain unimplemented, such as an automated capability to make changes to customers’ accounts (known as “change of circumstances”). The State plans to implement this functionality and others in a May 2015 major release.
However, the schedule to meet this deadline is aggressive and the time allotted to fix defects (including retesting) that could be found during end-to-end testing with the carriers is short and does not leave a lot of leeway to address them and remain on schedule. The State also plans to implement other requirements, including an automated renewal process, in a second major release in the Fall of 2015. The high risk associated with these development efforts have been recognized in status reports by internal and external parties. Examples of issues that must be overcome include competition for staff and technical resources and the absence of a contract to complete the Fall release. Moreover, even if these changes are successfully completed, other requirements would remain outstanding, particularly the Small Business Health Options Program (SHOP), and there are no specific plans for their implementation."
This shows another one of the problems in the Obama administration throwing huge sums of money at software development projects: The contractor has to spend that money, and in order to do so has to hire dozens or hundreds of programmers, and skilled programmers may not be available in the marketplace. So you end up, as Hoffer says, with "competition for staff and technical resources." In other words, there simply are not enough software engineers available to work on the system. It's also quite possible that any competent software engineer who interviewed for the job realized during the interview that the whole effort was a clown circus, and decided not to join. At any rate, the money was the core problem.
As a tech journalist, I have interviewed hundreds of CFOs, CIOs, and software development managers, and one theme that I heard them tell me often is that it's better to have a small group of people who know the company and know the software, rather than bring in new people who will have a learning curve of 6-12 months. Incompetent managers believe that software engineering is like digging ditches, and that one ditch digger is pretty much interchangeable with any other ditch digger. This belief has been proven wrong by dozens of management books that have been written in the past 50 years, and it's directly contradicted by Brooks' Law, which I've discussed elsewhere, but incompetent managers think they know better. As a result, their projects fail.
This appears to be what's happening with Optum right now, based on Hoffer's report. In order to spend the huge amount of money they've been given, they have to hire many software engineers (ditch diggers), but the ones they want aren't available. So they're lowering their hiring standards, but still can't find enough people to spend all the money they've been given.
And since the project has a good chance of failing, in Hoffer's view, they're postponing other functional requirements.
The "Change of Circumstances" (COC) functionality mentioned by Hoffer has been a particular scandal. COC means that a person should be able to get on to the web site and enter information like marriage, divorce, birth, death, etc. CGI never even came close to implementing that functionality, though they were paid a millions of dollars to do it. As a result, people have to call a customer service number and speak to an operator who fills out a paper form which must then be processed manually. Optum was supposed to have implemented this functionality by May 2015, but they had to scale back their commitment to just improving the manual processes. According to Hoffer, there were over 7,000 unprocessed change requests in March. However, a new report in June says that the backlog has increased to 10,200. Times Argus
Let me take a moment here to comment on the CoC functionality. This functionality is very easy to implement: The browser posts a form, the user fills out the form online, the back end transmits the data to the insurance company, and they update their data bases. This is a week's work.
Optum will, I'm sure, complain that it's too hard to transmit the data to the insurance company. The problem with that excuse is that even if it's true, partial implementations could have been tried:
The above is elementary software engineering stuff, and the fact that CGI and Optum couldn't come up with something like this shows, once again, how incompetent CGI and Optum were as software engineering contractors.
John McClaughry, president of the Vermont-based Ethan Allen Institute, is contemptuous of the whole VHC effort. He quotes Bekka Mandell, originally an enthusiastic supporter of VHC, who has come face-to-face with the realities of dealing with the system:
"My husband and I have been struggling to navigate the Vermont Health Connect system and I know we’re not alone. Between the two of us, we’ve spent dozens of hours on the phone with them trying to sort out our coverage. We’re expecting our first baby in May, so we’re terrified that some glitch in their system is going to end up costing us hundreds or thousands of dollars in hospital fees."
"Whether VHC can ever be made to work appears increasingly unlikely. It’s pretty clear that Washington is not going to toss in another hundred million dollars to rescue the [Governor] Shumlin administration.
Instead of giving the state government ever more control over Vermont’s health care and insurance sectors, the legislature should ... roll back thirty years of foolish state mandates that have afflicted the Vermont insurance market, [and] make a determined start toward a consumer directed health policy that will produce better quality outcomes at less expense."
McClaughry's analysis highlights another problem caused by the tsunami of money that the Obama administration granted for what became failed Obamacare exchanges. The huge amount of money made it impossible to build the web site in the first place, for the reasons given -- the objective of the development contractors was to spend all the money, and getting the web site done was only a secondary objective. But then as time goes on, they need more and more money, because spending money is all they know how to do. McClaughry is making the point that the VNC contractors are seeking more hundreds of millions of dollars, but this time they're not going to get it.
Although this analysis of VHC was not as deep as that of the Mass Health Connector, we can see the same kinds of issues:
Building an e-commerce web site is old technology in the 2010s decade, and yet there was failure after failure after failure to build the Obamacare web sites across the country. This suggests that the same kinds of incompetence and fraud occurred in all the software development projects.
As I've said, there should be an investigation of the Obamacare exchanges to verify the ubiquity of this alleged fraud. I'm just one person, without the resources to do it, but somebody should do it.
Oregon, under Democratic party Governor John Kitzhaber, aspired to create a "shining model" for other Obamacare exchanges, and Oregon received $300 million in Obamacare grants to do it.
In September 2012, a Republican representative wrote a memo to Kitzhaber saying,
"This project is in substantial jeopardy of being Oregon’s next multi-million dollar I.T. project fiasco. [J]ust hoping for the best while ignoring good business practices and the recommendations [of] your experts in project management is irresponsible."
Note that the date was about the same time that whistleblower Dave was warning his management that the Mass Health Connector was missing deadlines.
What's interesting about this is that all of these disastrously failing Obamacare web sites were noticeably failing around the same time -- about a year before launch date. It's really quite remarkable, because these are all fairly simple independent software development projects that should have cost $10-20 million each. What the disastrous projects had in common is that they were receiving hundreds of millions of dollars each.
There was a difference between Oregon and Massachusetts in the early visibility of the disaster. In Massachusetts, the developer CGI and the overseer UMass conspired to lie and cheat, hiding the early signs of the disaster; in Oregon, the developer was Oracle Corp., and apparently the early signs were already publicly visible. It didn't make any difference in the disastrous launch, presumably because none of these people wanted to give up these massive $300 million grants.
The Cover Oregon web site was abandoned, and Oregon Obamacare purchasers went to the federal web site for 2015 enrollment. However, Oracle was paid an additional $40 million more to transition to the federal site. Unbelievable. Forbes (31-Mar-2015)
Six months after it was launched, Nevada's Obamacare exchange, the Nevada Health Link, was being called a "full failure" and a "catastrophe."
Republican Governor Brian Sandoval was under pressure to drop the state exchange and switch to the federal exchange for the enrollment process. Sandoval resisted at first, because he was afraid that the federal exchange would be even worse:
"It's not plug and play. Frankly, although this exchange is not performing to my expectations, my understanding is that most if not all of the federally run exchanges are doing worse."
Ultimately, Nevada pulled the plug on the contractor, Xerox, citing unsatisfactory results from the company's attempt to fix its service, and switched to the federal exchange.
One of the media reports about the Nevada disaster was particularly instructive:
"Many states and the federal government experienced technical problems with the enrollment websites, but implementation of the federal Affordable Care Act has been a relative disaster in Maryland, Massachusetts, Nevada, Oregon and Vermont.
Rather than focusing on meeting enrollment targets, officials in those states find themselves consumed with replacing top officials, cancelling contracts with software companies, dealing with state or federal investigations, and spending tens of millions of dollars on fixes and new contractors. The core of the problem has been the difficulty in building an online health insurance marketplace that syncs up with myriad state and federal databases."
This is instructive for a couple of reasons. These "officials" had hundreds of millions of dollars to play with, and they were spending all their time figuring out how to cover their asses without losing all that money. This kind of thing is typical of government, and is one of the reasons that I say that the Obamacare disaster was well deserved.
The last sentence about the "core of the problem" and "myriad" databases is interesting because it's the typical excuse that was used by the contractors for their own implementation disasters. As we'll see, there are two things wrong with this excuse. First, the four successful state exchanges implemented by Deloitte Consulting didn't need this excuse. And second, as we saw in the case of the Mass Health Connector, the contractors were so incompetent that they couldn't even produce specification documents, let alone write the code to make the connections.
The "core of the problem" was most definitely NOT connecting with myriad databases; the core of the problem was incompetence by contractors who took millions and millions of dollars in fees, but had no clue what they were doing. CBS Las Vegas (25-Mar-2014) and Reno Gazette-Journal (12-Nov-2014)
When Obamacare was enacted in 2010, Maryland was among the most enthusiastic supporters. Democratic party Governor Martin O'Malley announced that Maryland would begin drafting plans to "immediately begin the work to ensure our state leads the nation." Maryland became the second state, behind California, to enact legislation creating an exchange.
It's the usual story. By fall of 2012, the software development project was in serious trouble, and the IT contractor, Noridian Healthcare Solutions, was not even able to produce standard project plans.
As I pointed out in the case of the Mass Health Connector, if you have a mass of programmers that are too incompetent even to produce documentation -- project plans and specifications -- then they'll be even more incompetent at writing code. Once again, the inference that I make is that with $250 million in Obamacare money allocated to Maryland, it was necessary to spend all that money, which made it necessary to hire hundreds of programmers, probably almost all of whom were incompetent.
In a presentation by auditors BerryDunn, one comment particularly prescient: Maryland might build all of the components of its health-insurance exchange and then put them together and find out they do not work. The state also did not appear to be leaving itself with enough time to "complete, verify and test all system components before go-live."
This is a system integration problem that I've observed several times in my own career and talk about in the companion article "For academics: Dysfunction, subversion, sabotage and fraud in software development projects". Incompetent software managers assume that once all the components work individually, and have been unit tested individually, then they'll all work together. This is like buying a television set in the United States, taking it to Europe, and expecting to be able to just plug it in and watch TV there. It's not going to happen.
By September, the month before launch, reports indicated that the project was seriously at risk. There was already talk of legal action and lawsuits between the contractor Noridian and the subcontractor EngagePoint.
On September 18, two weeks before launch, exchange manager Rebecca Pearce took a tour of the health exchange offices, and found them nearly empty. She wrote an e-mail message saying, "Tonight, I am begging," and said:
"In less than 2 weeks, we are going to begin to fundamentally change the way health insurance is delivered in the state. ... This is bigger than us for so many reasons."
On October 1, the state exchange was supposed to go live at 8 a.m. but froze, and the state asked Marylanders to come back in four hours. At noon, the site crashed within moments.
Four states -- Connecticut, Kentucky, Rhode Island and Washington State -- had Obamacare exchanges that were considered successful, and the implementor in all cases was Deloitte Consulting.
Just the existence of these four states by one contractor proves the incompetence of the other exchange contractors, because if Deloitte can do it four times, then they could also have done it.
What is that Deloitte did that the others couldn't do? The media reports contain some hints.
Kevin Counihan, CEO of Connecticut's Access Health exchange, said the key to success was that his team worked closely with Deloitte to set parameters for what was achievable under a very tight deadline. According to Counihand:
"We were building a Cadillac, and we decided that we needed a Ford Focus. We scaled back about 30 percent of what we originally wanted. And coming out of that was a much more focused type of workflow."
According to Deloitte's Pat Howard:
"Most states were looking at a year, year and a half, to implement this. So they had to be smart about what they put into the system in the first release, and what would go into subsequent releases."
Both of these remarks suggest that Deloitte actually produced project plans and milestones, and then used those to pare down the project to the minimum necessary to succeed on launch day. You would think anyone would do this, but it's quite clear that the other contractors did not do this. According to the media report, Deloitte used a system of “buckets” for its exchanges. One bucket was for must-haves — the things necessary for a functioning, state-run marketplaces on Oct. 1 of last year. The second was for things "that we would like to do, the states wanted to do, but you didn’t have enough time to get it done in the first open enrollment period."
Recall that in the case of Massachusetts and other exchanges, the contractors were so incompetent that they couldn't even produce the documentation -- the project plans and milestones. And as I've said, if the programmers are too incompetent to produce documentation, then they're too incompetent to produce working code.
I made repeated requests to Deloitte Consulting for technical information on how they had accomplished this, but they just made non-credible excuses and refused to provide any information, so I'm unable to report whether Deloitte accomplished this through technical expertise or because of some corrupt relationship with the Obama administration. However, Deloitte does prove one thing: Whatever they did could have been done by the contractors for the other Obamacare state exchanges, so any excuses the other contractors give are sure to be phony.
Despite their refusal to comment, I doubt that what Deloitte did was magic. It's standard practice for any competent software engineering team. You write the functional specifications that describe the software functionality; you write the internal specifications that describe in detail how the software will be implemented; you identify milestones and create a schedule.
After that, you try to follow the schedule. If you start falling behind, then you do "triage" and eliminate some product functions. The "Agile methodology" can be useful in getting this project to work, as I've described in the companion article, "For academics: Dysfunction, subversion, sabotage and fraud in software development projects".
These is standard software engineering stuff, but the other contractors were so drunk with the opportunity to spend hundreds of millions of dollars, they were more focused on spending the money than in getting a working web site.
One of the excuses that CGI and UMass for the Massachusetts Health Connector disaster is that they knew they were behind schedule, but believed they could make it up. In other words, after each month passed, they were one month further behind schedule, but still believed that they could make up for months of failures during the last month. This is absurd. These people were paid tens of millions of dollars because they were supposed to be experts, so they must have known that they were lying, and indeed Josh Archambault's report shows that they knew that the project would fail in the Spring.
A more sophisticated excuse is that the web software had to connect to government servers, and that connecting to government servers was so time-consuming that it would delay the project. This seems to be the standard excuse.
This is a great excuse to use on journalists, because they won't have the vaguest clue what you're talking about, so they'll just have to accept it. Fortunately, I do know what they're talking about, and I know that it's bogus.
I, on the other hand, have implemented a number of web sites and many remote server connections, so I know that the server excuse is bogus. Just to be sure, I put the question to Tom Tsao, Chief Technical Office at eHealth, about problems they had with connecting to government servers. His response:
"As a software engineer you and I both know once there's an API or web service put in place, it's very easy to connect it - you look at the documentation, you connect to it, you test it, and it's done.
So the good news is, we've been working with Healthcare.gov, and all their subsidy APIs have been published, so we're connecting through the direct enrollment APIs. So I would imagine it would be be pretty straightforward for the state exchanges to also connect in a similar fashion."
Whistleblower Dave gave a more nuanced explanation. Recall that in an earlier section I quoted Dave referring to 97 "work tracks," including interfacing to servers from insurance companies, as well as state agencies such as the Registry of Motor Vehicles, and the Department of Revenue.
I asked Dave if connecting to these servers would be so difficult that it would explain the failure to complete the Mass Health Connector. He responded as follows:
"If you are asking about webservices that other agencies published such as DOR's webservice to provide income verification, those webservices did not exist. Building those services was part of the funds given to state exchanges. At least they were in Massachusetts.
The problem was on CGI's side. CGI did not provide the specifications they were requesting. To go to an agency and say give me everything you own if not realistic. I continuously asked CGI for a list of data the exchange wanted from these agencies and never received it."
In other words, the situation was even worse than you might think. Not only did CGI not implement the server connections, they could not even write the specifications for the connections.
Now, I've written many, many technical specifications in my career as a Senior Software Engineer, and I know that writing a specification is as easy as falling off a log -- PROVIDED THAT you know what you're doing and what you're talking about. But if you majored in French literature in college, and took a computer course but have no clue what a web service is, then obviously you can't even write a specification, let alone code an implementation.
And then the one connection test that CGI had to make in December 2013 -- the fake test that got Dave fired because he wouldn't sign off on the fake test -- shows that CGI programmers didn't even have the skills to make the simplest test. So they couldn't write specifications for server connections, they couldn't run a simple test for a server connection, and they couldn't implement a server connection. Obviously, the server connection issue is not what caused the CGI catastrophe.
Finally, all of these excuses are blown out of the water by the experience of Deloitte Consulting described earlier. They were the only successful contractor, and they implemented four state exchanges successfully. But as I said, Deloitte repeatedly refused my requests to comment, so I'm unable to report whether they were successful because of technical expertise, or because they had some corrupt path to the Obama administration that was not available to the other contractors.
In all four of these successful state exchanges, Deloitte had to deal with all the same server and "myriad database" problems and other problems as anyone else, and they did so successfully, while the other contractors were all incompetent.
Long-time readers are aware that from the day it was first proposed in 2009, I've referred to President Barack Obama's health care plan as a proposal of economic insanity, because it's a repeat of President Richard Nixon's wage-price controls, which were an utter, total disaster for the economy.
The public loved President Nixon's wage-price controls when they were first announced, because everyone likes to get things for free. But then the shortages started occurring -- gasoline, heating oil, red meat, soybeans, and numerous other products. Nixon did everything he could to save the controls, granting special exemptions and perks to favored people, announcing frequent rule changes to resolve each new problem as it arose, and so forth.
Nixon's wage-price controls were supposed to reduce inflation from 4% to 2%. That didn't happen. Instead, the economy was so screwed up with shortages and misallocations that the inflation rate rose to 12%.
Economically, Obamacare is a price control regimen, like Nixon's price controls. For example, Nixon might set the price of a $10.00 book at only $1.00, while Obamacare's Medicaid will reimburse a hospital for a $5,000 emergency room visit with only $50, as we'll see in the case of Kentucky hospitals.
If Nixon prices a $10.00 book at only $1.00, then the market will respond by making books unavailable, which is what actually happened.
If Obamacare reimburses a hospital's $5,000 emergency room visit with only $50, then Obama has to essentially force hospitals to provide that service, to keep it from becoming unavailable. So Obama does two additional things:
Because of the similarity and similar destructiveness of the two programs, I'm referring in this article to "Nixon-Obama Price Controls," to emphasize their similarity.
There are 19 states, mostly in the South and mid-west, that have not yet adopted the full "Medicaid expansion," that would put everyone on to Medicaid at low premiums. The Obama administration is putting enormous political pressure on these states, claiming that they're losing out on a lot of money. For example, the Urban Institute published a report concluding that hospitals in states not participating in the Medicaid expansion would lose $167.8 billion. Urban Institute (August 2014) (PDF)
Here are are the conclusions of the Urban Institute study:
"In the 24 states that have not expanded Medicaid, 6.7 million residents are projected to remain uninsured in 2016 as a result. These states are foregoing $423.6 billion in federal Medicaid funds from 2013 to 2022, which will lessen economic activity and job growth. Hospitals in these 24 [now 19] states are also slated to lose a $167.8 billion (31 percent) boost in Medicaid funding that was originally intended to offset major cuts to their Medicare and Medicaid reimbursement."
However, when you look at the actual experience of the Kentucky hospitals, as we will do in a later section, you find the following, referring to a study similar to the Urban Institute study:
The report failed to note that:
The payments hospitals received for providing services to Medicaid expansion patients did not cover the actual cost to deliver those services (paying 82% as previously noted). If hospitals received $506 million in payment for treating patients covered by Medicaid expansion, it cost hospitals $617 million to actually deliver the care, leaving a $111 million gap in unpaid costs."
So the Urban Institute analysis is basically a lie. Yes it's true that hospitals could receive $167.8 billion more reimbursement money, but the Urban Institute is purposely lying by omission by not mentioning that the reimbursement money represents a loss. Indeed, if the same 82% figure applies to all Medicaid expansion states, which I believe it does, then that $167.8 billion in reimbursement money will be for $204.6 billion in medical services.
In other words, for every $1.00 in "free money" that the hospitals get, they have to provide $1.21 in medical services. This is typical of the deception, fraud and criminality that's drenching all aspects of Obamacare.
People and politicians love things like the Nixon-Obama price controls, because they give the impression of getting things for free, and who doesn't love getting things for free?
The problem is that price controls are extremely destructive to the economy. Nixon's price controls were so destructive that they caused almost 30% inflation in the three years 1977-1980. It took a decade for the economy to recover from Nixon's price controls.
Obamacare's price controls are also extremely destructive, if we're to judge from Kentucky's experience. Thousands of people have already lost their jobs, with more to come.
This reduces the supply of medical services, which will cause huge inflationary pressures for medical services. Those inflationary pressures have been mitigated by hundreds of billions of dollars that the Obama administration has poured into Obamacare, and continues to do so.
But those billions of dollars are being pared back. The Urban Institute concludes that, "without an act of Congress," much of the "Medicaid bump" will be cut back. Urban Institute (Dec 2014)
According to the Urban Institute:
"We estimate that, in the 49 states studied and in the District of Columbia, expiration of the Medicaid primary care fee bump would lead to an average 42.8 percent reduction in fees for primary care services for eligible providers [in 2015]. ...
Because of long-standing concerns about the level of physician reimbursement in the Medicaid program and its effect on physicians’ willingness to accept Medicaid patients, the ACA also includes a mandatory two-year increase in Medicaid fees for primary care services to Medicare levels. This increase is fully funded by the federal government and raises fee-for-service and managed-care Medicaid fees for certain primary care services provided by family physicians, internists, and pediatricians from January 1, 2013, through December 31, 2014. ... As of June 2014, the federal government had spent an estimated $5.6 billion on the fee bump. ...
To date, it is unclear whether the increase in Medicaid primary care payment has had an effect on the number of physicians accepting Medicaid or the number of Medicaid patients that physicians are willing to see, and anecdotal evidence is mixed.... For example, although Connecticut has reported a significant increase in the number of participating physicians after the fee bump, other states expect little or no effect. ...
Without an act of Congress, the federally funded payment increase will expire on December 31, 2014. ...
In the 49 states studied and in the District of Columbia, expiration of the Medicaid primary care fee bump on January 1, 2015, would lead to an average 42.8 percent reduction in fees for primary care services for eligible providers. The fee reductions would vary substantially by state, with seven states experiencing a fee reduction of 50 percent or more and four states experiencing no fee reduction."
This is just one example of the tsunami of money that the Obama adminstration has been using to prop up Obamacare, and it was cut almost in half in 2015. Other money flows are scheduled to disappear in the next few years. Obama is counting on the Congress to pass new laws to pour additional trillions of dollars into Obamacare, but with a $17 trillion deficit already, the experiences of the last few years indicate that Congress is not going to accede. Unless 2016 brings in a Democratic president and a huge Democratic majority in both houses of Congress, then we will soon start to see huge price inflation in medical services -- which is exactly the outcome of Nixon's price controls.
Obamacare supporters point to some 12 million previously uninsured people who are now insured. But that doesn't reflect the fact that millions of supposedly "insured" people are effectively uninsured because of $10,000+ deductibles or because the insurance is Medicaid, which pays only a fraction of medical claims.
America has always had "universal health insurance" in the sense that anyone uninsured can go to a hospital emergency room and not be refused treatment. For many people, being "insured" by Obamacare is little different from being uninsured. In Kentucky, Medicaid plans pay $50 for an emergency room visit that could cost thousands of dollars. Whatever triage method emergency rooms use to avoid having to treat some uninsured patients, similar triage methods will have to be used to treat payments with reimbursements of only $50. At the very least, it will still be true that patients with private insurance will receive many services that Medicaid patients will not.
It used to be that the only place where an uninsured person could get medical help was the emergency room. As things progress, the cost of Medicaid expansion will increase enormously, to the point where services will be dropped, and the only place where a Medicaid patient can get medical help will be the emergency room.
A recent report by the Kentucky Hospital Association makes it clear that many of the claims by Obamacare supporters are simply untrue. First, many of the so-called "insured" people are really uninsured, and second, Kentucky hospitals will lose $1 billion because of Obamacare's Medicaid expansion.
Adopting Kynect, Kentucky's version of Obamacare, has been contentious because the Democratic governor Steve Beshear adopted it by executive order in 2013, over the objections of Republicans and Democrats. Now it turns out that Obamacare has been a disaster for Kentucky hospitals and Kentucky's economy in general.
Kentucky was one of the four states that had a successful web site implemented by Deloitte, though having a successful web site doesn't mean that Obamacare wasn't a financial disaster. However, some actual Kynect users still consider the web site to be something of a joke. Another Opinion Blog (7-Jun)
Going beyond the software implementation, the Kentucky Hospital Association report indicates the following problems:
Obamacare has been a financial disaster for Kentucky hospitals, and it's going to get worse because reimbursements are going to be cut further each year.
As in the case of Nixon's price controls, Obama's price controls have to cause dislocations somewhere. This is a law of mathematics. Whether it's massive inflation in medical service prices or a collapse of the Medicaid system remains to be seen, but something must happen.
In other words, Nixon's wage-price controls destroyed the economy, and not only accomplished nothing, but were much worse than nothing. It took ten years for the economy to recover.
The laws of economics have not been repealed for Obamacare, and Obamacare isn't even close to being sustainable in its current form. The reason that it hasn't crashed and burned so far is that Obama has used the $710 billion Medicare fund, that millions of hardworking Americans had contributed to for decades, and to prop up Obamacare.
That money has essentially be thrown into the garbage, with nothing to show for it. And now that it's almost used up, Obamacare's financial disaster is going to be increasingly exposed. As the old saying goes, liberals only get into trouble when they've run out of other people's money.
It's now pretty clear what the Obama strategy was from the beginning: Spend the $710 billion Medicare fund to get millions of people dependent on the flow of money, so that Obamacare could never be repealed. The assumption was that the longer it could be kept going, the more difficult it would be to repeal. Obama's assumption was that time was on his side.
That's true in some respects, but time is against Obama in many other respects, because a lot of Obamacare is collapsing on the fringes.
The general problem with any government program is that it gets frozen in time, while the rest of the world moves on. All the post-war communist countries, including the Soviet Union, East Germany, North Korea, and Cuba, were stuck in the 1950s. I particularly remember visiting a computer show in Germany in 1991, just after the Berlin Wall fell, and learning about the tremendous shock the East Germans felt seeing 1990s computer technology, when they had still been using such things as 1950s adding machines.
The same thing is true of Obamacare. Even if you assume that Obamacare is working in 2015, it's going to look worse and worse as time goes on. I personally believe that if the individual mandate and the business mandate will look increasingly ridiculous as time goes on.
We've described the criminal fraud in the software development of Healthcare.gov, and we've described the financial disaster inherent in the "Nixon-Obama price controls" in Medicaid.
Let's briefly take a look at some of the other major problems that Obamacare increasingly has to deal with as time goes on.
As we've previously discussed, Healthcare.gov is already old technology, while a private health plan marketplace like eHealthInsurance Services has already moved on to scaling their marketplace to work well on mobile phones and tablets. It would probably take another $5 billion to put Healthcare.gov functionality on mobile phones and tablets, and that's not going to happen.
And that's today. In another 3-4 years, Healthcare.gov is going to be antedeluvian.
The 2013 claim that the Healthcare.gov implementation contained 500 million lines of code has never been denied. When I wrote "1-Dec-13 World View -- Obamacare: 500M lines of code, $500M, only 60% completed", I said that 500 million lines of code was impossible. I now realize that many thousands of programmers worked on Healthcare.gov, and that they produced hundreds of millions of lines of code, a lot of which doesn't even work.
But the other part of that is that even if it did work, it would be unsupportable. It's literally not possible to support 500 million lines of code, even with another army of thousands of programmers. So this means that most bugs can't be fixed, and new functionality won't be added. If there's a particularly disastrous bug, then it will be a major project to fix it, probably costing more tens of millions of dollars. This is the sort of thing that caused Communist countries to get stuck in the 1950s. As bad as Healthcare.gov is now, it's dead in the water.
This is in contrast to any ordinary e-commerce site in the private sector, which will have a small code base of 10,000-50,000 lines of code, and can be maintained by a small group of 10-20 programmers, hopefully the same programmers who built the web site in the first place.
In the next few years, I would expect almost all of the Healthcare.gov web site dinosaurs to close, and be taken over by private health insurance marketplaces.
A little-publicized part of the Rube Goldberg design of Obamacare was the establishment of a network of nonprofit insurance companies to compete with the established insurance companies, who were repeatedly painted as evil villains during the Obamacare discussions.
The non-profit insurance companies are called "Consumer Oriented and Operated Plans," usually abbreviated to "Obamacare co-ops."
Obamacare proponents originally said that the co-ops were a big success, because insurance prices in states that have co-ops are lower than insurance prices in non-co-op states.
Nonetheless, they are drowning in red ink, and many will go under by the end of 2015.
The word "non-profit" has a nice, friendly ring to it, but it doesn't mean that a non-profit organization can't make a profit. It means that any profits cannot be distributed to shareholders.
In the case of the Obamacare co-ops, "non-profit" has not been limiting salaries. Eighteen of the 23 co-ops paid their top executives salaries ranging from $263,000 to $587,000, according to IRS filings. So "non-profit" means that shareholders don't profit; it means that managers and politicians profit. It's possible that these high salaries violate the law, but the Obama administration would never prosecute an Obamacare co-op for violating any law. Daily Caller (30-Jun-2015)
So one of the reasons that co-ops are drowning in red ink is that executives are paying themselves huge salaries. In a "for profit" corporation, the shareholders would keep exec salaries under control, but there are no limits for Obamacare executives. These co-ops can break any law, keeping their bonuses and salaries, despite the fact that the co-ops are losing money.
The main reason that they're losing money is that they've set premium prices extremely low, in order to attract new customers. By setting extremely low prices, they force the established insurance companies to lower premiums as well, in order to compete. And competition is supposed to be the idea behind the co-ops.
But the problem is that the co-ops are pricing at a loss. During the first three quarters of 2014, co-ops paid out $1.16 in medical costs for every $1.00 they collected in premiums. Daily Caller (18-Jun-2015)
Co-ops are forbidden by law from spending money on lobbying for more money from the federal government. But several co-ops have done exactly that, paying fat fees to Washington lobbyists to get them more money. A private firm would use the money to improve their health care services, but that's a secondary objective for any Obamacare firm, since the first objective is always to spend money. Daily Caller (23-May-2015)
All of the co-ops but one lost money in 2014. Iowa's co-op, CoOportunity Health, failed spectacularly in December, 2014. It had gained 120,000 customers by pricing premiums well below market rates. It received hundreds of millions of dollars in loans and bailouts in 2013 and 2014, but still could pay the medical claims that its customers had incurred. Media inquiries to CoOportunity in January 2015 were stonewalled. Columbia Journalism Review, 19-Jan-2015
Obamacare supporters are unanimous that the problems with the co-ops were that Congress didn't provide enough additional billions of dollars for bailouts. It's too bad that that the Obamacare supporters have run out of other people's money. Columbia Journalism Review, 29-Jan-2015 and National Center for Policy Analysis (NCPA), 4-Jun-2015
Now let's move on to another hare-brained part of Obamacare that's also turning into a financial disaster.
The "risk corridor" program was designed along the lines of the concept promoted by Karl Marx: "From each according to his ability, to each according to his need."
If an insurer is profitable, then the insurer pays into a "risk corridor fund" set up by the Centers for Medicare and Medicaid Services (CMS). If the insurer is losing money, then that insurer receives money out of the fund.
You'd have to be crazy to think anything like that would work.
Obviously, there's no motive to make a profit, if the profit is only going to be confiscated by CMS, and there's no motive to be profitable if any losses will be made up by the CMS. Only a moron would think otherwise.
Well, that's exactly what's happened. A report by Standard & Poors indicates that the risk corridor fund is deeply flawed, and as of a couple of months ago, it had collected only $1.00 from profitable insurers for each $10.00 that it will have to pay to unprofitable insurers.
Of course there's pressure from Obamacare supporters to pour tens of billions of dollars more into the risk corridor program, so that losing insurers can go on losing indefinitely, but so far Congress is resisting the temptation.
Oscar Health Insurance, which is based in New York and does business as well in New Jersey, expected to receive $15 million from the risk corridor fund, but is now facing the prospect of receiving only $9 million. According to a spokesman from Oscar:
"CMS has indicated that payments into the risk corridor program in 2015 and 2016 will be used to pay 2014 obligations if the program is underfunded. Reports and industry-internal discussions we follow indicate that insurers will be made whole for 2014 risk corridor receivables, although the precise timing of these payments is uncertain."
I hope you'll take a moment, Dear Reader, to absorb this statement. If there's not enough money in the fund to pay 2014 obligations, which there definitely won't be, then CMS will pay 2014 obligations from the money collected from profitable insurers in 2015 and 2016 -- assuming that any of them are profitable.
So CMS has set up a Ponzi scheme -- something that Karl Marx would be proud of.
You know, Dear Reader, I've never heard of these risk corridors prior to doing research for this Healthcare.gov article, but the more I learn about Obamacare, the clearer it is that every aspect is a financial disaster. I originally described Obamacare as a proposal of economic insanity, and it's turned out to be even worse - a proposal of economic destruction. Fierce Health Payer (7-May) and CNBC (5-May) and Bloomberg (1-May)
When Obamacare was first announced, and after the computer systems began to become functional, the Obama administration bragged that some 12 million previously uninsured people were now insured. These figures turned out to be several million higher than actual figures, and of course they were far lower than the promised 40 million uninsured people who would become insured.
The whole Obamacare scheme is based on young, healthy people paying for old, unhealthy people. This moronic concept is REALLY pissing off Millennials and Gen-Xers who see Boomers as being the problem harming Obamacare, and would probably prefer seeing Boomers be handled by those death panels that Sarah Palin used to talk about.
Medicare is a paid insurance system, not a welfare system. But Obamacare confiscated $710 billion of Medicare dollars to pay for nonsense like Obamacare co-ops and Obamacare risk corridors, and now that all the Medicare money has been used up, Obamacare depends on large enrollments of young, healthy people to continue paying for the excesses.
Unfortunately, young, healthy people aren't cooperating, and they're signing up at much lower levels than the Obamacare planners claimed would happen.
As we've previously mentioned, Covered California enrolled 1.4 million people in 2014, and officials claimed that they would increase enrollment in 500,000 in 2015, but only 7,000 have signed up. Many 2014 enrollees refused to re-enroll in 2015; the retention rate was just 65.3%. In addition, nearly 20% of those who signed up for coverage in 2014 failed to pay their first premium.
Covered California isn't unique. The Congressional Budget Office (CBO) in March has substantially reduced its estimate of new enrollees in 2015 for the entire program. There were 6.7 million people enrolled in the private exchanges at the end of 2014, and CBO had previously predicted that another 6 million would sign up in 2015. But now, CBO has revised that figure down to 3 million.
In 2010, the CBO predicted that the number of uninsured would be reduced by 32 million by 2019; now CBO has reduced that figure to 24 million. Daily Signal (20-Apr) and New American (27-Apr) and Forbes (10-Mar) and Fiscal Times (24-Mar)
Obamacare confiscated the $710 billion Medicare fund and used it to dispense billions of dollars in grants to states to launch the state-run exchanges. Almost all of these turned out to be disasters, and the core problem was those billions of dollars, resulting in criminal fraud, as we've described in this article.
Those grants ended at the end of 2014, and in 2015 the exchanges are required to be self-sustaining. They can do this by charging a monthly fee to every customer who signs up for a health plan through the exchange. For Covered California, the fee this year is $13.95 per month. Other state fees are lower.
States with left over grant money are still using it in 2015 for overhead costs, things like maintenance and staffing. This is against the Obamacare law, but anyone who supports Obamacare can count on getting away with breaking any law.
The state exchanges are already dinosaurs. They're big, clunky, unsupportable, and based on a model of spending money rather than delivering service. Some states are talking about abandoning their exchanges, and just using the national Healthcare.gov. But even that's a big job requiring tens of millions of dollars for software development contractors with staffs of hundreds of programmers who are largely incompetent.
Still, if they don't collapse completely, most state exchanges are going to have to merge with the national exchange. Fiscal Times (1-May) and New American (27-Apr) and Modern Health Care (10-Jan-2015) and NY Times (28-Dec-2015)
Thanks to Obamacare and the Nixon-Obama price controls, the earnings of the "evil" insurance companies have been falling, forcing them to merge.
There are five major insurance companies: Aetna Inc., Humana Inc., UnitedHealth Group Inc. Anthem Inc., and Cigna Corp., and in order to survive under the Nixon-Obama price controls in Obamacare, they're planning to merge.
As of this writing, Aetna plans to acquire Humana, and Anthem plans to acquire Cigna. This would leave only 3 big insurance companies.
Some left-wing activists are viewing this with glee, because they believe that if the trend continues, then they'll all merge into a single company which the federal government can then control, producing a single-payer system like Britain's NHS.
Those who favor copying the United Kingdom's single-payer National Health System (NHS) should be aware that NHS is facing an existential financial crisis. NHS health care providers are forecasting a deficit of over $3 billion in 2015-16. The deficit is growing rapidly, and the NHS is being required to find $35 billion in "efficiency savings" by 2020.
According to a letter to NHS from David Bennett, head of the Monitor agency that monitors the NHS:
"As you know, the NHS is facing an almost unprecedented financial challenge this year. Current plans are quite simply unaffordable. As I have said before, if we are to do the best we can for patients we must leave no stone unturned in our collective efforts to make the money we have go as far as possible."
Right now, the NHS is being told to take the following steps in response to the financial crisis:
These minor tweaks to the NHS system will not come anywhere close to providing the required $35 billion in "efficiency savings." A massive restructuring will be required.
According to the Labor Party's health secretary Andy Burnham:
"This is a sign of a serious deterioration in NHS finances. It suggests that the financial crisis in the NHS is threatening to spiral out of control and hit standards of patient care.
The suggestion that hospitals can ignore safe staffing guidance will alarm patients and the Government must decide if it will overrule this advice.
Morale in the NHS is already at an all-time low and doctors have lost confidence in the Health Secretary.
It will raise further questions about how the Government can possibly fulfil commitments on a seven-day NHS without the money to back it up."
Not surprisingly, with so much money involved, the NHS is filled with criminality and fraud, just as in the case of Obamacare and the Veterans Administration. A study last year by Portsmouth University found that fraud alone is costing the NHS something like $8 billion a year. Some of the fraudulent activities include:
Not surprisingly, "the NHS in recent years has stopped measuring its own losses," according to the report. When an organization stops collecting early warning data, that's a sure sign that a problem is turning into a full-scale disaster.
Britain's dentistry services have already become so bad that many people are buying "do-it-yourself (DIY) dentistry kits" that can be obtained from local stores. According to one resident, "DIY dentistry is fairly common round here. They sell a lot of those first aid kits ... and you’ve got people taking care of their whole family’s teeth with them."
The NHS financial crisis is so enormous that nobody doubts that it will seriously impact patient care. The NHS is facing a massive restructuring.
By American standards, an 18-week waiting time is ridiculously long, and now the NHS is scrapping even that waiting period. Any American who uses the NHS as a model has to be a total moron. Independent (London) and BBC and Independent (London) and BBC (24-Mar-2014) and Guardian (3-Apr-2015)
In 2006, far-left NY Times political columnist Paul Krugman wrote the following, describing the Veterans Administration (VA) health care system:
"[The VA's] success story is one of the best-kept secrets in the American policy debate. ... [Conservative] pundits and policy makers…can’t handle the cognitive dissonance. ...
The secret of its success is the fact that it's a universal, integrated system. Because it covers all veterans, the system doesn't need to employ legions of administrative staff to check patients' coverage and demand payment from their insurance companies. Because it covers all aspects of medical care, it has been able to take the lead in electronic record-keeping and other innovations that reduce costs, ensure effective treatment and help prevent medical errors."
Krugman is not known for his intelligence, or for much else besides his loony left ideology. After Krugman wrote this, the horror show of the VA health system began to come out in the media.
We now know that the VA system is loaded with fraud, corruption, lying, and unbelievably poor health care services. Since this has been well-reported in the media, we won't do more than list some of the well-documented problems:
The bottom line is that apparently no one in the VA actually gave a damn about medical care for veterans.
This appears to be exactly what's happening in Obamacare. Forbes (23-May-2014) and St Louis Today (8-Jul-2014)
I've been asked several times, based on this research, whether I think Obamacare will be repealed.
This question really doesn't make sense anymore, since Obamacare has made numerous fundamental changes, mostly destructive, to the health services industry, and changes are too massive to be repealed.
So President Obama will continue to brag that 12 million more people have been insured. He won't mention that people enrolled in Medicaid will be just as bad off as the uninsured. And he won't mention that even people with "bronze" plans will be effectively uninsured because of the $10-12,000 deductibles. He won't mention that the average person is worse off today than he was before Obamacare. But he doesn't care about that, because he'll claim his legacy, that Obamacare was a success.
Other things will have to be scrapped. The "co-ops" and the "risk corridors," which were totally moronic to begin with and are now bleeding huge amounts of money, will be gone.
The Obamacare web sites, with hundreds of millions of lines of unsupportable code based on old technology, will have to go as well. My guess is that the health care web site business will be turned over to companies like eHealth.
What about the individual and business mandates? These have been really disastrous for jobs, but Obama will fight having them repealed. My guess is that Congress will modify them in such a way to make them almost completely toothless, but Obama will still claim a victory.
This is a good time to recall Obamacare architect Jonathan Gruber's statement that Obamacare passed because of the "stupidity of the American people." Gruber wasn't talking about me, because I wrote, a few days after it was announced, "Obama's health plan, a proposal of economic insanity". When Gruber talked about the stupidity of the American people, he was talking about the plan's supporters. In that sense, the Obama administration and the Obamacare supporters got exactly what they deserved.
(Comments: For reader comments, questions and discussion, see the 23-Aug-15 World View -- Fraud and subversion in Healthcare.gov - the greatest IT disaster in history thread of the Generational Dynamics forum. Comments may be posted anonymously.)