The High and Rising Costs of the Fiasco

The final verdict on Obamacare has yet to be written. But earlier this month, Republican staffers from the Senate Finance and Judiciary Committees offered a first installment — on the botched rollout of the federal health insurance exchange

It wasn’t pretty.

The Committees’ 34-page report explains just how bad management, poor oversight, lack of communication, and intense political pressure combined to produce a technology failure of epic proportions. It’s an all too familiar tale of government incompetence. And it offers a preview of the eye-popping sums of taxpayer dollars Obamacare is poised to waste in the years ahead.

Nine months before the launch of, back in December 2012, top administration officials reassured the public that all was well with the website’s development.

That month, Gary Cohen, the former director of the Center for Consumer Information and Insurance Oversight at the Centers for Medicare and Medicaid Services (CMS), told a congressional panel that “the planning, development, and testing necessary to build the exchanges is well under way.”

Seven months later, the agency told the Government Accountability Office that “we are in the final stages of finalizing and testing the IT infrastructure” and are “extremely confident that on Oct. 1 the marketplace will be open on schedule.”

In August 2013, then-Secretary of Health and Human Services Kathleen Sebelius promised that “there is nothing that is not on track.”

Behind the scenes, those working on were far more pessimistic.

Just days before Sebelius made her comment, an administration official emailed his superiors saying that “appears to be way off track and getting worse” and that “our entire build is in jeopardy.”

For months, outside auditors and contractors had issued numerous warnings that the site was badly behind schedule, full of errors, and that no one had the authority to make needed fixes.

In late July, CGI Federal, the Canadian contractor hired to build the site, reported that it was only 51 percent completed. By late August, more than a third of it still hadn’t been built.

Meanwhile, TurningPoint Global Solutions — a firm hired specifically to audit the construction process — was issuing warnings that 21,000 lines of code had serious defects.

Even as late as September, contractors reported that “adequate performance testing” hadn’t been done — contrary to the administration’s claims.

More worrisome still — in its frantic effort to launch on time, the administration ran roughshod over significant security gaps that put vast amounts of highly sensitive personal, financial, and health information at risk.

MITRE, the company hired to test the site’s security, reported “serious concerns . . . about the website’s vulnerability to attack” just a week before it went live. Forty percent of the site’s security controls were not tested before launch. The problems were so grave that the top security officer at CMS wouldn’t sign off on an order authorizing the website to go live.

Her concerns were ignored, and the administration claimed that the site had been “tested and certified as secure.” CMS chief Marilyn Tavenner signed the order, a “highly unusual move,” according to the Senate report.

At launch time, TurningPoint found that less than a quarter of’s code had been tested.

The total tab for the dysfunctional website? A healthy $834 million, as of the end of February. This fiscal year, HHS projects to spend $1.4 billion on

Even now, problems plague the site. The “back-end” functions that were supposed to automatically calculate and pay subsidies to insurance companies remain unbuilt. So insurers have to spend time and money manually billing the government.

What’s more, despite promises that the site would automatically verify enrollees’ income and other information to determine eligibility for subsidies, the administration recently admitted that as many as 2 million people may be receiving subsidies that are too high — or for which they don’t legally qualify.

At a hearing in early June, former Congressional Budget Office director Douglas Holtz-Eakin warned lawmakers that “the administration has failed to build a system that allows for the protection of subsidy beneficiaries or for the taxpayers funding those subsidies.” As a result, he said, Obamacare could end up overpaying $152 billion in subsidies in its first 10 years.

Then there’s the money that’s been squandered on failed or failing exchanges run by individual states. Nevada, Oregon, Maryland, and Massachusetts decided to scrap their exchanges — after getting more than $740 million in federal grants to build them.

The Obama Administration handed out even more money — $827 million — to states that decided not to build exchanges of their own at all.

Last week, new HHS Secretary Sylvia Burwell created two new positions at — chief executive officer and chief technology officer — in hopes of warding off a second consecutive technological disaster during open enrollment this year. Only time will tell if the appointments pay off.

The botched rollout of the exchanges may not matter to Obamacare’s supporters. But it should matter greatly to the taxpayers who will be paying for it for years to come.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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