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Obamacare Exchanges Flail While Private Exchanges Flourish

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Here we go again. It was only a couple of months ago that the White House announced that the Small Business Health Options Program, or SHOP, national online health insurance exchanges included in Obamacare wouldn't be fully ready until 2015 due to "operational challenges." At that time, the administration stated that the exchanges would still be functional on schedule in October of this year, but small businesses would only be able to select one insurance plan option for their employees.

Now, the Government Accountability Office, or GAO, which serves as the watchdog for federal agencies, says the situation might be worse. According to the GAO, implementation of the federally operated SHOP exchanges in 33 states and individual exchanges in 34 states is behind schedule. Whether the exchanges can be successfully launched in October "cannot yet be determined," in the GAO's opinion.

The GAO found that, as of May, a whopping 44% of key activities needing to be done were behind schedule. Here's the kicker: That number reflects only tasks that were scheduled to be completed by March 31, 2013. In other words, nearly half of the things that needed to be done three months ago still weren't finished as of last month. I loved the response from the Centers for Medicare and Medicaid Services, or CMS, on this. CMS said "it had revised many target dates and other delays were not expected to affect exchange operations." In other words, they're behind, but they changed the deadlines, so there's no problem.

To be fair, the missed schedules aren't all CMS' fault. But 40% of them are -- at least according to the GAO. Most of these problems stemmed from instances where CMS changed deadlines where it had "improved the specificity of new targeted completion dates." (Full disclosure: I have no earthly idea what that really means.) In other cases, CMS simply didn't give states the information needed to complete their activities. The GAO says that the individual states dropped the ball in the other 60% of late tasks.

The Department of Health and Human Services, or HHS, was given the opportunity to review the GAO's report before it was released and provide feedback. HHS "emphasized the progress it has made" since Obamacare was signed into law and "expressed its confidence" that everything will be in good shape for the exchanges to be operational by Oct. 1. 

Maybe HHS' rose-colored glasses indeed provide 20/20 vision. However, it seems questionable in the light of the GAO's observation that "certain factors, such as the still-unknown and evolving scope of the exchange activities to be performed in each state by CMS, and the large numbers of activities remaining to be completed -- some close to the start of enrollment -- suggest a potential for implementation challenges going forward." Umm, yeah, if the scope is still unknown and evolving for a massive project involving lots of different players only three months before a complex system is scheduled to be implemented, I'd say there might be potential problems ahead.

While the federal Obamacare exchanges flail, private health insurance exchanges are flourishing. For example, Mercer, a subsidiary of Marsh & McLennan Companies (NYSE: MMC  ) , announced in April that several large insurers -- including Aetna, Cigna, Humana, and UnitedHealthcare -- would be part of its Mercer Marketplace private exchange. Mercer Marketplace allows employers to contribute a defined amount for its employees to use on health coverage. Employees use the system to shop around for the insurance plans that best meet their needs.

Towers Watson (UNKNOWN: TW.DL  ) wasn't far behind in announcing several large health insurers signing up to participate in its OneExchange private health insurance exchange. Participating insurers include Aetna, Anthem, Kaiser Permanante, and UnitedHealthcare. Towers Watson also recently bought Extend Health, which runs the largest private Medicare exchange in the nation. 

AON Hewitt, the human resources business unit of AON (NYSE: AON  ) , successfully enrolled more than 100,000 employees across the U.S. in health insurance plans last fall through its Corporate Health Exchange product. The company's survey of enrollees found that nearly 80% "felt confident they chose the health plan that offered the best value for them and their family." 93% liked being able to choose from multiple insurance carriers.

More good news appears to be on the way for AON, Mercer, Towers Watson, and other private health exchange companies. A study by Accenture concluded that participation in private exchanges will catch up with public exchanges established by Obamacare by 2017. After that point, enrollment in theObamacare exchanges will grow slowly, while private exchange enrollment will increase rapidly. Accenture says that more than a quarter of employers in the U.S. are considering moving to a private exchange within the next three to five years.

Another study by Booz & Company found that around 80% of employers would rather allow employees to purchase insurance through a private exchange than through a public exchange. What were the reasons given for this strong preference? Better product choices, more flexible benefit designs, better customer service, and "a general wariness of government-run entities."

Taking stock
I suspect that if the federal government was a publicly traded entity, its stock would be in a free-fall right now. On the other hand, the stocks of the three private exchange companies mentioned earlier are doing pretty well. Mercer is up 13% over the last year. Towers Watson shares have climbed nearly 30% during the same period. Aon's stock jumped nearly 35%.

HHS is talking about its "confidence" amid what looks to be a fiasco in the making, judging from the GAO report. Meanwhile, private companies are making real progress. The employers in that Booz study might be on to something with that wariness of government.

Still in the dark about how Obamacare might affect you and your portfolio? Don't worry -- you're not alone. To help prepare investors for the massive changes coming to the American health care system, The Motley Fool created a special free report that makes this complex topic easily understandable. Download "Everything You Need to Know About Obamacare" and discover how the law may impact your taxes, health insurance, and investments. Click here for your free copy today.

Editor's note: A previous version of this article included an incorrect ticker symbol for Mercer and did not mention that it is a subsidiary of Marsh & McLennan Companies. The Fool regrets the error.

Read/Post Comments (16) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 22, 2013, at 4:21 PM, beairdboy wrote:

    Get this going, i know too many people uninsured or under insured. We need these reforms yesterday.

  • Report this Comment On June 22, 2013, at 5:10 PM, cwg40 wrote:

    Fine. But tell me this Fool, why are there about 30 million uninsured, if these private exchanges are so wonderful?

    And another thing, absent the new health care law, how many of these exchanges would in fact broker insurance if the insured had a pre-existing illness.

    How many? None, I'd guess.

    Answer me that, Fool!

  • Report this Comment On June 22, 2013, at 5:16 PM, airjackie wrote:

    Nice spin and someone might believe this fake article. Facts get in the way as Romneycare has been successful for 7 years. Obamacare has already saved taxpayers money and the States that have already started Obamacare are seeing Insurance Companies jump on board. Now for the States that refuse well they will see large increase in premiums but already in California the premiums have greatly decreased. As Nixon said the insud'rance companies benefit because of the numbers. Think McDonald's used the same system of large volume brings profit. But for political reasons and the Ryan voucher plan many are paid to denounce Obamacare. The people in Mass. are laughing and if Mitt had won in 2008 we would have Romneycare and no one would have a problem.

  • Report this Comment On June 22, 2013, at 5:18 PM, Plantman1980 wrote:

    When you are compelled to alter your business model by legislative and executive fiat, you have no choice but to be creative and find ways of surviving and flourishing in spite of the adverse climate. There are less than 20 million uninsured, most of whom are uninsured by choice and will have to be dragged into the system kicking and screaming, because they would rather invest those assets into other things, such as saving for a down payment on a first home, or paying off student loans, or buying a reliable car to commute to their jobs, or supporting their new families...all of which are put in jeopardy by the Obamacare scam, which will create a larger class of economically dependent serfs to the government.

  • Report this Comment On June 22, 2013, at 5:19 PM, RHO1953 wrote:

    I saw an example of a rate from an Obamacare exchange; for single man between 30 and 40 the monthly premium was $400.00, plus co-pays and a deductible of $6,000.00. He has to pay out of pocket over $11,000.00 before his insurance pays a single dime. Before Obamacare he could get that kind of policy for a about $150.00 a month. This is the biggest disaster in US history getting ready to give most of us a monstrous prostate check that we will never forget.

  • Report this Comment On June 22, 2013, at 5:20 PM, michaeljbauer wrote:

    It is a fake article.

    The exchanges (for ObamaCare) don't exist yet

    However, the Federal government runs huge exchanges for its own employees healthcare signup as well as supplier portals for purchasing, supply, etc.

    Whoever wrote this is either very ignorant (being kind) or malicious and just trying to cause trouble or perhaps a liar?

  • Report this Comment On June 22, 2013, at 5:36 PM, TMFFishBiz wrote:

    In answer to cwg40 -

    Private exchanges are currently only for employers. Many of the uninsured in the U.S. aren't employed. Many others are employed, but their employer doesn't offer insurance. Some, particularly younger individuals, simply choose not to buy insurance.

    As for how many of the private exchanges would offer insurance to people who have pre-existing conditions, the answer is all of them. Group coverage typically has special protections for pre-existing conditions.

    In response to airjackie-

    I'm not exactly sure what's "fake" about the article. The issues facing the public exchanges come directly from the GAO. The successes of the private exchanges are easily verified. The issue at hand isn't about the value of insurance exchanges, but rather the execution in building those exchanges.

    Thanks all for reading and commenting.


  • Report this Comment On June 22, 2013, at 5:38 PM, beairdboy wrote:

    RHO please show me where you saw this amt for a single man. Back your information up please.

  • Report this Comment On June 22, 2013, at 5:40 PM, TMFFishBiz wrote:

    Michaeljbauer -

    No, the Obamacare exchanges don't exist yet - and that's the point. They are way behind schedule with 3 months to go. No maliciousness or troublemaking intended, just the facts.



  • Report this Comment On June 22, 2013, at 6:01 PM, JusTheUsual wrote:

    If the government and the fascist ama would get out of the politics and regulations as anything like technology the prices would come down. Its not that hard to understand.

    Technology such as tvs and cellphones come down in price because of less government regulation, but pills and medicine are up because? Here is the answer: Government regulation. No disputing facts you liberals

  • Report this Comment On June 22, 2013, at 6:17 PM, enterprisejpllc wrote:


  • Report this Comment On June 22, 2013, at 7:04 PM, doco177 wrote:

    1. Millions are and will lose the insurance Obama promised they could keep. Because ObamaCare forces employers to offer expensive Cadillac plans but also offers the option of paying a fine for not providing health insurance that can be cheaper than providing it, between seven and twenty million Americans are likely to lose their health insurance coverage according to the Congressional Budget Office. The original estimate was closer to four million.

    2. The cost of healthcare premiums is about to further skyrocket. Premium costs have already exploded, but that is a slow-motion explosion. In the near future, we could see costs double or worse. Naturally, these costs will hit an already burdened middle class hardest.

    3. Lost jobs. Lost jobs.

    The Federal Reserve's March beige book on economic activity noted that businesses "cited the unknown effects of the Affordable Care Act as reasons for planned layoffs and reluctance to hire more staff."

    Meanwhile, human resources consulting firm Adecco found that half of the small businesses it surveyed in January either plan to cut their workforce, not hire new workers, or shift to part-time or temporary help because of ObamaCare.

    4. Potential doctor shortages that will mean rationing: The healthcare industry is already a bureaucratic quagmire. ObamaCare is about to add steroids. As the profession becomes tyrannized by government, the talented people currently practicing medicine plan to get out sooner than expected. Who knows how many will choose not to get in.

    Doctor shortages are what lead to the nightmare known as rationed care. Here's an unsettling example already being practiced.

    5. Somewhere around $800 billion in tax increases will hit America's middle class. This added burden will not only further oppress a middle class already reeling from a drop in wages over the last few years, but could damage the overall economy.

    6. Inflation, the cruelest tax on the poor. When businesses get socked with added costs brought about by higher taxes and burdensome government mandates, they pass those cost along to the consumer in the form of higher prices.

    7. Added bureaucracy. Even those Obama lapdogs over at the Washington Post's Wonk Blog are admitting that applying for health care is about to get more burdensome than the byzantine paperwork involved in buying a home.

    8. To cut costs or to avoid having to provide insurance, workers on the economic margins are already losing hours, which means a lower paycheck. There are a million sad stories in ObamaVille; here are just a few of them.

    9. ObamaCare is projected to add $6.2 TRILLION to a deficit the GAO has already declared "unsustainable." That's "trillion" with a "t".

    10. More taxes than currently estimated are likely to hit because of situations like this one.

    11. ALL Muslims are exempt from mandate and penalties under Obamacare that the rest of us have to pay. ( it was not only Muslims, but also Amish and couple of religious groups I've never even heard of)

    The govt becoming more involved in health care is the reason the costs have increased. So...Govt creates a crisis, then provides a solution that comes at the expense of liberty and freedom, costs trillions, and by most accounts won't solve the problem but in fact make it far worse.Corruption, incompetence, disregard of the Constitution, and above all lying are integral to the way that this country is being run.

    Three years ago, Obama, Democrats, and his media lied to us about cutting the cost of health care, being able to keep our insurance, and not taxing the middle class.

    Today, those lies and what ObamaCare is and will do to the working and middle class are the biggest untold story in America.

    Just refuse obamacare..REFUSE..If only a mere 20% of the over 300 million population of the USA refuse Obamacare the government would be overwhelmed to even think they could lock every citizen up that refused to participate in the most corrupt and unlawful ways which it was passed that circumvented the constitution of the United States.

  • Report this Comment On June 22, 2013, at 11:32 PM, whatthefrick wrote:

    This is who is going to be in charge of this "healthcare bill"

    The IRS sent more than $46 million in tax refunds to 23,994 “unauthorized” alien workers who all listed the same address in Atlanta, Ga., in 2011, according to an audit report by the Treasury Inspector General for Tax Administration (TIGTA).

    However, the Atlanta address that received millions of dollars in refunds was not the only address apparently housing thousands of “unauthorized” aliens. In fact, it wasn’t even the only address in Atlanta that was claiming such a situation.

    The TIGTA audit report, published last year at the request of members of Congress, revealed 10 addresses in the U.S. that were issued anywhere from 1,846 to 23,994 tax refunds each. Four of those 10 addresses were located in Atlanta. breaks down the report:

    The IRS sent 11,284 refunds worth a combined $2,164,976 to unauthorized alien workers at a second Atlanta address; 3,608 worth $2,691,448 to a third; and 2,386 worth $1,232,943 to a fourth.

    Other locations on the IG’s Top Ten list for singular addresses that were theoretically used simultaneously by thousands of unauthorized alien workers, included an address in Oxnard, Calif, where the IRS sent 2,507 refunds worth $10,395,874; an address in Raleigh, North Carolina, where the IRS sent 2,408 refunds worth $7,284,212; an address in Phoenix, Ariz., where the IRS sent 2,047 refunds worth $5,558,608; an address in Palm Beach Gardens, Fla., where the IRS sent 1,972 refunds worth $2,256,302; an address in San Jose, Calif., where the IRS sent 1,942 refunds worth $5,091,027; and an address in Arvin, Calif., where the IRS sent 1,846 refunds worth $3,298,877.

  • Report this Comment On June 23, 2013, at 12:34 PM, RMengineer wrote:

    So private exchanges with solvency and profitability at stake are getting their ducks in a row where as government exchanges with noting at stake are flailing? Who'd a thunk it? And they keep trying to tell us that the only way to get things done is with government. Maybe government needs to have their existence at stake then I bet they'd get their act together. But when government has nothing to gain and they can just hike taxes to pay for their incompetence and mistakes and tax payers just have to pay up, well, this is what you get. But when you lose customers, lose profitability, and be put out of business as a result of mistakes and incompetence, well, THAT is an huge incentive to NOT be incompetent and make mistakes. And it is that huge incentive that is _missing_ in government which is why you get what you get when you expect government to do it for you without those incentives.

  • Report this Comment On June 23, 2013, at 12:46 PM, RMengineer wrote:

    This is the difference between expecting "altruism" to be a motivator to get things done and to get them done right. If you want things to get done and get done right, the way to make that happen is to put _money_ on the line. You know, that "evil" profit thing.

    But people turn to government because they think altruism ought to be the motivator and that profit should _not_ be a motivator. But the thing is, regardless of what anyone thinks _ought_ or ought not be the motivator nothing motivates people to do what you want like money on the line, and nothing fails to motivate like an expectation that someone else do what you would like.

    So do you want to make sure that there is abundant, affordable, and high quality health care or do you want to hope someone else will do it for only "the right reasons" (altruism) and non of the wrong reasons (profit)? The question is which is more important: _why_ they do it (altruism or for profit) or that *you get what you want* (regardless of _why_ they get you what you want)?

  • Report this Comment On June 23, 2013, at 2:00 PM, RMengineer wrote:

    This is similar to what happened in Cuba for food markets. There were the government sanctioned markets. And there were the "gray" unsanctioned officially (but allowed) private competitive free markets. People preferred the private markets and shunned the government sanctioned markets so much that government was essentially forced to officially recognize and sanction the free markets. Why where the private markets preferred to the government ones? Because people knew (through experience) that they could go to the private markets and have a "smorgasbord" of high quality and affordable produce as opposed to the poor quality in the government markets. And it's not just that but Cuba is finding that in many areas it is being forced to recognize private competitive free markets in order to revitalize their economy because the private markets are out performing the official government markets for productivity, affordability, and quality.

    This is the same lesson learned and put into practice in China that has revitalized their economy and saved it from the same fate of the USSR - which had learned that same lesson but too late to save itself they way China did.

    And yet here we are insisting on consigning ourselves to learning those same lessons for ourselves rather than learning from their mistakes in thinking government does a better job at providing abundance, affordabiltiy and high quality than do private competitive free markets. and learning from even our our experience. Look at everything the world enjoys in abundance, formability, and high quality and you will find private competitive free markets. Look at everything in the world where there is privation and poverty and you will find the government hand obstructing private competitive free markets.

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