Can you hear me now? Apparently, the answer is "no"!
The hits just kept on coming for Obamacare's cloud-based, federally run health exchange this weekend. This time a networking problem at a Verizon (NYSE:VZ) subsidiary, Terremark, knocked out a key data services hub offline and severed the connection between Healthcare.gov and government agencies like the IRS that help determine citizenship and subsidies for consumers. In other words, even if you could access the online health insurance marketplace covering 36 states, you would have had no clue to your eligibility for certain subsidies because of this hardware glitch.
This downtime, which lasted well into Monday morning, is a particularly damaging hit to Obamacare supporters' pride because (1) Verizon was reported last week to be the potential "new kid on the block" to help solve the federally run health exchange's problems, and now its subsidiary is the reason behind this weekend's shutdown; and (2) Health and Human Services Secretary Kathleen Sebelius told the media on Saturday that the data services hub was one of the few pieces of the rollout that was functioning properly. Talk about a "bang your head against the wall" moment.
However, that wasn't the end of it. The outage, which came during scheduled maintenance for another unidentified issue, also took down the 14 state-run exchanges because they access the same government agencies in determining whether a consumer is eligible for a subsidy.
The chance card
Despite a cornucopia of problems plaguing Healthcare.gov, we finally got our first concrete glimpse last week of who's in charge and how long a permanent fix will take.
Jeffrey Zients, the former acting Office of Budget and Management chief who was tagged to lead the Healthcare.gov repair, indicated that UnitedHealth Group (NYSE:UNH) subsidiary Quality Software Services, or QSSI, is now in charge of the technical aspects of the website. We also learned that by the end of November the website should be working smoothly for a majority of people. In another context, that's just one month and two days away now!
The big question, following this weekend's unplanned outage, is whether the federal health exchange can be fixed quickly enough to give those who want health insurance a chance to get it before the coverage cutoff date arrives. That date was recently pushed back to March 31, 2014.
Speaking from an opinionative perspective, and taking into account the precedent of the Medicare Part D rollout, fixing a system that many pundits have called incredibly flawed from an architectural standpoint in just five weeks might be a bit optimistic. Medicare Part D had seemingly far fewer problems, and they were confined to just a few states. Sure, the scope of Healthcare.gov and cloud computing didn't exist back then, so it's like trying to compare an apple to an orange, but the magnitude of problems being uncovered gives me the impression that this is going to be a difficult deadline to meet.
On the flip side, though, the precedent from Massachusetts' health reform overhaul in 2006 demonstrates that we're creatures of procrastination and we're going to wait until the last possible moment to register and pay for our health insurance. So even if the government and Healthcare.gov take another walk of shame for failing to meet the original 35-day deadline , it's unlikely to affect enrollment figures dramatically if the site isn't up and running smoothly by the end of November.
Advance 12 spaces
As these glitches wear on, it's becoming apparent that only one group of stocks is really coming out of this mess with their heads held high: private market insurance platforms.
It's been a banner year for private-platform health insurers, as some very large enterprises including Walgreen, IBM, Time Warner, and Home Depot have shifted at least some of their employee base to a privatized exchange. The two names here that should benefit are Aon (NYSE:AON), which runs the Aon Hewitt Corporate Health Exchange and had landed 18 clients with 5,000 or more employees as of last month, and Xerox (NYSE:XRX), whose subsidiary Buck Consultants built RightOpt, an employer-based privatized exchange aimed primarily at retirees who are getting the boot from their corporate health benefits plan.
The move is simple in the eyes of employers: remove employees from corporate plans to reduce expenses and give them an annual subsidy to absolve the company of its obligation to provide health insurance to those employees/retirees. This gives the employees potentially more encompassing health insurance choices than they had under their original corporate health plan. As more companies explore this option, the success of Aon and Xerox's networks could set the precedent that weakens the need for Obamacare's individual health exchanges.
The other option here is eHealth (NASDAQ:EHTH) a private health insurance platform for individuals, families, and small businesses that's been around for years. In its third-quarter results released last week, eHealth noted that membership had risen by 24% to 1.147 million from the year-ago period, clearly showing skepticism in the Obamacare health reform law suggesting the success and options its private platform offers. If there's any company that can use Healthcare.gov's nightmarish start to its advantage, it's eHealth!
Do not pass go
In the meantime, it looks like more of the hurry-up-and-wait game is in order for potential health insurance enrollees in the 36 state marketplaces run by Healthcare.gov.
Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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