Obamacare to Verizon: Can You Hear Me Now?

President Barack Obama acknowledged on Monday the significant technical problems that have plagued the federally run health exchange Healthcare.gov: "There's no sugarcoating it. The website has been too slow. People are getting stuck during the application process."

Source: White House on Flickr.

It was a stunning admission from an architect of the transformative health reform known as Obamacare, but his words come as no surprise to those who've tried unsuccessfully for more than three weeks to sign up for health insurance through federally run health exchanges.

Glitches galore
Just a few days ago, the Congressional Budget Office released its first, and only, application figures, which showed that 476,000 Americans had started health insurance applications via state and federal online exchanges. This doesn't in any way presume consumers finished these applications, but it at least gives us a good indication of the number of interested accounts created.

Out of those 476,000 applications, the CBO also noted that slightly more than half came from Healthcare.gov. The concern with these figures is that, based on early results, Obamacare is on pace to fall well short of its ultimate goal of signing up 7 million previously uninsured individuals before the March 31, 2014, coverage cutoff date.

As Obama noted in his speech, it's not the idea of Obamacare nor the interest that's failing; it's merely a confluence of technical problems at the front and back end of the process that are gumming up the works.

Thus far we've seen multiple problems on the federally run exchanges. Within the first few days of the Oct. 1 opening high traffic got the better of Healthcare.gov's servers, essentially halting the entire site. Since that time, more servers have been put to use, but the actual architecture and software behind the website are now the issue. Many users have complained that they either can't create an account, or, once created, the site slows to a crawl as they attempt to navigate through the identification process. To add insult to injury, some of the insurers now are claiming that they're receiving applications with missing information.

Source: The Motley Fool, Flickr.

Can you hear me now? Good!
In a move that clearly shows the government needs to act, and act quickly, an anonymous source told USA Today yesterday that Washington planned to hire telecommunications giant Verizon (VZ -0.53%) to help it diagnose and potentially fix the federally run websites numerous glitches.

The move, were it to be made official, certainly makes sense from both sides of the coin. Verizon has shown the ability to manage rolling out next-generation wireless technology across the U.S. on numerous occasions, and it's pretty obvious that sticking only within the current subset of government contractors isn't getting the job done nearly as quickly as the administration would like. Verizon should be able to use its scale and invaluably large information technology and networking department to get to the heart of Healthcare.gov's architectural problems. 

Where does this leave Healthcare.gov?
Let's recall that most social reforms throughout history have resulted in glitches (see Medicare Part D), but they were often resolved in a matter of weeks and affected only a certain number of people in a state or two. Currently, the glitches on Healthcare.gov are affecting people throughout 36 states; if the system were so far gone that it'd need to be scrapped and started anew, we'd be looking at something like two months or longer before it was operational. In other words, the government may wind up spending well beyond its desired allocation just to make Healthcare.gov operational, and by the time that happens enrollment may already be closed for 2014.

What this could mean is a return to the slow-and-go sign-up process of the 1990s -- that's right, applications by paper or over the phone. Call centers have already increased their staff in response to the glitches, and Obama called on Americans to not sit idly by while the website glitches are being fixed, but to seek out insurance via those alternatives. While this is a temporary fix, the infrastructure certainly isn't there from a paper and call center perspective to get Obamacare anywhere near its 7 million sign-up target by March 31, 2014.

What about my investments?
The severity of Healthcare.gov's glitches was really brought into light by Obama's speech earlier this week when he declared the problems unacceptable, but didn't really have any one person or company to point the blame at, or have a discernible plan or timetable on when everything was going to be fixed. As we're seeing based on the visit total of 19 million, the idea of Obamacare is thriving; it's the execution that is failing miserably at the moment. And with that near-term failure comes the possibility of pain for certain investments. 

I once again have to point a discerning finger at Healthcare.gov architectural designer CGI Group (GIB -0.37%). Although CGI's backlog remains healthy and it reported a doubling in revenue from the year-ago period in its latest quarter, it's now experienced major architectural problems in both the U.S. and Canada, and could find that its tarnished reputation may cost it future orders.

This is also going to be somewhat of a major letdown for insurers whose shareholders were counting on a lucrative start to Obamacare. It could especially painful for Aetna (AET) and Cigna (CI) since they went out and spent $5.7 billion and $3.8 billion, respectively, to purchase Coventry Health Care and HealthSpring within the past two years. Both insurers have steady income from the employer insurance side of their business and should see modest gains from state-run health exchange enrollees. But Aetna and Cigna are also considerably more tied to the federal exchanges than a company like WellPoint, which should reap the benefits of California choosing to operate its own exchange. Once more, we're not looking at Obamacare failing, so much as we're pushing investors' lofty enrollment expectations out about a year.

We should obviously have a better bead on enrollment by the middle of next month when the CBO is set to release updated enrollment figures, but it appears that, for now, the reins are about to be turned over to Verizon and it'll get the next crack at a relatively quick and smooth fix.