After winning a one-year contract last January to run the federal health insurance exchange during the second open enrollment period, which began on Nov. 15, 2014, and runs through Feb. 15, 2015, technology services specialist Accenture (NYSE:ACN) has inked a five-year extension with the Centers for Medicare & Medicaid Services, or CMS, that is worth $563 million.
Saving the day
In 2011, CGI Group (NYSE:GIB) won the bid to build health care.gov in a deal that, including cost overruns, proved to be worth more than $200 million. The company had two years to build the website, but it was plagued by bugs during the first enrollment period that began in late 2013, significantly delaying Americans' ability to enroll in health insurance plans offered through the exchange and creating a public relations nightmare for the Obama administration.
Accenture initially received a contract worth over $90 million to fix health care.gov website and prepare it for the second open enrollment period, during which millions more Americans are expected to sign up for health insurance.
So far, Accenture appears to have succeeded. Enrollment in health insurance plans offered through the federal exchange, which covers 37 states that elected not to establish their own marketplaces, has gone off without a hitch this time around.
The administration reported that more than 6.4 million Americans obtained insurance plans through the exchange during the first month of open enrollment, including 1.9 million people who did not use the health care.gov in the previous enrollment session.
Locking up the contract
Accenture's ability to fix health care.gov mirrors the company's success in launching California's state-run health insurance exchange in 2013. That online marketplace operated far more smoothly than the federally run exchange designed by CGI, resulting in more than 1.4 million people signing up for health insurance in the state during the first enrollment period.
Accenture's success with these health insurance websites was enough evidence for the CMS to lock up the company's services for the next five years. As part of the agreement, Accenture will be responsible for 24/7 support of health care.gov, eligibility and enrollment functions, and generation and transmission of enrollment forms.
An important win
Until now, Accenture has been largely a bit player for the Department of Health and Human Services. Since 2010, the company's HHS contracts have been worth just $14.2 million, excluding payments related to health care.gov. By contrast, over the past four years, Accenture has been awarded more than $3.6 billion in contracts from other federal agencies.
However, the new health care.gov contract makes Accenture a top HHS vendor that arguably has an edge in securing other lucrative deals. That could significantly expand sales within Accenture's health and public services segment, which posted sales of $1.2 billion in the quarter prior to being awarded the health care.gov contract last January and sales of $1.37 billion in the most recently reported quarter.
It's uncertain how many people will ultimately enroll in health insurance plans offered through health care.gov, but estimates suggest the numbers will climb during the period of Accenture's contract. In the second open enrollment period, more than 9 million people are expected to rely on the exchange to obtain their health insurance, up from less than 7 million during the first open enrollment period. Looking even further ahead, the Congressional Budget Office estimates that 25 million people will rely on exchanges like healthcare.gov for insurance by 2018. If that estimate proves to be correct, and Accenture doesn't stumble in running the site, the company may find that serving millions of additional people allows it to negotiate an even bigger contract the next time around.
Todd Campbell has no position in any stocks mentioned. The Motley Fool recommends Accenture. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.