2 Ways Obamacare's Failure So Far Is Actually a Resounding Success


The passing of the Patient Protection and Affordable Care Act in 2010 brought with it plenty of hope -- and a plethora of vitriol from opponents of the law. Low-income people who will soon qualify for the Medicaid expansion in about half of all U.S. states, as well as people with pre-existing conditions who had previously been shut out of any form of medical coverage, have rejoiced in the passing of Obamacare. Conversely, upper-income individuals, who are helping to support the bill through higher taxation, and young adults, who are needed to help counteract the higher costs of the sick and the elderly, haven't been as enthusiastic, as a whole.

Yet, for better or worse, this is the law of the land, and it's here to stay -- and apparently so are the glitches!

Source: White House on Flickr.

As has become a daily occurrence since the opening of state and federally run health exchanges under the PPACA, perhaps best known as Obamacare, software glitches and overloads are making it veritably impossible for millions of Americans to log onto the Healthcare.gov website, the insurance exchange starting point, to obtain health coverage. For much of the past week, the federally run state websites have been unable to handle the deluge of consumer traffic, which has many Wall Street analysts and IT specialists questioning the architecture behind the exchanges themselves.

What went wrong?
It's hard to express in one sentence exactly what's gone wrong, but the short answer would be that there's not enough server capacity to handle the existing interest in browsing for health insurance coverage. More importantly, it appears (based on the opinions of information technology experts who were interviewed by The Wall Street Journal) that the architecture behind the insurance exchanges is flawed.

Improving server capacity isn't too difficult of a fix. Adding servers, as well as boosting capacity to handle the myriad of memory-sucking JavaScript-based applications during the enrollment process, should have this problem solved relatively quickly.

Software, however, isn't an overnight fix. Experian, for example, is a subcontractor that's responsible for identity confirmation in the enrollment process. Consumers can't proceed with getting health insurance if they don't have an account, and many are being stopped dead in their tracks by crashing hardware and software during the identity confirmation process.

Perhaps no heat has fallen harder than on the back of CGI Group , which built the backbone of the Healthcare.gov website. The finge- pointing at CGI comes from the inability, in some cases, for its software to correctly tabulate subsidies should a consumer be due one. As I've mentioned before, those who are most in need of health care and/or who qualify for subsidies are the most likely to sign up first -- thus, many who'd be in this subset are still on the outside looking in.

It's a mess... but there's good news!
But whether you believe me or not, there's actually a light at the end of the tunnel.

Is the current situation a mess? Absolutely! It's about as bad a scenario as President Obama could have fathomed with the Republican and Democratic parties still at an impasse over the budget and, soon, the debt ceiling. With Obamacare and the medical device excise tax remaining the sticking points between both sides, these glitches are putting extra weight on an already full plate for the President.

There are two positives that can be taken away from these failures. The first would be that interest in the exchanges is incredibly high. I've seen varying statistics with regard to overall viewership so far, but all agree that in excess of 8 million unique people have viewed the health exchanges. The end result for major insurers such as CIGNA , Aetna , and WellPoint has been less than encouraging, with each reporting sign-ups in the hundreds on federally run exchanges due to the ongoing glitches; but it also speaks strongly to the surge that is inevitably heading their way. The demand for health insurance is clearly there, even if the sickest individuals are likely to be included in the first round of signups.

The other positive is the precedence of success from the jaws of defeat when you look back throughout history. Medicare Part D was a gigantic mess when it debuted in 2006, yet it went on to be a successful prescription drug coverage plan for the elderly. In 2006, we saw everything from flat-out denials at the pharmaceutical counter for enrollees, to the government actually reimbursing people the amount of their payment instead of collecting money each month. (That's certainly a problem I would encourage from the government!) Ultimately, these glitches were worked out over the course of the year, and Medicare Part D became a well-oiled machine.

The same will likely be said of Obamacare. It's going to take time to work out the glitches, figure out the software patch fixes, get the proper hardware in place to handle the surge in website viewership, and get the subsidy calculations correct. Based on precedent, there's a really good chance the hardware and software supporting the backbone of Obamacare will also be a well-oiled machine within six to 12 months.

Still, keep those expectations tempered
While there's plenty of reason to see good news in this otherwise bad situation, I'd also suggest keeping your investing expectations in check.

If you recall, my greatest concern had been the run-up we've witnessed in insurers prior to the opening of the exchanges. CIGNA, Aetna, and WellPoint all soared on the expectation that they would be signing up hundreds of thousands of new members. While this very well should be the case, the glitches, as I warned, could put the bulk of those signups well into the following quarter, thwarting investors who were hoping for a blistering opening quarter. If you're holding these companies with a five-year outlook in mind, I wouldn't bat an eye, but short-term traders expecting a 10% surge may be in for a rude awakening.

Similarly, guilt by association could also be a potential problem for IT specialists like Xerox , which I've earmarked a few times as a clear winner under Obamacare. In addition to Xerox processing all of California's Medicaid claims and numerous states' electronic-health record subsidy payments from the government, Xerox also took part in designing Nevada's health insurance exchange. The glitches on the government's end could take the air out of companies like Xerox, which have a big stake in how many new people enroll for health insurance in the states it provides IT services in. The head-scratcher, though, is that Nevada is one of the few states that chose to set up its own exchange, and its site has been working almost flawlessly.

Just remember that new technology rollouts are much like the fabled race between the tortoise and the hare. The hare will always be faster, but slow and steady wins the race. Inevitably, these glitches will be resolved, and enrollment will surge, which bodes well for these companies over the long run. Unfortunately, for insurers and IT specialists involved in the health-exchange process, it also could portend a bumpy start for the next one or two quarters.

Obamacare has more money-making bright spots than you think!
Obamacare is rewriting the rules for the health-care industry and, in the process of doing so, it's creating massive opportunities for investors to get ridiculously rich. How? By investing in a handful of specific health-care stocks. In this free report, our analysts walk you through these opportunities, and the companies that are positioned to exploit them. The informational edge contained in it is invaluable, but can only be exploited profitably while the rest of the market remains in the dark. To access this free report instantly, simply click here now.

The article 2 Ways Obamacare's Failure So Far Is Actually a Resounding Success originally appeared on Fool.com.

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.The Motley Fool owns shares of, and recommends WellPoint. 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.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Originally published