Obamacare Exchange Blame Game: Where Does the Buck Stop?
President Harry Truman had a sign on his desk in the Oval Office that read: "The buck stops here."
Based on testimony before the House Energy and Commerce Committee, the motto of the contractors that developed much of the federally operated Obamacare health insurance exchanges could be "the buck stops anywhere but here." The Healthcare.gov website experienced major problems in the first several weeks of its launch. Those problems were someone else's fault, though, according to the consultants that built the Obamacare exchanges.
Source: Harry S. Truman Library and Museum.
Cheryl Campbell, a senior vice president with CGI Group , the primary contractor for the federal Obamacare exchanges, blamed initial problems on another contractor. She stated that the system component that allowed users to create accounts caused bottlenecks that led to problems for users on the website.
Quality Software Services, which is owned by UnitedHealth Group , was the contractor to which Campbell alluded. However, a key link in the component that Quality Software Services developed came from Oracle . Early finger-pointing suggested that the Oracle Identity Manager was a cause of the major technical problems. That prompted Oracle to strongly deny that its software wasn't working.
To his credit, UnitedHealth's Andrew Slavitt stated that Quality Software Services took accountability for the account creation function. However, Slavitt also said that his firm found errors in programming code that were made by another contractor. He indicated that these problems were reported to the contractor and to the federal agency directing the efforts, the Centers for Medicare and Medicaid Services, or CMS.
Two other contractors also testified before the committee. Equifax corporate counsel Lynn Spellecy said that her firm had only a limited role in the overall Obamacare exchange system and that the company's software worked properly. Serco's John Lau emphasized that his company didn't work on the website at all. Serco provides eligibility support services that support processing of paper applications.
Both Campbell from CGI and Slavitt from UnitedHealth agreed on one culprit for the exchange problems: the CMS. Campbell said that the federal agency had the "ultimate responsibility" for the exchange. Slavitt cited a "late decision" by the government to require users to create accounts before browsing for insurance plans contributed to website problems.
They also concurred that not nearly enough testing was done. When asked how much time was needed, Slavitt responded that "months would be nice." However, the contractors insisted that CMS was responsible for overall end-to-end testing and for the ultimate decision to go live without sufficient testing completed.
Where the buck stops
There will no doubt be plenty more of this blame game in the days ahead. That's to be expected with the politically charged environment in Washington. Aside from the politics, though, there's an investing angle to this story. Should investors put their money into companies that publicly slam their customers?
A battle of cliches seems to be being waged here: "The customer is always right" versus "caveat emptor" (let the buyer beware). CGI and Quality Services are both basically saying that the exchange problems are CMS' fault. That's definitely on the "caveat emptor" side of the battle.
CGI reported nearly $1.34 billion in revenue from the U.S. government in 2012, around 28% of the company's total revenue. Quality Software Services is part of UnitedHealth's OptumInsight business unit, which reported more than $2.88 billion in revenue last year -- much of it from the U.S. government. Is pointing the finger at a huge customer a smart business move for these two companies? If not, should investors stay away?
In answer to the first question, I would argue that CGI and UnitedHealth are actually playing it smart. This is an exceptional case, though. Normally, a business shouldn't bite the hand that feeds it. However, remember that the U.S. government is a multi-headed beast. Contracts with each federal agency are negotiated separately. And those agencies don't always get along with each other.
CGI and Quality Services could very well hurt their chances of getting additional contracts from CMS or other Health and Human Services agencies by throwing some jabs before the congressional committee. However, assuming that the facts are on their side, admitting to a colossal flop that really wasn't your fault could do far more damage financially down the road if other departments and agencies throughout the government think you're incompetent.
As for the second question, I don't think the ongoing debacle will make a difference for either of these companies -- and certainly not for Equifax, Oracle, or Serco. CGI shares traded higher after Cheryl Campbell's appearance before the committee and isn't down much since the exchanges launched on Oct. 1. UnitedHealth's stock is down over 5% since the launch, but that's more related to a disappointing earnings announcement than anything else.
Over the long term, both stocks could be decent investing alternatives. CGI is projected to grow earnings at an annual rate of more than 17% over the next several years. With that kind of growth (which seems reasonable), the stock's current valuation looks attractive.
UnitedHealth isn't as much of a value play. However, it's the largest health insurer in the nation and boasts a high-growth business with Optum. UnitedHealth has also expanded into Latin America, another nice growth opportunity.
Leave it to the politicians to sort out who ultimately gets the blame for the Obamacare exchange failures. For ordinary Americans, I have another suggestion as to where the buck should stop: where it makes you the most additional bucks.
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The article Obamacare Exchange Blame Game: Where Does the Buck Stop? originally appeared on Fool.com.
Fool contributor Keith Speights has no position in any stocks mentioned. The Motley Fool recommends UnitedHealth Group. The Motley Fool owns shares of Oracle. 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.
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