October 27, 2013

HealthCare.gov’s Mounting Costs, Part 1: Press Ignoring Former Admin Member’s ID of $1 Billion-Plus in Contracts

The left has been ridiculing supposedly wildly overstated estimates of the costs of building the calamitous HealthCare.gov website.

Based on a look at one contractor, CGI, which he must have assumed was the general contractor (i.e., the lead entity through which amounts paid to subcontracting firms would be funneled), Andrew Couts at Digital Trends originally estimated a total cost of $634 million. Couts later backed it down to “over $500 million” after identifying non-Affordable Care Act-related work with which CGI was associated. The New York Times has until recently been working with a figure of “over $400 million.” All figures just noted are almost certainly miles too low, for two reasons.

The first is that the amounts spent on or committed to contractors far exceed even the $634 million originally reported. That news arrived late this week via Peter Gosselin, and is addressed below. The second is the cost of additional government employees hired, which I will get to in Part 2.

Gosselin is a “Senior Health-Care Analyst with Bloomberg Government,” was “a former “economic adviser for health reform at the Department of Health and Human Services,” and also was, of all things, “chief speechwriter to Treasury Secretary Timothy Geithner.”

In the midst of identifying evidence of project mismanagement, Gosselin found that costs will easily top $1 billion (numbers in the chart below add up to $1.0587 billion; bolds are mine):


Although the Affordable Care Act has been law for three and a half years, one third of the funds going to the top contractors working on the federal exchanges were awarded in the six months before the new insurance marketplaces opened Oct. 1, a Bloomberg Government Analysis has found.

The torrent of late spending — almost $352 million of $1 billion in awards to the top 10 contractors — indicates the magnitude of the work still to be done as opening day approached, and helps explain the information technology problems that have dogged the exchange system since its launch. In a typical IT project, spending ramps up to a peak, then trails off during the final phase.


The analysis runs only through Sept. 30. A subsequent 16-day government shutdown dried up new contracts and reduced the flow of contract record keeping to a trickle. But given the seriousness of the IT problems and the fact that most of the contracts are on a cost-plus basis, the companies almost certainly are in line for another burst of spending aimed at quickly making repairs.

In the meantime, the administration is turning to a low-technology fallback. In June, officials signed a $114 million contract with the U.S. subsidiary of London-based Serco Group Plc to, among other things, run a mailroom to handle paper applications for the 2014 coverage year. Just days before the Oct. 1 opening of exchanges, it made a second $87 million award to expand the company’s services.

… Although the GAO made clear that its study focused solely on the costs of implementing the federal exchanges and the data services hub, its $394 million tally for work through March 31 has been widely cited as the price tag for the entire launch of the law. But in looking at the full range of ACA-related contracts for just 10 firms, the BGOV analysis found more than $1 billion worth of contract awards.

The attempt to distinguish between IT-related and other costs in implementing ACA is to a large extent a distinction without a difference. Two arguments would appear to outweigh those which might be made by some naysayers arguing that a portion of the over $1 billion Gosselin identified might have nothing to do with HealthCare.gov. First, he only identified the top ten firms, and there are probably many others. (Update: A GAO cost estimate earlier this year noted that ”More than three-fourths of the money went to 10 companies. If this relationship holds for all contract dollars, at least $200 million more has been awarded to other firms [HT Impeach Obama Today blog].) Second, there is no way of knowing the amount President Obama’s vaunted “tech surge” will add to the final bill, except that it won’t be small.

As to the $200 million in mailroom contracts, Serco Group, like CGI, is headquartered outside the US, in this case, the UK). Also like CGI, Serco has had its share of troubles. Its CEO resigned this week amid allegations that the company billed the UK government for electronically monitoring criminals who were in prison, or dead while not monitoring certain live criminals at all.

In June 2012, Serco announced that it has received a $1.2 billion, 5-year contract for Obamacare-related mailroom services. While the amounts Gosselin identified appear to be volume-related and are probably a part of that $1.2 billion, there is no doubt that the firm had to incur substantial start-up costs to get their service up and running. Those start-up costs should be considered part of the overall cost of HealthCare.gov implementation, because the data in those paper apps has to be entered into the website.

So the contractor-related costs of getting HealthCare.gov running, totally apart from day-to-day administration, will certainly end up well north of $1 billion. Despite what Gosselin has been reported being three days old, the rest of the establishment press has ignored his work.

But there have been and will continue to be other HealthCare.gov costs associated with employees added to the federal payroll. I’ll look at that issue in Part 2 later this afternoon.

Cross-posted at NewsBusters.org.



  1. [...] Part 1 (at NewsBusters; at BizzyBlog), I noted that Bloomberg Government’s Peter Gosselin estimated that costs incurred and costs [...]

    Pingback by BizzyBlog — October 27, 2013 @ 5:10 pm

  2. [...] Part 1 (at NewsBusters; at BizzyBlog), I noted that Bloomberg Government’s Peter Gosselin estimated that costs incurred and costs [...]

    Pingback by HealthCare.gov’s Mounting Costs, Part 2: Don't Forget HHS's Internal Costs » UncleSamsPress.com — October 27, 2013 @ 11:24 pm

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