The Failure of Obamacare Medical Exchanges Is A Failure Of Public Policy – Government Is Unable To Manage Large Scale, Sophisticated Programs Big Government follows bureaucratic incentives. Even when it makes major mistakes, it does not go out of business

By Paolo von Schirach

October 26, 2013

WASHINGTON – The radical Tea Party Republicans engaged in a disastrous political battle to defund and hopefully kill Obamacare. They lost. And they lost badly on the political front, as their goal was unachievable, while the means they used, (forcing a US Government shut down), caused a huge backlash. 

The exchanges do not work

That said, Obama also lost, because the much anticipated roll out of this bright new government initiative aimed at insuring millions of Americans proved to be a disaster and a huge embarrassment. The web-based exchanges through which consumers were supposed to select the insurance plans most suitable for them have been poorly designed and therefore do not work. Now, this is a truly big deal. Obamacare is the most significant reform implemented by President Obama. This is his signature achievement. The Federal Government had three years to plan for this. And the result is a huge flop.

The limits of public policy

This gigantic failure will give more ammunition to Obama’s ideological enemies. But this spectacular organizational and managerial debacle invites a non political reflection. Public administration seems to be inherently incapable to design, carry out and manage large-scale, sophisticated high-tech projects that involve multiple component.

In large part this is due with rigid public procurement processes that impede flexibility and adjustments on the part of contractors that are bound by unchangeable definitions of what they are supposed to deliver and how. The rules are strict. The objectives are set in stone. The metrics are sometimes absurd and quite often obsolete, when compared with private sector standards. And therefore as a norm we can expect cost overruns and inefficiency. In some cases we can have gigantic flops, like this one involving Obamacare.

A large IT program failed in America, the world leader in IT

And, by the way, this particular Obamacare failure has nothing to do with national capabilities. These medical insurance exchanges that the Federal Government was supposed to set up are all about IT. And America, whatever its flaws and shortcomings, happens to be the undisputed world leader in IT. So, we cannot ascribe failure to lack of basic knowledge or inadequate human talent. We have got all of the above in this sector. No, failure is due to government’s basic inability to plan and execute at a reasonable cost large-scale, complex projects that require sophisticated planning and flexible execution.   

Political pressure, as opposed to market pressure

In this particular case, we have to add that on top of bad design we also had political pressure to deliver within a certain  time frame and the unwillingness on the part of working level people to deliver the bad news that the system was not quite ready for prime time. 

In the end, I imagine that these exchanges will be fixed and that they will work more or less as they should. But this will take longer than expected and at a much higher cost than initially envisaged.

The private sector has a greater ability to self-correct

And here is the real point of all this. There can be and there are gigantic failures caused by an inefficient private sector. The Great Recession of 2008-2009 proves that. But in most cases fear of being punished by the market forces private sector planners to do their very best to avoid mistakes that will cause failure. Beyond that, when mistakes take place the private sector has the ability to react and at least sometimes change course. 

Public sector is all about compliance with absurd norms

Within the public sector instead there are no such market incentives, because public administration operates within laws that have nothing to do with market forces. On the contrary, in order to insure adherence to rules and regulations, the public sector creates absurdly complicated bidding rules mostly in the name of fairness and accountability. But this public system is mostly about process and carefully pre-defined milestones, and not about getting good results. Therefore, in public procurement a good contractor is one that follows all the rules, even though he delivered a mediocre product. 

Big Government does not work

This is the real problem about Big Government. It operates according to bureaucratic incentives designed for non-market purposes. The goals of public policy may be noble. But the reality is that public administration cannot deliver much in a timely and cost-effective way.

Therefore, instead of advocating more and more public programs about this and that in the name of lofty social goals, we should be honest in admitting these systemic constraints and really limit Government to basic functions, while figuring out in what way the private sector can perform other functions, including the delivery of services that support the general welfare.  



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