UnitedHealth Group Inc. (UNH:US), which sells insurance on only a few Obamacare exchanges, stands to profit from the law nonetheless.
Its Optum technology unit, credited with helping fix the broken federal insurance website, is increasingly being used by state officials to salvage their troubled exchanges.
Over the last four months, as today’s deadline for selling insurance loomed under the health-care law, Optum has worked with Maryland, Massachusetts and Minnesota to strengthen their online marketplaces. While the $31 million in contracts doesn’t mean a lot to UnitedHealth’s annual revenue (UNH:US), Optum is building a reputation that may give them an edge in the future in the $1.1 billion business of building computer systems for social service agencies, analysts and state officials say.
“We went with them because of their successful experience with healthcare.gov,” said Joshua Sharfstein, the Maryland health secretary, in a telephone interview. Since then, he said, “they’ve been a great partner in keeping our system moving forward, and thinking about the future.”
Sign-ups for 2014 coverage under the Patient Protection and Affordable Care Act formally end today, though some who began the enrollment process but didn’t finish it will have a bit more time. More than 6 million people have enrolled as of last week, an effort largely dependent on the performance of healthcare.gov and 14 independent exchanges run by states.
Optum’s role as a go-to company for governments with health-exchange problems has been something of a surprise, given that its parent company -- the nation’s largest commercial health insurer -- has been wary of embracing the Obamacare rollout.
Minnetonka, Minnesota-based UnitedHealth offers health plans on only five local exchanges -- Colorado, Maryland, Nevada, New York and Washington, D.C. In comparison, Indianapolis-based WellPoint Inc. (WLP:US), the second largest U.S. insurer, offers its medical coverage on exchanges in 14 states.
UnitedHealth created its Optum unit in 2011 by pulling together several health-services businesses, including divisions that offer consulting services and that administer prescription drug benefits. In January, UnitedHealth reported that Optum’s earnings (UNH:US) from operations surged 43 percent in the quarter compared with a year earlier.
The unit’s Obamacare work can be traced back to UnitedHealth’s 2012 purchase of Quality Software Services Inc., a Maryland-based technology company that had an open-ended contract for technological services with the U.S. Centers for Medicare and Medicaid Services, or CMS, the agency assigned to build the federal online exchange.
While QSSI lost a bid to be the principal contractor for healthcare.gov, it won a smaller contract to build a “data hub” needed to allow an easy flow of tax and other personal information about potential customers between the exchange and various other U.S. agencies. As it turned out, the hub was one of the few pieces of the federal system that worked when the exchange opened for business on Oct. 1.
In late October, as flaws with the website became increasingly public, Andrew Slavitt, Optum’s group executive vice president, contacted Marilyn Tavenner, the CMS administrator, to offer his company’s help, he said in a telephone interview.
At the time, “there was a lot of discussion around a ‘tech surge,’” Slavitt said. “What we said is, ‘A tech surge is certainly important. What we think you might also need is an operational and organizational surge.’”
‘To the Rescue’
On Oct. 25, Tavenner responded by announcing that Optum had been hired as the new lead contractor for healthcare.gov. The move meant that Montreal-based CGI Group Inc. (GIB:US), which had built the system and had been publicly blamed for its troubles by Tavenner, answered to Slavitt. On Dec. 1, government officials declared healthcare.gov fixed and, soon afterward, state officials began ringing Slavitt’s phone, he said.
“Optum to the rescue,” Sheryl Skolnick, an analyst at CRT Capital Group in Stamford, Connecticut, wrote in a March 27 note to clients. “It’s not a bad way to brand a company.”
While most state exchanges worked better than the federal site when enrollment under the law opened in October, the online insurance marketplaces in Oregon, Maryland, Minnesota, Massachusetts and Hawaii experienced technology issues. That opened a new field of customers for Optum, analysts said.
Maryland hired Optum as a consultant in December, and they took over last month as the lead contractor for the state exchange, according to Sharfstein. The company patched up the state’s broken computer system and, at the same time, helped Maryland handle paper applications and other manual work-arounds to get people signed up, he said.
Optum will be paid about $15 million through June for its consulting and about $1.5 million a month for maintaining and hosting the exchange’s website, Maryland’s Sharfstein said.
Sarah Iselin, appointed in February to oversee repairs of the Massachusetts Health Connector, said Optum’s experience with the federal site was the “influential factor in the decision” to hire the company. As in Maryland, the company helped state officials eliminate a backlog of 72,000 paper applications for insurance while developing a plan to fix the broken Connector website.
Federal enrollment data for Massachusetts are incomplete, because of the exchanges problems, and show just 13,000 people had selected plans. The state, which expanded health insurance to nearly all of its residents under a 2006 law, temporarily placed at least 48,000 people who would otherwise be enrolled in subsidized private plans into its Medicaid program while it fixes the exchange, according to the latest federal report on Obamacare sign-ups.
One of the toughest jobs for any exchange is figuring out whether customers can buy a private plan and if so, whether they’ll get a discount on the premium, based on their income. The other option is enrollment in a public program such as Medicaid, the state-federal health plan for the poor. In Massachusetts, there are 263 possible combinations of eligibility, Iselin said.
“It didn’t get done,” she said. “That’s the punchline.”
Iselin announced March 17 that Massachusetts would part ways with CGI Group, which had been the lead contractor for the state exchange and was blamed by officials for the exchange’s troubles. The state will pay Optum about $16 million through March for its work as a consultant.
Linda Odorisio, a CGI spokeswoman, said the company hopes to “develop an equitable transition agreement” with Massachusetts. “CGI has worked tirelessly to deliver a health insurance exchange for the residents of Massachusetts,” she said in an e-mail.
Minnesota’s exchange, MNsure, asked Optum for an assessment of its flaws in January, John Schadl, a spokesman for the agency, said in a telephone interview. The analysis, which Optum provided for free, found that a system to determine customers’ eligibility for insurance programs was the most defective piece of the exchange.
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