(Bloomberg) -- UnitedHealth Group Inc. (NYSE:UH) sells insurance on only a few public exchanges, but it stands to profit from the exchange program anyway.
The company’s Optum technology unit helped the U.S. Department of Health and Human Services (HHS) fix the glitch-plagued HHS exchange enrollment system, and managers of many state-based exchanges are using the unit to salvage their own enrollment systems.
The open enrollment period for the individual “qualified health plan” (QHP) coverage sold through the Patient Protection and Affordable Care Act (PPACA) exchanges began Oct. 1 and officially ends today.
Over the last four months, as today’s deadline loomed, 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, Optum is building a reputation that may give the unit an edge in the future in the $1.1 billion social service agency computer system market, analysts and state officials say.
“We went with them because of their successful experience with HealthCare.gov,” Joshua Sharfstein, the Maryland health secretary, said in a telephone interview, referring to the HHS exchange enrollment website.
Since the Maryland exchange began working with Optum, “they’ve been a great partner in keeping our system moving forward, and thinking about the future,” Sharfstein said.
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 public exchange system.
UnitedHealth offers QHPs on the PPACA exchanges in just five markets -- Colorado, Maryland, Nevada, New York and the District of Columbia.
In comparison, WellPoint Inc. (NYSE:WLP), the second largest U.S. insurer, offers its medical coverage on exchanges in 14 jurisdictions.
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 from operations surged 43 percent in the quarter compared with a year earlier.
The unit’s PPACA exchange 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 & Medicaid Services (CMS), the HHS agency that oversees all PPACA exchanges and is in charge of managing the 37 HHS-run exchanges.
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.
The hub – which attracted most of PPACA exchange information technology skeptics’ attention before Oct. 1 -- was one of the few pieces of the exchange enrollment system that actually worked when the exchange opened for business on Oct. 1.
In late October, as flaws with other components of the enrollment system for the HHS-run exchanges 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., 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 the unit took over last month as the lead contractor for the state exchange there, 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.
In the Bay State, Optum 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 figures for Massachusetts are incomplete, because of the exchanges problems, and showed earlier this month that just 13,000 people had selected QHPs. 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 QHP sign-ups.
One of the toughest jobs for any exchange is figuring out whether customers can buy a QHP 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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