Opinion: Colorado health exchange’s lavish start, unsustainable future

By Francis M. Miller

Recent ads by Dell have featured the start-up digs of several now wildly successful companies. Garages, dingy walk-ups and dorm rooms are portrayed.

Francis M. Miller

Francis M. Miller

What is not mentioned is that many of these companies like E-Bay, Apple, Microsoft, Facebook, Amazon and Google required an incubation period of five years or more to become viable businesses.

Contrast this with some of America’s spectacular failures. Solyndra was force-fed money and its executives lived large until the company flopped. You can run your fingers down the list of electric car companies and other government-inspired adventures that met with similar fates.

The statistics on start-ups are well-known. Eighty percent fail in the first five years. Of the 20 percent that survive, 80  percent of them fail in their second five years.

Few companies, even behemoths like Kodak, survive longer than the lifespan of the average human being. Capital is often cited as the reason. If the truth be known, myriad reasons other than capital lead to a company’s demise. Just as often too much money is force-fed into an idea that just doesn’t gain traction.

Many companies spend their nest eggs on development and then run out of gas when the marketing phase arrives.

Yet, advertising alone cannot propel a new idea into the stratosphere. Time and again, new start-ups have made it by virtue of word-of-mouth referrals and market buzz.

No amount of advertising in the world will get rabid Apple buyers to sleep on the sidewalks before a new product release. And, why were Cabella’s customers having tailgate parties in the parking lot and camping out the night before the Lone Tree and Thornton stores opened?

This brings me to the latest articles about Connect for Health Colorado. Having been a founder of two predecessor social welfare organizations, the Alliance and the Colorado Health Data Commission, both of which died for lack of funding and a viable business model, for me it’s deja vu all over again. I don’t want to project too much personally, or stretch the metaphor too far. I realize this is a different time and place. I am a Wooster Cogburn to most of the “True Grit” filly’s running today’s organizations.

But, it is clear that the health exchange elbowed its way into crowded health insurance distribution channels at a time when the Internet was poised to dis-intermediate those same marketing channels.

It did not have a goal of adding another layer of complexity or mind-numbing nuance. In the very long run I would agree that a clearinghouse organization performing the exchange’s functions will exist and be successful.

It has always been the case that new, disruptive technologies whether they are laptops, tablets or cell phones cannot be predicted. As Babe Ruth said, With home runs, its not how hard you hit the ball but more a matter of timing.

The Colorado Health Exchange has done a marvelous job of building the Taj Mahal of websites. But, the employees of the exchange were procurement officers in that process, not the architects, and they are dependent on outside design-build contractors for maintenance and enhancement.

Combine the $100 million the exchange spent with the $300 million Peak spent on CBMS. The investment staggers the mind. We now have two large white elephants grazing on the Colorado Capital lawn under a gold dome. It’s a Kodak moment to be sure.

It is also becoming clear that most of the enrollments for this year were the result of canceled policies and previously-insured individuals seeking subsidies.

In the insurance industry, retention is playing defense with the goal of holding on to your base. A proactive offensive strategy to sell new business has yet to be mounted and the numbers prove it. If the health exchange ceases its advertising, enrollments will also cease.

The relationship between the exchange organization and the market is a co-dependent, love-hate relationship where penalties and subsidies are driving demand. Take the carrot and stick away and the whole shebang collapses.

I would bet that the exchange has squirreled away enough cash to guarantee its survival. But, that money will quickly be consumed by IT contractors, the exchange’s high fixed costs, the plush offices and the inordinately high executive salaries.

The exchange was not created by hungry people with fire in their belly working out of a mini-storage. Every one of these folks believes he is worth the six-digit salary. It is beyond their comprehension to believe that their career trajectories are not onward and upward like some manifest destiny.

Cut their salaries to $50,000 a year and put them in a corner of the old Gates factory space and they will rebel. They believe their encore is running one of the insurance companies that is working daily to co-opt them.

Obamacare has created an alternative reality. Whether it is the pure insanity of the Oregon situation or the hubris of Colorado, these people were tethered by a rope when they fell down the rabbit hole into Wonderland. They are now having tea with the Mad Hatter.

As economist Herb Stein once remarked, an unsustainable situation will end of its own accord. You don’t have to do anything, just let events unfold on their own.

If the scheme to impose a tax on every health insurance policy in the state were put to a vote, we know what the outcome would be. Maybe our legislators feel inoculated and in a position to fund the exchange by layering more taxes in addition to the monies already extracted by the Division of Insurance. Methinks it might be a mistake.

Connect for Health Colorado was the product of nine women making a baby in one month. That baby has now lived outside the womb of its surrogate collective mother for a year. But it is a long way from becoming an emancipated adult. And it is even further from participating in the Olympics in Brazil.

Francis M. Miller is the past president of the Colorado Business Coalition for Health and the vice chairman of the Colorado Health Data Commission. He founded the first consumer cooperative for health care called the Alliance and is the current president of Health Smart Co-op.

Opinions expressed in Health News Colorado represent the view of individual authors.


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