Repeat after me: "Failure is not an option."  Photographer: Andrew Harrer/Bloomberg
Repeat after me: "Failure is not an option." Photographer: Andrew Harrer/Bloomberg

I wrote on Friday that we know things are bad inside the White House because it's stopped bashing health insurers. The administration's favorite campaign punching bag is now its most valuable ally in fixing the disastrous launch of President Barack Obama's signature policy initiative.

Yesterday brought confirmation from Juliet Eilperin and Amy Goldstein of the Washington Post: The administration badly needs the insurers' help, because there’s growing concern that the exchanges simply will not be ready by the Nov. 30 deadline it set.

That's a big problem. A lot of people with private health insurance are losing their policies. This was supposed to be not so bad because they could go onto the exchanges. Only now, there are no functioning exchanges. If the exchanges aren’t working by December, those people will be in a pickle. Premiums are rising substantially in many markets. For people with incomes below 400 percent of the poverty line, subsidies were supposed to partly offset that price increase. But only policies purchased on the exchanges are eligible for subsidies.

As industry consultant Bob Laszewski writes: “It is now becoming clear that the Obama administration will not have Health.care.gov fixed by December 1 so hundreds of thousands, or perhaps millions, of people will be able to smoothly enroll by January 1.” He goes on to note that we can’t just do the obvious thing and pass an emergency regulation allowing people to stay on their current policies:

Millions of people are facing those cancellation letters. Ideally, we could just say, never mind -- let these people simply stay on their current policies. But here's maybe the biggest irony in this whole mess. The Obama administration may not be ready for Obamacare but the insurance industry is. The health insurance companies spent the last many months rolling their old policies off the books and replacing them with the 2014 Obamacare compliant products -- Bronze, Silver, Gold, and Platinum….

I suppose it might be possible to get insurance commissioners to waive their requirements but even if they did how could the insurance industry reprogram systems in less than a month that took months to program in the first place, contact the millions impacted, explain their new options (they could still try to get one of the new policies with a subsidy), and get their approval?

It is possible to imagine contingency plans that the administration could have put into place before Oct. 1. At the very least, it could have been much more generous in allowing people to stay on grandfathered policies. And it could have had the government printing office print up booklets and mail them to every household, giving all the exchange policy options in your county, numbers to call for the insurers, and tables with the possible subsidies. This would still have been a problem, because the exchanges are supposed to attract the young, healthy consumers who are needed to keep insurance premiums affordable for everyone.

You can even imagine the administration having done things like this in, say, the second week of October. But you can’t imagine this being done now. It is one month until the deadline to buy insurance for January. Even if the administration started this morning, none of these things would work. There just isn’t enough time.

When the tech geeks raised concerns about their ability to deliver the website on time, they are reported to have been told “Failure is not an option.” Unfortunately, this is what happens when you say “failure is not an option”: You don’t develop backup plans, which means that your failure may turn into a disaster.

Just how bad could this get? Well, here’s one scenario, maybe not the most likely, but possible: The exchanges aren’t ready by Dec. 1. In fact, they continue to experience problems in January and February. The administration’s poll numbers continue to plummet, and the reputation of the exchanges is such that come spring, young people don’t bother to sign up -- or are afraid to hand over their personal data to such a buggy system. The insurance pool is much smaller, older and sicker than expected, which is to say, much more expensive than expected. The administration comes up with small emergency patches, like allowing people to keep their old policies for a few more months. But that makes the pool of people insured through the exchanges even older and sicker than it otherwise would be.

Meanwhile, sometime between March and June, the other shoe drops: People who bought exchange policies realize that the restricted networks insurers created to keep the premium costs low cut out the best hospitals and doctors. A newly insured child with cancer cannot get into a top pediatric hospital because her insurance has zero coverage for out-of-network emergency care. Tearful Mom goes on the evening news and says that she thought when they went on Obamacare, that meant they were safe, and why can’t I take my baby to Philadelphia Children’s Hospital, Mr. President? That particular story will be fixed, through some combination of private charity, insurer PR sensitivity and government intervention. But there will be more of these cases that don’t make the papers. The folks who had no insurance and are now on Medicaid may be quite glad of their insurance, but those people don’t vote in large numbers. The middle-class voters who thought they were getting much more out of this law are disenchanted, maybe angry.

By June, insurers are filing their rate increases for next year. But there are already lawsuits being filed over the limited networks and rumblings about legal remedies in the legislature. They are paying out much more in claims for each customer than they expected when they set rates, and while the “risk corridor” reinsurance provisions mitigate some of their losses, they do not turn losses into profits. And public anger over all the downsides of the law -- the policy cancellations, the malfunctioning exchanges, the extremely narrow provider networks -- makes it look very likely that Democrats are going to lose the Senate in 2014. The law now seems to be in danger -- not in danger of outright repeal, but in danger of death from a thousand cuts, as legislators roll back anything that’s unpopular -- like, say, the individual mandate.

In a more auspicious political climate, insurers might well say, “Hey, we had a rough start, but we want to get market share, and we certainly don’t want to face the wrath of insurance commissioners and the Department of Health and Human Services, so let’s eat the losses of last year and come in with some modest rate increases for 2015.” But with the law looking shaky, they are no longer so sure that they want to take that risk. When they start filing rate increases, they are huge -- well into the double digits. Regulators and HHS fight back as hard as they can, but they cannot just order insurers to sell at a loss. Democrats lose the Senate in 2014, and even fewer people buy insurance for 2015.

What does the administration have in its pocket to prevent that scenario? Well, there’s the obvious: Fix the website. And I’m sure that they’re working on that as hard as they can. But as I pointed out at the beginning of October, malfunctioning IT projects aren’t susceptible to good old-fashioned remedies like “hard work” or “staffing up.” There is a limit to how hard your people can work, particularly if they are doing cognitive work rather than, say, mechanically swapping floppy disks in and out of servers (the jobs I used to reserve for 2 a.m. when I had to work crazy hours). After 10 or 12 or 16 hours, your productivity falls so dramatically that you’re better off going home and sleeping -- particularly if you have to do this for more than a couple of nights.

Adding bodies is even more problematic; you have to spend time showing the new people how the system works, and then more time managing all the interactions between the extra people. Think of the difference between trying to arrange girls’ night out with a few friends, and trying to throw a sit-down award dinner for 200, and you’ll get some idea of the ways in which adding people can actually slow things down rather than speed them up. That’s why my expectation all along has been that, no matter how inept they may be, the folks who built the broken system are going to have to be the folks who fix the broken system. Especially if we want to get it working this year.

But outside of “fix the website,” it’s not clear how much -- if anything -- the administration can do. Delaying the individual mandate fixes one small political problem, but it doesn't fix the problems facing those who are losing their insurance. A delay is also likely to result in the older, sicker, more expensive insurance pool that this whole law was designed to avoid.

They cannot simply allow people to keep their old policies, for the reasons that Laszewski outlines.

Nor is it clear they can bypass the exchanges, because the Washington Post article says that the module that calculates subsidies is still broken, so the insurers have no idea how much to charge people:

Part of the discussions lately between insurers and administration officials has been about what to do if that function is not fixed soon. One idea circulated within the insurance industry would be for HHS to approve a method to estimate subsidies and give preliminary tax credits based on those estimates -- with the accurate amount determined later, once the system works better.

According to several people familiar with these conversations, insurance industry leaders have said that they would insist on a guarantee that they would be compensated for any underpayments -- and that they have asked to keep any overpayments. Said one health-care consultant who is knowledgeable about insurance exchanges and who has been in touch with administration officials: “The concern is: Who bears the risk?”

It’s a sign of just how few options the White House has that this proposal is seriously floating around the staff. I don’t doubt that this is what the insurance industry would like (and no doubt these leaks are themselves part of a larger negotiation between administration and insurers). What’s astounding is that the administration hasn’t rejected it out of hand. The potential abuses are obvious; the insurer with the most erroneous subsidy calculator gets all the business! And such a move seems at best legally dubious. The administration has already pushed the envelope with such things as the employer-mandate delay. But just for political reasons, you’d think they’d draw the line at essentially creating a giant slush fund for insurers, paid for by the subsidy overpayments they’re supposed to be clawing back from consumers come April 15, 2015.

This is the part of the article where I’m supposed to tell you what we should do if the system isn’t fixed soon. But while it’s relatively easy to outline what we shouldn’t do -- firing Kathleen Sebelius, for example, or delaying the individual mandate all by itself -- it’s harder to think of good options. We may have had good options six weeks ago. Now we have a lot of very bad ones, along with one hope: that the website is close to being fixed and will be ready to enroll millions of people by Dec. 15. When failure is not an option, hope is all you’ve got.