Saturday, September 21, 2013

On a Scandalous and Little-Known Aspect of ‘Obamacare’


Before discussing the scandal that has motivated this post, we will briefly summarize the New Independent Whig’s editorial position regarding the Patient Protection and Affordable Care Act (PPACA), informally known as Obamacare.  Our position is that PPACA is a seriously flawed program and is worth opposing. The basis for this conclusion does not rest on a categorical objection to the government playing a role in increasing the access of Americans to healthcare. To the contrary, we applaud the successes of Switzerland, Germany and France (to name a few), where universal healthcare is cost effective, satisfactory to patients, of high quality, consistent with a free market approach and relatively robust against the machinations of corrupt politicians and corporatists. 

PPACA has been left in the hands of private, for-profit health insurance companies and is toothless against profiteering by pharmaceutical companies and device makers. PPACA does not set fair prices for treatments, medications, and medical equipment. This is of concern because, in America, these prices are wildly inflated (for example, read this or this). Moreover, in one of the exceedingly few examples of government ever acting to limit its own power, a measure was passed to prohibit federal agencies from using their market power to negotiate lower prices for drugs (source). 

The inflated cost of healthcare means that PPACA premiums are more expensive than necessary. Americans, under this law, are required to either pay a penalty or pay excessive premiums. The result is that more Americans will have health insurance but fewer Americans will have enough money for food or housing. 

The underlying issue here is that the provision of healthcare under PPACA makes it relatively easy for politicians and corporatists to extract economic “rents.” When economists use the word “rent,” it refers to any money that can be obtained simply by possessing a piece of property or a position of authority. PPACA operates by putting healthcare services out to bid and currently, Wellpoint is expecting a $20 billion windfall when the time comes to administer Obamacare in 14 states (source). Wellpoint, as the reader may know, is the cash cow that has made multimillionaires out of folks like Angela Braly.  And one reason why healthcare costs are so high in this country is that companies like Wellpoint make a profit regardless of whether they reimburse expensive or inexpensive claims. These companies make their money by garnering lucrative contracts. 

When the federal government puts contracts out to bid, and bribes and favors are offered to politicians, the contract will not go to the lowest bidder. If contracts are awarded in exchange for bribes and favors, we may expect that the winning bidder is adept at exercising political influence. If a firm decides to trade on its political influence, we may wonder whether this is meant to compensate for deficiencies in terms of the quality or price of the goods or services it provides. And we may suspect that the firm is led by corrupt, self-interested individuals. 

The Scandal

The single largest contract awarded under PPACA has gone to a multinational corporation called the CGI Group. The total amount is just under $100 million dollars (source). The corporation is based in Canada, and as such, the $100 million is being sent outside this country to a corporation that does not pay U.S. taxes. The idea of exporting American taxpayer dollars is scandal enough. But it does not stop there. 

Happy CGI Group Employees
When it is not partnering with Wellpoint to administer PPACA (source), CGI Group pursues another specialty: outsourcing. If a large American company has an IT department run by American workers, CGI Group will likely visit the company to sell the idea of firing American workers and using IT personnel located in Bangalore, India to do the work more cheaply. CGI Group is so adept at selling outsourcing solutions that it won the prestigious National Outsourcing Associations Award in 2012 (source). By awarding a contract to this company, the federal government is financially supporting the outsourcing industry. 

Of course, there may be a method to this madness. By increasing unemployment in America, CGI Group can ensure that a larger number of Americans will be in need of Obamacare. CGI Group has a strong portfolio in the area of electronic health records and will no doubt be pursuing future PPACA contracts (source).

In Canada, CGI Group has been accused of engaging in bid-rigging. The accuser cites evidence to suggest that a government minister involved in awarding the contract had a financial conflict of interest and ought to have recused himself. In addition, the usual oversight activities were not carried out when the bidders were being vetted (source).

CGI Group, as a technology firm, has its hands in businesses other than outsourcing. It is also in line to receive a $6 billion contract from the Department of Homeland Security. If it wins the contract, it will be responsible for conducting surveillance of computer networks, ostensibly to protect the U.S. from “cyberattacks” (source). It has won a $5.3 billion contract from the United States Navy to automate services at naval bases (sources). 

CGI Group also supports the political campaigns of a select handful of United States members of Congress. Take, for example, Representative Jim Moran of Virginia. He was in the news not long ago for demanding that the Washington Metropolitan Area Mass Transit Authority take down an advertisement that was paid for by a group opposing PPACA (source). Mr. Moran has also been outspoken in his defense of PPACA against recent Republican efforts to defund the program (source). CGI Group contributed $7,500 to Mr. Moran’s 2012 campaign (source).

There is some indication that CGI Group’s talent for winning contracts exceeds its ability to provide the services it promises. In setting up network infrastructure for state health exchanges under PPACA, CGI Group has discovered that the price quotes it has been providing consumers for health policies are incorrect (source). It is currently struggling to address the problem and it is entirely possible that, in the near future, it will return to Capitol Hill to request additional funds.

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