What The Federal Government Could Learn From Health IT Startups

10-13-2013 3-59-08 PM

Government officials are answering to charges that the glitch-ridden federal health insurance exchange website cost $634 million in taxpayer dollars. A full analysis of costs for the site done by The Verge puts the cost closer to $93 million, but no one, including the federal government, seems to be 100 percent certain of a final cost.

The project was subcontracted to between 12 and 15 different companies for development. CGI Federal Inc, a Canadian tech firm, was the prime contractor on the account. However, user authentication was handled by Experian, and the federal data services hub was developed by a third company. Industry experts explain that the federal contracting process is so complicated, and requires so many business certifications, that it often prevents innovative Silicone Valley startups from getting involved, leaving bloated corporate entities like CGI to cobble together sub-contracted components. This climate directly contributed to the resulting failure.

The site went live on October 1 and immediately began encountering technical problems that prevented 99 percent of site visitors from registering or shopping for health insurance. At launch, technical problems would not allow users to create new accounts. The issue was resolved fairly quickly but other issues, like an inability to recognize returning users who had already created accounts, miscalculating available subsidies for users, and putting users into inescapable loops continue to plague The site also buckled under unexpectedly heavy traffic. Built for 50,000 simultaneous users, the site received 250,000 simultaneous users at its launch. The federal government is reporting that new servers installed post go-live have reduced wait times 50 percent.

The failed launch is one that could have been prevented, and many seasoned health IT entrepreneurs are likely rolling their eyes and the myriad of amateur planning failures that brought about the current situation. Granted, the site connects to multiple state and federal databases and is likely more complicated than what most startup companies would tackle in a first version. Within the world of health IT startups there are companies that have developed highly rated consumer-based health insurance shopping platforms. They’ve designed, launched, monetized, and expanded their companies – all for much cheaper, and with far better results than the launch.

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Zenefits, an online benefits management system for employers, is in the top five percent of California’s insurance brokers and is expanding across other states. The startup pulls together quotes from multiple health, dental, and vision insurance programs, and makes enrollment easier for consumers. Zenefis launched on a $2.1 million series A round, which covered all of its design, programming, integration with insurance databases, and its launch. Zenefis runs an agile development team.

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Maxwell House, launched in February, provides cost-free benefits management services for businesses. The company helps employees research, compare and enroll in medical, dental, vision, life, disability, COBRA administration, HRA/HSA, FSA and 401(k) programs. The company raised a $2 million series A, which brings its total investment to $3.8 million. Maxwell House, like Zenefis, was able to launch its program with far less issues than the site, and for far less.

When developing consumer-oriented web tools, the US has some of the world’s best and brightest right here at home. Firms experienced at implementing budget-friendly, agile-based project planning and design validation. Agile focuses on adding a few pieces of functionality at a time, designing, coding, and testing in an iterative cycle. This startup culture was overlooked by the feds, who opted to outsource the project to a large Canadian corporation for multiple times the cost it would likely have come to if it was handled by a smaller design team hungry to prove themselves.

It begs the question, with receiving an estimated 9 million visitors in the first week as validation of demand, will any of the existing health IT startups working in this space rise up to compete against to answer this demand? Is there room for multiple players in the very new world of health insurance exchange marketplace? The money is there, the talent is there, and there’s plenty of good reasons to bet that health IT entrepreneurs won’t be far behind, looking to capitalize on the federal government’s failure.

  • travisjgood

    We use Maxwell and love it. I’ve also played around with Zenefits and the experience is fantastic. I’ve commented to several people, ahead of the official launch, that Maxwell and Zenefits should be the model. Unfortunately re we ended up with something overpriced and untested, and ultimately crappy.

    I have several close friends that worked for AMS, which rolled into CGI Federal, and ran engagements at CMS. They were joking that this is exactly how they would’ve predicted this going for

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