Early this morning, the Hill reported that the Obama administration’s Department of Health and Human Services (HHS) is relying on a private company — a subsidiary of UnitedHealth Group — to play a central role in establishing and running Obamacare’s insurance “exchanges.” As the Hill writes, the report raises serious questions about competitive fairness, as “the quiet nature of the transaction, which was not disclosed to the Securities and Exchange Commission (SEC), has fueled suspicion among industry insiders that UnitedHealth Group may be gaining an advantage for its subsidiary, UnitedHealthcare.”

But there’s far more to this story. An insurance industry insider (speaking on the condition of anonymity) says that HHS, in an attempt to hide this transaction from public view until after the election, actively encouraged the violation of SEC law.

According to my source (the basis for most of this account), in January of this year, HHS awarded Quality Software Services, Inc. (QSSI) — a federal IT contractor — what the Hill describes as “a large contract to build a federal data services hub to help run the complex federal health insurance exchange.”

At that time, the director of Obamacare’s newly established Center for Consumer Information and Insurance Oversight (CCIIO) — which the Hill describes as “the office tasked with crafting rules for the national exchange” — was Steve Larsen. Larsen had been the insurance commissioner for Maryland when current HHS secretary Kathleen Sebelius was the insurance commissioner for Kansas, and the two are reportedly quite close. The CCIIO awarded the Obamacare exchange contract to QSSI while Larsen was the CCIIO’s director, and he played a central role in planning the construction of the exchange — although it’s not known whether he made the ultimate decision to award the contract to QSSI or not.

Under the contract that it signed with HHS, QSSI’s power would be substantial — as QSSI would shape, run, and affect companies’ ability to compete to sell insurance through Obamacare’s heavily taxpayer-subsidized federal exchange. The Hill writes, “A draft statement of work for the contract awarded to QSSI states the contractor should provide services necessary to acquire, certify and decertify health plans offered on a federal exchange.” Moreover, “It stipulates the contractor should monitor agreements with health plans, ensure compliance with federal standards and” — somewhat strikingly — “‘take corrective action when necessary.’”

QSSI, apparently realizing what a valuable asset it had on its hands, started shopping itself around. Meanwhile, Larsen left the CCIIO and took a lucrative position with Optum, a subsidiary of UnitedHealth Group. He took the position with Optum in June. Sometime this summer, UnitedHealth Group, Optum’s parent company, bought QSSI.

The Hill writes, “One critic familiar with the business rivalries of the insurance industry compared UnitedHealth Group’s purchase of QSSI to the New York Yankees hiring the American League’s umpires.” In other words, UnitedHealth Group, through QSSI, would be able to police the field, on which it would be a key competitor.

In addition, QSSI would have access to valuable data. HHS likes to compare Obamacare’s prospective federal exchange with Travelocity or Expedia, but the comparison is quite inapt. Travelocity and Expedia don’t regulate airlines, define the length and building materials of runways, or transfer money from younger passengers to older ones. In truth, Obamacare’s federal exchange would be an extremely complicated technical endeavor to set up and run, as (among other things) it would involve compiling massive amounts of risk-selection data on individual Americans. In addition to raising extraordinary privacy concerns, the data involved would be like gold to insurers. To quote my source, “If you can capture this data, you’re going to win.”

When HHS became aware of UnitedHealth Group’s purchase of QSSI, it couldn’t realistically void the contract, because the Obama administration was already too far behind in setting up the federal exchange. To void the contract would mean delaying the exchange’s implementation by many more months. The Hill writes:

“[G]iven how late the administration has been in issuing rules for the exchange, it would be extremely difficult to void a key contract, find another company to perform the work and still meet the 2014 deadline — should President Obama win reelection. Mitt Romney has vowed to repeal the healthcare law if elected.”

Unable to void the contract, HHS instead went to work on setting up a firewall designed to block UnitedHealth Group from gaining access to QSSI’s data, presumably out of a desire to try to keep UnitedHealth Group from gaining an unfair advantage. Then, likely in concert with the White House — and to the chagrin of many HHS employees — Sebelius and other senior HHS officials decided that word could too easily get out about the firewall project. If it did, it would alert people to UnitedHealth Group’s having gained a potentially huge competitive advantage — a political concern for the White House on the cusp of the election, especially in light of the crony capitalism charges that have plagued this administration. Therefore, HHS, under Sebelius’s leadership, suspended work on the firewall and reportedly told UnitedHealth Group not to alert the SEC to the sale — as UnitedHealth Group was legally required to do within four days of the transaction — until after the election.

Multiple reporters are investigating HHS’s actions, which have also drawn the attention of the Senate Finance Committee. The committee’s ranking Republican, Sen. Orrin Hatch (Utah), has been asking Sebelius for information for the past two weeks, but Sebelius has not complied with his written requests or deadlines. On the heels of HHS’s Senior Swindle (it’s probably illegal use of $8.3 billion in taxpayer money to try to hide Obamacare’s effects on seniors’ Medicare Advantage plans until after the election) and its continuing (and also probably illegal) use of taxpayer money to run ads that dubiously claim that Obamacare strengthens Medicare, HHS looks to be trying to stonewall reporters and Congress alike. Quite simply, Sebelius and company look to be trying to run out the clock — until Obama could gain “more flexibility” with a win on Tuesday.

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