IT Hiccups of the Week: S&P Warns Stock Exchanges Shape Up Their IT or Else

Obamacare exchanges may not be ready for prime time, California unemployment system still suffering

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Last week was much like the week before, with U.S. state governments still struggling to make their newly modernized unemployment insurance systems work correctly. We’ll get to them shortly, but we'll start off with a warning by the financial rating services company Standard & Poor’s (S&P) to the world’s stock exchanges over their continuing “technical snafus.”

S&P Tells Exchanges Downgrades in Store if Technical Problems Continue

In a warning shot across the bows of all the world’s stock exchanges, the rating services company S&P published a report last week with the very unsubtle title, “Exchanges' Technical Glitches Reveal Growing Operational Risk—And Could Trigger Downgrades.” The report outlined S&P’s concern that the continuing and seemingly increasing operational problems the exchanges are experiencing—including yet another one, almost on cue last week, at the Options Price Reporting Authority—would mean that the ratings agency might have to factor in a higher level of operational risk in its assessment of an exchange’s credit worthiness. That, in turn, could trigger a downgrade in an exchange’s credit rating, especially if it appears the exchange doesn’t maintain sufficient liquid capital to cover a major operational meltdown, including so-called black swan events.

The S&P report includes a nice table of 25 operational "snafus," as it likes to call them, that happened between March 2012 and August 2013. There have also been at least three more this month (including the aforementioned one at the Options Price Reporting Authority) that could have made the list. We have covered most of the technical problems here at the Risk Factor, including many that occurred before 2012, and were therefore not included in the list. Among these were the multiple technical problems that plagued the London Stock Exchange and the New York Stock Exchange.

The S&P warning came in the wake of the U.S. Security and Exchange Commission telling the exchanges basically the same thing in not so many words. The SEC gave the exchanges 60 days to come up with an approach that would increase their resilience and improve their management of operational risks that turn into operational problems or crises. The government didn't overtly threaten the exchanges, but it was definitely implied that penalties might be forthcoming if the exchanges don't get their act together.

The S&P concluded its report in this way: “We haven't lowered any ratings as a result of these issues so far, but exchanges whose operational risk exceeds industry averages could see rating actions down the road.”

Well, neither the exchanges nor their CIOs can say they weren’t given sufficient warning.

Obamacare Health Insurance Exchanges Experiencing Tech Issues

Next week,  on 1 October, the public health exchanges being created under the U.S. Patient Protection and Affordable Care Act (pdf) are slated to open. As I recently mentioned, concerns are being voiced over the security, or presumed lack thereof, of the federal data services hub as well as the state exchanges. In August, a Forbes article claimed that a major reason behind the security concerns is that, “The administration knows that if the exchanges don’t open on time, there will be a ton of bad press. So they are much more likely to attempt to launch the exchanges without adequate privacy safeguards.”

Whether IT security is lacking or not may be debatable (the Federal government claims that security hasn’t been comprised, at least at its end), the intense pressure to go live next Tuesday is not. For instance, April Todd-Malmlov, the head of Minnesota’s new health exchange, admitted last week to the MinnPost that, “The schedule that we have is essentially putting a five- to 10-year IT project within a two- to three-year timeframe.”

An 11 September risk assessment of the Minnesota Department of Human Services' efforts to implement the exchange stated that, “The schedule will remain [urgent] due to tight timelines with no slack… There is little to no room for vendors to miss code drop dates, and we are severely lacking in adequate testing time.” The assessment lists the project as “red” or “at risk” of not being able to go live next week, but Todd-Malmlov brushed that assessment aside, telling the MinnPost that, “The entirety of the project scope has always been red — at least one part of it has always been red… It’s an indicator for us as to where to focus efforts.” She added that, “I would guess that every state has that same ‘red’ on [their risk assessments].”

Iowa’s Gov.Terry Branstead recently said his state’s health insurance exchange would be open on-time, but added that state officials “are going to try our level best to try to make it work.” There is nothing like a strong vote of confidence to reassure everyone.

The Wall Street Journal added to Branstead’s vote of confidence in an article last week. The WSJ reported that “the government's software can't reliably determine how much people need to pay for coverage” in the health exchanges in the 36 states where the federal government is running all or part of the exchanges. It quoted one senior health-insurance executive as saying, “There's a blanket acknowledgment that rates are being calculated incorrectly… Our tech and operations people are very concerned about the problems they're seeing and the potential of them to stick around.”

Government officials, however, downplayed the issue, stating that, “We continue working with [insurers] and we are confident that on Oct. 1, consumers will see accurate premium costs, including tax credits.” They did admit to the WSJ that, “We may encounter some bumps when open enrollment begins,” but also added that, “we’ll solve them.”

You could almost see those government officials making that last statement while crossing their fingers on both hands.

Oregon, which is one of 14 states that are running their own health insurance exchanges, announced in early August that it was pushing back the 1 October initial enrollment date by two to four weeks in order to give it time to ensure that any issues with its “technology, customer service and other internal processes” could be “ironed out” before going live. That was a move I bet many state health exchanges wish they could also take, but can't politically.

As the health insurance executive stated earlier, I expect this story will not be going away anytime soon. Next Tuesday ought to be pretty interesting from both technical and political perspectives.

California’s Unemployment Insurance System Goes from Bad to Worse

I wrote last week about the problems that Nevada and California were having with their new unemployment insurance systems. While Nevada claims to have finally started to get a handle on the worst of its technical problems (although not everyone agrees), the problems in California have apparently worsened. California’s Employment Development Department (EDD) had originally stated that only 5000 Californians were having trouble receiving their unemployment checks on time because of problems with its new system. However, the EDD admitted to the Associated Press that the actual number—which it revealed early last week had climbed to 50 000, a staggering increase in itself—had reached 185 000 as of Friday. Some 80 000 residents, the EDD acknowledges, still haven’t received the unemployment checks due them.

In related news, California’s unemployment insurance system problems affected, for the second week in a row, the accuracy of the U.S. Department of Labor's report on the number of Americans receiving unemployment benefits. If this keeps up, all of September's unemployment numbers may have to be discarded. The EDD says it’s working hard to fix the problem and promises a major fix over the weekend. But even if the work is successful, it may be weeks before everything, including the federal employment data, is finally straightened out. The EDD did offer its apologies (again) for the delays, which did little to pay the bills of those desperately awaiting their unemployment checks.

Minnesota’s Department of Human Services, which, as I mentioned earlier, has its hands full dealing with the implementation of the state’s Obamacare health insurance exchange, has also had to deal with a multi-day outage of the system used by health care providers to file their Medicaid claims. It isn’t clear how many healthcare providers have been affected, but angry healthcare providers are probably the last thing the agency needs to be dealing with at the moment.

Of Other Interest…

NASA Says Deep Impact Probe Feared Lost After “Software Glitch”

Orbital Sciences' Cygnus Capsule Needs Software Update

Honda Recalls 405 000 Vehicles for Airbag Microprocessor Repair

Arizona Lottery Replaces Tickets After Lottery System Doesn’t Allow Numbers to be Drawn

New DFW Airport Parking System Wildly Overcharges Thousands of Customers

Several Airlines Hit by Navitaire Reservation System Outage

Photo: Scott Eells/Bloomberg/Getty Images

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