Lessons from Obamacare mess: Tap private-sector principles

The private sector wouldn't solve the Obamacare mess, but private-sector principles of high pay for great talent would have gone a long way to avoiding the problems in the first place. 

To be good enough for government work, as the saying goes, average is the standard. It’s a strange saying, because government work is often mission critical and can affect millions: Think NASA or the Department of Defense. Yet the cliché has a basis in reality, as the immense snafus with the Obamacare website demonstrate.

One tempting solution is to have the private sector run HealthCare.gov.  The private sector generally performs more efficiently and reliably.  And certainly, the website would have been created and vetted in a more cohesive and professional manner in a business setting than in the depths of the  Department of Health and Human Services  bureaucracy.

But costs have a funny way of escalating when the private sector intersects with government. Would anyone call the Pentagon procurement process cost-effective? Are health-care costs really lower because profit-motivated hospitals, health maintenance organizations, and insurance companies are competing? Turning over management of major initiatives entirely to the private sector could become prohibitively expensive for taxpayers.

A better solution would be to apply the fundamental principle that drives performance in the private sector to the public sector itself, and that is to pay competitive wages.  Not all government jobs are underpaid. Those requiring only a high school education are actually more lucrative in government than in the private sector. But according to a 2012 study conducted by the Congressional Budget Office, wages for federal jobs requiring the highest level of skill and professional qualifications are on average 23 percent lower than for similar jobs in the private sector.  In other words, for higher levels of skill, the public sector actually pays less, which is absurd and a recipe for failure.

A basic tenet of labor economics is that talent costs money.  Another way of saying this is that if we want a high level of performance from government, then we need to be willing to pay the premium required to achieve that performance.

Perhaps the fiasco with HealthCare.gov could not have been entirely averted, but it was certainly foreseeable. According to reports, there were at least two sets of contractors working on the site in isolation from each other and without proper oversight of the entire process on the part of the government.  There was a lack of ownership of the final product as well as failure on the part of the individuals tasked with specific sections, which ultimately led to a breakdown. 

This outcome could have been prevented with a more experienced team at the helm that would have known exactly how to create and test a site like this, and how to run the overall process more efficiently.  In addition, the incremental cost of recruiting and hiring the best people would surely have been less than what it will now cost to fix the glitches under extreme time pressure, not to mention the frustration caused for the public and the damage to the credibility of Obamacare.

It is commonplace for citizens to complain about the poor quality of government services but it is also equally commonplace for them to object to better payment of public-sector workers.  While the sentiment is understandable, it is also detrimental to achieving greater efficiency and professionalism in our government.  If we truly want our best and brightest citizens to contribute their talents to our collective welfare, then we need to recognize that that talent comes at a price. 

I am not suggesting that we should turn the public sector into a capitalist circus, but merely that it would be smart to pay those on whom the nation depends at least as well as the private sector would.

– Political and business commentator Sanjay Sanghoee has worked at leading investment banks Lazard Freres and Dresdner, as well as at multibillion-dollar hedge fund Ramius. His opinion pieces have appeared in Time, Bloomberg Businessweek, Fortune, and Huffington Post, and he has appeared on CNBC’s ‘Closing Bell’, TheStreet.com, and HuffPost Live.