WASHINGTON — Facing an October deadline, Obama administration officials said Thursday they had awarded a contract worth as much as $1.2 billion to a British company to help them sift applications for health insurance and tax credits under the new health-care law.
The company, Serco, has extensive experience as a government contractor with the Defense Department and intelligence agencies, and it manages air traffic control towers in 11 states and reviews visa applications for the State Department.
But it has little experience with the Department of Health and Human Services or the insurance marketplaces, known as exchanges, where individuals and small businesses are supposed to be able to shop for insurance.
Serco will help the Obama administration and states determine who is eligible for insurance subsidies, in the form of tax credits, and who might qualify for Medicaid. Tasks include “intake, routing, review and troubleshooting of applications,” according to the contract.
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“This is a huge undertaking,” said Alan Hill, a spokesman for Serco’s U.S. unit, in Reston, Va. “We have some tight deadlines to meet.”
The exchanges are supposed to be in operation in every state by Oct. 1. Under the contract, Hill said, Serco and its subcontractors will immediately begin hiring 1,500 people.
Since the government first invited proposals, the importance of the exchanges has grown for several reasons. Many states have decided not to expand Medicaid, and the Obama administration announced this week it would delay, until 2015, a requirement for larger employers to offer coverage to employees.
In addition, many states have decided not to set up exchanges, leaving the task to the federal government.
Several insurance and health-policy experts said they were surprised at the selection of Serco because it did not have experience with the exchanges. But that may have helped the company win the contract.
In the past six months, federal health officials expressed concern that companies already working with exchanges could have an unfair competitive advantage because they had access to nonpublic information about how the government was setting up its eligibility and enrollment system.
Serco will also help the administration decide who is entitled to exemptions from the tax penalties that can be imposed on people who go without health insurance starting next year.
White House officials say that, in many cases, federal and state computers will be able to verify a consumer’s income and citizenship status and determine eligibility in a matter of minutes.
But contract documents indicate federal officials expect one-third of the 19 million applications in the first year will be paper ones.
One of Serco’s biggest tasks will be to run a giant mailroom, where it will receive paper applications, supporting documentation, and correspondence from individuals requesting coverage and from employers and employees seeking insurance. Serco is supposed to make digital copies of the documents, then destroy most of the originals.
The government said it could expand and extend the initial 12-month contract, bringing its potential value to $1.2 billion over five years.
Hill said the contract could be “one of the largest we’ve won” in the U.S., where Serco has 8,000 employees and more than $1.2 billion in annual revenue.
Even as the Defense Department and other agencies face across-the-board budget cuts, the health law has been a boon to contractors.
The Government Accountability Office found that the administration had spent $394 million on contracts to establish federal insurance exchanges. More than three-fourths of the money went to 10 companies.
They include CGI Federal, a subsidiary of the Canadian company CGI Group ($88 million); Quality Software Services ($55 million); and Booz Allen Hamilton ($38 million).