Forget about selling books, movies and cereal—Amazon is now getting into the Obamacare game.
Health insurers selling policies under the health-care law have been told that the Amazon Web Services cloud can be used as a host for important data that those insurers are required to share with the federal Centers for Medicare and Medicaid Services, CNBC.com has learned.
The data will be used to calculate how much money insurers owe, or are owed, under a key program designed to reduce the risk that comes from insuring people under Affordable Care Act plans. The program essentially spreads that risk out among competing insurers, and is aimed at avoiding big premium price hikes in the first three years of the health-care law policies.
Experts said CMS' delays in implementing the program, of which the Amazon deal is just the latest example, could lead to some insurers not having an accurate picture of their financial condition at the end of this year. That's because the system may not be up and running by then, although CMS said the plan is for data collection to begin this fall.
A CMS official confirmed the Amazon deal.
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"Based on feedback from stakeholders, CMS is offering issuers a new option for data reporting under the risk adjustment and reinsurance program," CMS spokesman Aaron Albright said. "Issuers may select the option that best works for them for reporting data that is expected to begin later this year."
Amazon did not respond to a request for comment.
The Amazon arrangement announcement, made in a conference call by CMS last week, was met with resignation and some surprise by the insurers, many of whom had already purchased computer servers that the deal effectively made redundant.
CMS told insurers who already had that hardware that they could still use those so-called "edge servers" if they didn't want to use Amazon's cloud for the data. If insurers choose the Amazon option, it will cost them $6,000 to $24,000 apiece, annually, depending on the size of the plan, according to a person who was on that call.
The abrupt announcement came after insurers had long believed they would need to obtain that hardware to comply with the policy. Those servers alone can range in cost from $10,000 for ones used by small plans, and up to $50,000 for servers used by larger plans. Administrative costs related to the service can run much higher.
"All these plans have upfront costs . . . and suddenly they come out and say, 'You don't need to do that,' " said Bobby Koritala, chief product officer of Infogix, an insurance data integrity provider. "Roughly 50 to 60 percent of the plans have their infrastructure in place."
The announcement came more than six months after insurers had suggested a cloud-based solution just like the one that now will be provided by Amazon. Insurers had argued that the cloud was a more technologically efficient and cost-effective solution.
"CMS never responded to say 'we will look at giving you an alternative,' " said Eric Sullivan, vice president of product innovation and data strategies of Inovalon, a health-care data solutions provider.
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Sullivan noted that in the past five months, CMS had been "canceling meetings" that were supposed to brief insurers on the edge server issue.
In last week's conference call, Sullivan said, CMS officials told the insurers that the Amazon cloud option was in response to the insurers' feedback from last year.
"The unfortunate thing is ... this response is very late in the game," Sullivan said.
Months ago Infogix had even asked CMS for permission to create a hosting service on Amazon Web Services, which it would then manage for insurers. But Infogix said CMS never answered that request.
"It was deafening silence," Koritala said. He said Infogix had spoken to insurers representing a majority of the health-care exchange market about creating such a solution on Amazon Web Services.
"We think it's the right thing for CMS to do, to centralize [the data], but we're not happy about CMS stretching it out," he said.
If CMS had given Infogix the green light months ago to set up its own Amazon solution, Koritala said, "We could have had that infrastructure up now. I have no doubt in my mind about that . . . we could have done it within three to six months."
Yet another slowdown
Inovalon's Sullivan said there was "frustration" among insurers because the edge server delay is yet another case of them being required to bear the burden of a flawed rollout of the Affordable Care Act. The disastrous launch of federally run HealthCare.gov last fall lead to a massive repair effort that caused CMS to put a halt to edge-server-related development.
"It's a last-minute change that adds more confusion to a process that's gone too slow to begin with," he said.
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Sullivan said some insurers have expressed concerns about the security of having data in the Amazon cloud.
Sullivan predicted that a number of insurers, even if they have not already purchased their own edge servers, would do so and eschew the Amazon option because of such concerns.
"There is some comfort level having these servers where they have control over that," Sullivan said.
Still, he said other plans may scrap the servers they've purchased and go with the Amazon option. Other plans without servers already will use Amazon, he said.
In either case, Sullivan and Koritala said the delay in implementing the edge server system could prevent insurers from having an accurate understanding of their profits or losses from selling ACA plans by the end of 2014, when they are assembling their year-end financial reports.
In response to that speculation, a CMS official said, "Issuers currently have sufficient guidance, instructions on methodology and information in order to calculate their own estimates under these programs," without having to rely on the edge server system being up and running.
—By CNBC's Dan Mangan