Covered California suffers financial drought

covered caCalifornia’s health insurance exchange is running out of money, and without federal grant assistance, may go bottom-up in the near future.

Last week, Covered California released its June budget revision, unveiling a $335 million budget, up $2 million from a previously proposed budget. This budget is approximately $58 million less than the previous fiscal year’s, equal to a 15 percent reduction in expenditures. The reduction, according to the exchange, is consistent with their vision to “spend more in the early years to lay the foundation.”

Despite an approximately $100 million extension in federal funding, spending has been reined in, since fiscal year 2015-16 “marks the last year [Covered California] will use federal establishment funds.” The executive summary reads that Covered California is “transition[ing] to relying solely on the fees it collects from health plans” along with money saved from federal fund reserves.

The revised FY 2015-16 budget allocates $118.5 million just for outreach, sales and marketing, the largest share of funds, which is actually about 30 percent less than the previous year. “As of March 2015,” wrote Peter Lee, executive director of Covered California, “Covered California has more than 1.3 million active ‘covered lives’ that are getting care throughout the state.” He also pointed out that, since opening its doors in January 2014, Covered California has covered a total of 1,864,014 lives.

However, Covered California doesn’t look like it will be self-sufficient anytime soon, since enrollment numbers are too low to meet the break-even threshold.

“Even spending all of the money they did on advertising, they still managed to sign up far fewer Californians than they expected,” Lanhee Chen of the Hoover Institution told the Heartland Institute. “In fact, they’ve signed up about 1.27 million people, when they expected to enroll 1.8 million.”

Covered California charges a monthly per member per month flat fee, as listed below:

  • $13.95 per enrolled member per month on individual and family plans;
  • $18.60 per enrolled member per month on small group plans;
  • $0.83 per enrolled member per month in family dental coverage.

Since the exchange receives money based on each enrollee into the program, “falling half a million enrollees short,” said Chen, “will mean financial strain for the exchange.”

The budget attempts to address such a shortfall. “If enrollment is larger than anticipated, we will look to lower the assessment we charge health plans,” the text reads. “If enrollment were to be lower, we would look at reducing costs, reduce our reserves or raise the assessment we charge health plans.”

But, as Chen pointed out, Covered California expects “to bring in $242 million in revenues” and is likely not only to “fall far short of that number,” but also “remain unsustainable in the long run without federal funding.”

Approximately 53 percent of California’s estimated subsidy-eligible population has enrolled with Covered California. The FY 2015-16 budget assumes the health insurance exchange will enroll at least 70 percent “of those eligible for subsidies who do not already have coverage by 2018.” If it doesn’t meet this mark, Covered California has reserves of $194 million, which would fund operations for another six months.

Chen said bureaucracy played a large role in the exchange’s struggle to enroll new patients.

“Covered California required Californians who wanted to buy subsidized coverage to complete their enrollments by telephone, even where a Web-based option was available,” Chen said. “This added layer of bureaucracy is demonstrative of why Obamacare is driving up costs in our health care system and ultimately making it more difficult for people to get access to quality, affordable health coverage.”

California Health Benefit Exchange’s five-member board will meet June 18 to discuss and approve the adoption of the FY 2015-16 budget.

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