Covered CA draws state and industry fire

Struggling to prove that it has stabilized its business model, Covered California rebuffed criticism from industry leaders burned by their Obamacare experience, while a new state report called the exchange’s own practices and plans into question.

Most recently, Covered California fired back at charges that it shared responsibility for hundreds of millions in losses incurred last year nationwide. “In a blistering critique, Covered California’s executive director, Peter Lee, said UnitedHealth Group Inc. made a series of blunders on rates and networks that led to a $475 million loss in 2015 on individual policies across the country,” NPR reported. “The company estimates a similar exchange-related loss of $500 million in 2016.”

“Lee, a staunch defender of the health law and a former official in the Obama administration, has tangled with UnitedHealth in the past. He knocked the company for sitting out the launch of Obamacare in 2014, then welcomed UnitedHealth into Covered California for 2016.”

Leveling off

The company’s tortured relationship with California’s health exchange culminated in an analyst conference call where CEO Stephen Hemsley warned UnitedHealth “can’t really subsidize a marketplace that doesn’t appear at the moment to be sustaining itself.” Observers interpreted the call as a signal that other insurers were getting nervous about the health exchanges’ prospects for self sustaining.

Analysts have tangled over the likelihood that Covered California’s numbers have already begun to plateau — that is, add participants at around the same rate as the previous year. “Despite Covered California’s $29 million marketing campaign to publicize the exchange, many uninsured Californians continue to say they can’t justify paying for health insurance, even if they have to pay a large fine for remaining unprotected,” according to the San Jose Mercury News, which suggested numbers could come in just 100,000 above the previous enrollment period. “The exchange set a goal of enrolling 295,000 to 450,000 Californians who had never bought insurance through the exchange before.”


Even the state’s own auditor, Elaine Howle, has joined the fray with a sobering judgment on the stability of Covered California. In a report that calls the exchange “high-risk,” the auditor noted that its business model must now shift away from Washington subsidies, increasing the pressure to make up the difference by taking a cut of sales. “Federal funding will expire this year,” Capital Public Radio noted. “That will leave Covered California to rely solely on revenue from health insurers. The amount they pay is dependent on how many people enroll in insurance plans through Covered California.” The exchange has applied a charge of $13.95 each month on each plan it sells. “The audit says, with limited data from the program’s short history, it’s hard to know if Covered California’s enrollment projections will be correct,” according to CPR.

The auditor also focused attention on the issue of competition. It “criticized the exchange for not sufficiently justifying its decision to award a number of large contracts without subjecting the contractors to competitive bidding,” as CNBC reported. “The audit found that 9 of the 40 justifications for sole-source contracts the exchange issued ‘were insufficient’ according to the policy adopted by the exchange’s own board.” According to the Sacramento Bee, Howle questioned the exchange’s spending habits:

“Without competition between prospective firms, the health insurance exchange couldn’t be assured its contractors were the most qualified — or cost-effective — auditors said. They cited the example of the agency’s third-largest overall contract, a marketing and outreach pact with Weber Shandwick for nearly $134 million.”

Exchange officials, the Bee added, “did not dispute the audit but said they have adopted new contracting policies and have improved staff training on the subject. […] Covered California, following a competitive process, has since awarded its advertising and marketing work to Campbell Ewald Company for some $150 million.”

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