On Saturday, Jan. 23, the South Coast Air Quality Management District approved an order drafted by SoCal Gas that contains language promoting secrecy in the cleanup efforts while limiting the levels of liability in what is certain to be multi-million dollar damages.

“This order is an attempt to limit the damages from the date that they ‘follow the rules’ – which is when this was signed, Jan. 23,” said attorney Patricia Oliver, who has filed a class action lawsuit. “It’s very bizarre, almost a finding of innocence. If they are in compliance with the law.”

The ruling came down one day after a town hall meeting attended by two members of Congress and environmental activist Robert F. Kennedy, Jr., who is also an attorney on the case. More than 1,000 residents packed into a local church to get medical and legal advice on how to deal with the disaster.

The offending site is in Northridge, where 115 natural gas wells are located 8,500 feet underground. Beginning Oct. 23, area residents began getting sick and experiencing bloody noses while reporting noxious fumes permeating the area. The catastrophe continued unmitigated and caused residents to move from their homes as Gov. Jerry Brown declared a state of emergency on Jan. 6.

SoCal Gas has been unable to plug the leak and predicts that it will need another month for full compliance. Los Angeles County Health Dept. says no long-term risks exist.

Resident Christine Katz doesn’t buy it.

“My daughter was hospitalized for three days in the ICU for upper respiratory problems,” she said. “My 2-1/2-year old was having trouble breathing and needed an inhaler. We were fine, living a normal happy family life until all of this happened and now we are living in a rental house with our three dogs far from home.”

Burrowed into the AQMD order is language that SoCal Gas can use as a defense in against the residents in a lawsuit, Oliver said.

Legal Cover

“Specifically, the order says it is being adopted to ‘further compliance with AQMD rules and regulations’ and that AQMD ‘believes that such conditions will mitigate the conditions contributing to the alleged nuisance and further compliance with AQMD rules and regulations,’” she said.

In other words, all SoCal Gas has to say in court is that they were following the order and the leaks were under legal levels, Oliver added.

SoCal Gas claimed that while inspecting the 115 wells it found numerous “minor leaks … below levels that would constitute a violation of current district rules” and that “all the minor well leaks … have been repaired.”

Yet the utility stopped short of including any language that would require proof of repair. Oliver has asked for such documentation and received none.

“There is no factual basis to support these statements,” she said. “All of their results have been secretive.”

While no facts have been forthcoming, SoCal Gas initially sought to specifically prevent its disclosure in the order by claiming that any data submitted regarding its progress be withheld from the public because it is a “trade secret.” This language was stricken by the AQMD.

An AQMD spokesman refused to comment.

When David Tran fled Vietnam in 1978, he left his possessions behind and boarded the dilapidated freighter Huey Fong bound for Hong Kong. His fare was approximately $11,500 in today’s dollars, money that was split between the Vietnamese government and the ship’s operators.

An international incident ensued as Hong Kong refused to let the freighter dock for a month and it had nowhere else to call home. After intervention by both the United Nations and the United States, Tran eventually ended up in Los Angeles with less than $100 and two big things in his favor: an extreme work ethic and a brilliant mind.

Fast forward to 2014 and Tran is now a hot sauce mogul, owner of Huy Fong Foods in honor of the freighter that brought him here. His Sriracha Hot Chili Sauce and two other flavors bring in more than $60 million a year. The bright red Sriracha in the clear plastic bottle with a rooster logo has become famous around the world and even has received such lofty praise as Bon Appetit Magazine’s ingredient of the year and is used by the restaurant chains P.F. Chang’s and Applebee’s.

Tran built his empire from humble beginnings: using a recipe he devised himself and mixed in a bucket, delivering to Chinatown restaurants in his van, the Los Angeles Times reported last year.

But now he finds himself facing an oppressive government for the second time in his life as the Los Angeles suburb of Irwindale has filed a lawsuit to shut down Tran’s 600,000-square-foot manufacturing facility over claims that fumes from the chili peppers cause harm to nearby residents.

“Today, I feel almost the same” as living in Vietnam, Tran told NPR this week. “Even now, we live in USA, and my feeling, the government, not a big difference.”

The perceived ill treatment has sparked a bidding war among politicians from other jurisdictions who see the company’s economic value and are hoping to lure Tran away from the $50 million factory he constructed just four years ago.

The most recent suitors are Texas state Rep. Jason Villalba and state Sen. Carlos Uresti, who led a Lone Star State contingent on Monday that promised tax incentives and a friendly community, grateful for the jobs and commerce. With the Texas flag flying outside, the politicians toured the facility for an hour and elicited an agreement that Tran would consider expanding there.

“Discussions centering on expansion into Texas, not solely relo,” Villalba tweeted.

Even Texas Gov. Rick Perry got into the action by tweeting: “@huyfongfoods The Texas business climate is hot. We want you to make it even hotter. Come to Texas!”

California recently learned that it lost Toyota’s headquarters to Texas, a place with no state income tax and a lower cost of living. But the one thing that makes Sriracha a success is its rare red jalapeno pepper, a vegetable that is grown in Southern California and crushed into sauce within six hours of harvesting. Over the years, Tran has developed his own hybrid plant.

So Tran will send farmers to Texas for soil samples to determine whether his brand of jalapeno can be grown there and he also is in discussion with Texas Department of Agriculture, tweeted Dallas-Fort Worth TV reporter David Whitely, who was at the event.

“This is a good place,” Tran told reporters on Monday. “I moved in. I will stay here.”

However, given the uncertainty of the business climate in Irwindale, a move to another area of California, or to another state, cannot be ruled out completely.

Irwindale City Manager John Davidson could not be reached for comment.

Fighting City Hall

Irwindale is a working-class city of approximately 10 square miles and just 800 households. But 40,000 more come here every day to work in manufacturing jobs that include 17 pits where sand and gravel are mined, a Miller-Coors brewery, Southern California Edison, Breeder’s Choice Pet Food and Ready Pac Produce.

In 2010, Irwindale added Huy Fong Foods, which had outgrown its facility in the nearby city of Rosemead. To sweeten the package, the city sold the company a plot of land for a $15 million 10-year interest-only loan with a balloon payment at the end. The interest equaled $250,000 a year.

But the honeymoon period was short. Two years later a council member’s son became the first of several residents to complain about an odor coming from the plant.

On Oct. 30, 2013 the city sued Huy Fong Foods, asking that the company be immediately prohibited from “operating or using its chili sauce manufacturing facility because it is causing ‘physical harm and discomfort to the people of Irwindale,’” according to court documents.

Residents from six households complained that the fumes are generally from late afternoon to the following morning and cause coughing, difficulty breathing, headaches, bloody noses and heartburn, court documents said.

A private smell abatement company toured the facility and looked at the filtration system, then declared that the carbon filters were inadequate for removing any hazardous odors. It was suggested that Tran buy an upgraded system that cost $600,000. Tran declined, saying his business did not have an odor problem.

So the city “reluctantly … had no choice but to move forward with code enforcement proceedings,” court documents said. The smell is alleged to happen during the fall grinding season, which lasts just a few months and would cripple the business if it was shut down during that period.

Tran then began to have what he said was an “odd feeling” about his future in Irwindale. So he obtained a bank loan and paid off his city loan, leaving Irwindale coffers without its hefty subsidy. On Dec. 16, a judge issued a temporary restraining order, saying Tran could continue to operate the facility, but was prohibited from “emitting anything that either causes noxious, irritating or offensive odors.”

Since then, the city has been locked in negotiations with Tran and his attorney as to whether the business should be declared a public nuisance. This paves the way for Irwindale inspectors to enter the facility and make repairs at its own behest and send the bill to Tran.

“This has taken on a life of its own,” said Tran’s attorney, John Tate, a partner with Davis Wright Tremaine.  Tran has “received overtures just about everywhere imaginable. My sense is he is very much keeping all his options open. It’s not a done deal staying in Irwindale.”

The smell is practically non-existent, nothing more than would be emitted from a kitchen, Tate said.

“I have been on the roof, sticking my head in the vent and everywhere else,” Tate said. “I couldn’t smell anything. And despite being offered multiple opportunities to go to plant, the city council has consistently refused to come. They do not want to do an inspection.”

Meeting

A city council meeting is scheduled for tonight, but the matter is expected to be continued for two weeks. This meeting is a continuation from an April 23 meeting which saw the 70 full-time employees staging a protest over the lawsuit, an event that was coordinated by Alan Alas, a Republican congressional candidate for the district that includes Irwindale. Alas has been putting pressure on the council to abandon its lawsuit and is trying to convince Tran to stay in Irwindale.

“I don’t think the council was prepared for the amount of media scrutiny and bad publicity that has been received,” said Alas’ spokesman Albert Gersh, who is also president of the Republican Party of Los Angeles County.

“They are in damage control, they want everyone to go away,” Gersh said. “They are going to try to come up with some sort of face saving gesture. They don’t want those news vans back in their parking lot. I think they saw [Tran] as easy pickings and they made strategic error in doing that.”

Obamacare’s most vocal critic in the California Legislature has announced that he will be filing a lawsuit Wednesday against Covered California.

Sen. Ted Gaines, R-El Dorado Hills, has recently sparred with Covered California’s director, Peter Lee, over accountability pertaining to the exchange’s advertising budget. Details of the lawsuit will not be released until Wednesday.

A press release said the lawsuit will “protect consumers from additional harm resulting from the Obamacare disaster and ensure ratepayers and taxpayers are not gouged by Covered California’s reckless spending.”

CalWatchdog.com was the first to report that Gaines demanded an accounting of Covered California’s expenditures for an eight-hour web stream featuring a gyrating Richard Simmons in a lurid dance-off. The Jan. 16 event was part of an ongoing, celebrity-laden marketing campaign titled, “Tell a Friend, Get Covered.”

Covered California did not respond to Gaines’ letter, but told CalWatchdog.com that the campaign cost $1.37 million and would span five months, ending March 31. After Gaines discovered the cost, he formally requested a state audit of Covered California’s marketing budget, saying he was concerned about a $78 million shortfall to the agency in 2016 when federal grants run out.

Gaines, who has a family-owned insurance agency, is a candidate for California’s insurance commissioner on the 2014 ballot.

Media scrutiny

For its part, Covered California says it’s a new agency that is trying to be prudent and becoming self-sufficient doesn’t happen overnight. California law prohibits the exchange from taking money from the state’s general fund.

“We always anticipated a high level of media scrutiny, and we just hope that all the good work we’re doing doesn’t get lost in the noise,” said Covered California spokeswoman Anne Gonzales. “Amidst all the debate, we are staying focused on the fact that, despite all our challenges, hundreds of thousands of people are trying to sign up for coverage, which reaffirms our mission and boosts our potential financial sustainability for the future.”

Covered California has nearly 2 million people enrolled or going through the application process, according to the latest figures available. However, more than a million people have lost their insurance policies in California, Gaines said.

The agency faced a glitch in its computer software last month, causing the site to freeze when consumers were attempting to enroll. The site was taken off line for several days and affected 21,000 people. Covered California called it a software malfunction. The Associated Press wrote that the site had a “potential security flaw.”

State Sen. Ron Calderon and his brother Thomas, a former assemblyman, were indicted late Thursday in a massive bribery and insurance fraud case that could send them to prison for the rest of their lives.

A 24-count criminal complaint made public Friday revealed that Ron Calderon, D-Montebello, solicited and accepted approximately $30,000 in cash bribes to push through legislation that helped a hospital owner who was engaged in workers compensation insurance fraud. Another $70,000 was solicited from undercover FBI agents posing as movie executives to create legislation to benefit the movie industry.

The crimes occurred between 2010 and 2013 and also involved Michael D. Drobot, former owner of the now-defunct Pacific Hospital in Long Beach, who was charged with submitting inflated insurance claims and paying the bribes to curtail legislation aimed at stopping such behavior.

“Sen. Calderon is accused of accepting tens of thousands of dollars in bribes and using the powers of his elected office to enrich himself and his brother Tom, rather than for the benefit of the public he was sworn to serve,” U.S. Attorney Andre Birotte Jr. said in a statement.

The Calderon brothers were notified of the charges through their attorneys on Friday. Thomas appeared in court at the end of the day and pleaded not guilty. He was released on a $25,000 bond and ordered to stand trial on April 15. Ron is scheduled to turn himself in on Monday. If convicted of all 24 counts, Ron faces a maximum prison sentence of 396 years in prison.

Laundering allegedly done via nonprofit group

Thomas, who is charged with seven counts of money laundering, could receive a maximum of 160 years. The indictment said he conspired with Ron to launder the bribery funds through a nonprofit that the brothers controlled called Californians for Diversity. Funds were then diverted from the nonprofit to either Thomas Calderon’s personal bank account or his consulting business, The Calderon Group.

Last April, FBI agents had tapped telephone lines and recorded the pair discussing the money laundering. On one occasion, Ron told Thomas that he had “closed the deal” with the movie executive who had agreed to send “future bribe payments through defendant Thomas M. Calderon’s company,” the indictment said.

The federal investigation was no secret to Ron Calderon, who learned about it on May 4, 2013. On that date, he flew to Las Vegas to meet with the purported owner of an independent film studio he had allegedly been receiving bribes from as payment for introducing legislation granting tax breaks for low-budget filmmakers. A ruse was set up to receive the funds: Calderon’s daughter had a job with the studio and began receiving a series of payments even though she did no work.

True to his word, Calderon introduced legislation lowering the threshold for a filmmaker’s tax break from $1 million to $750,000.

But Calderon’s plans went awry when he arrived at the Bellagio resort and discovered that the filmmaker and an assistant were actually undercover FBI agents from the Public Corruption Squad who disclosed that he had been under investigation “for quite some time,” a U.S. Attorney’s Office court document said.

Calderon was not arrested and told that he could leave the meeting or cooperate with the investigation. He chose the latter and spoke to the agents for three hours, implicating other senators in his discussion. Then he agreed to another meeting the following day and on four other occasions within the next week.

Calderon agreed to roll over — but not on his family

“Calderon made it clear from his first meeting with the FBI agents that he was willing to wear a wire and record his conversations with other public officials,” the court document said. “The only people Calderon said he was not willing to record were his family members.”

Calderon actually did record two conversations with an unnamed person who has not been charged. He then stopped communicating with agents, so on June 4, 2013, a search warrant was served on his Capitol offices, an event that was covered by the media.

Pacific Hospital was the go-to place for spinal surgeries and several thousand were performed between 2008 and April 2013. During this time, Drobot owned the hospital and he gave doctors kickbacks of $15,000 for performing such surgeries at his hospital and utilizing implantable devices supplied by a company that he owned. That company, International Implants, overcharged the hospital by at least double and the hospital would submit the bills to insurance carriers through the mail – also creating mail fraud, the indictment said.

Beginning in January 2010, the California Senate and the Division of Workers’ Compensation decided to revamp the billing procedures to curtail excessive spending and fraud. Rather than letting hospitals bill separately for hardware, the amount was to be folded into the total cost of the surgery which had a set fee schedule.

Allegedly fought to preserve hospital scam

Calderon met with two other senators and emailed a third in order to quell this overhaul. He also arranged to have his son work at International Implants as a file clerk during the summers of 2010, 2011 and 2012. The younger Calderon was paid a total of $30,000 – money that went toward his college tuition — even though he only worked 15 days per summer. Then he filed tax returns showing a write-off of most of the money, the indictment said.

Drobot also showered Calderon with other gifts like vacations with usage of a private jet, rounds of golf at high-end resorts and meals at pricey restaurants. None of this was disclosed on Calderon’s conflict of interest forms, the indictment said.

Eventually this was for naught, because the law overhauling the medical hardware passed in January 2013. By that time, Drobot had billed insurance companies approximately $500,000 for spinal surgeries and had paid upwards of $50 million in kickbacks to doctors. Other professionals such as chiropractors and marketers would receive kickbacks as well for their referrals for other types of surgeries. The kickback amount was just folded into the contract for services.

“In some cases, the patients lived dozens or hundreds of miles from Pacific Hospital and closer to other qualified medical facilities,” Drobot’s plea agreement said.

When he is sentenced, Drobot faces a maximum of 10 years in prison, an order of restitution and a fine that could equal twice victims’ loss.

Responding to a state senator’s call for an investigation into the marketing budget of California’s Obamacare exchange, the agency says it is in great financial shape and even received high marks for an audit conducted last year.

“By 2015/16, we project a reserve of over $184 million,” Covered California spokesperson Anne Gonzales told CalWatchdog.com. “We are putting aside a healthy amount of federal grant money and plan to draw on our reserves until our enrollment starts generating income.”

But GOP state Sen. Ted Gaines, R-El Dorado Hills, who is vice chairman of the Senate Standing Committee on Insurance, said the agency will be $78 million in the red during the next fiscal year. He was incensed to learn that Covered California spent $1.37 million on an advertising campaign featuring a lurid Richard Simmons web stream that is now on YouTube.

Gaines learned about how much the “Tell a Friend, Get Covered” campaign cost from a Jan. 30 CalWatchdog.com article and then demanded an audit of Covered California on same day. He had initially asked for the financial information in a letter to Covered California Director Peter Lee, but it had gone unanswered when the article appeared.

Democratic bill

Covered California’s detractors aren’t limited to the Republicans. Late Monday, state Sen. Norma J. Torres, D-Chino, introduced Senate Bill 972, aimed at fixing “problems experienced by consumers” – lackluster customer service, a low Latino sign-up rate and inaccuracies in the provider directory, a press release stated.

“Accountability starts at the top,” Torres tweeted Tuesday. “Covered CA customers deserve better.”

To remedy the situation, Torres’ bill increases the number of Covered California directors from five to seven and broadens the types of expertise for board eligibility to include marketing and information technology. It has bi-partisan support.

Torres’ spokesperson, Alex Barrios, said in an interview that Covered California’s poor performance “is the responsibility of the board.”

However, on paper, Covered California is doing a stellar job.

To date, it has had three audits:

• The state of California, which labeled it a high risk entity, yet praised its transparency and marketing plans as “more than adequate” and “logical and deliberate.”
• A self-review that was submitted to the state Department of Finance on Dec. 30 that says it has “adopted and operates with an adequate system of internal control and … monitoring processes” with on-going reviews and personnel tasked with ferreting out waste, fraud and abuse.
• A federal compliance audit that is scheduled to be completed in a few months.

Budget

Covered California’s current budget is $399.7 million. Since 2010, the federal government has awarded $910 million in grants and no further funding will be received after Jan. 2015. The agency has been saving money for reserves, which will fund its budget after the grants end. Unlike other state agencies, it is prohibited from drawing on the state’s general fund.

In the 2015/16 fiscal year, the deficit will be $78.4 million, decreasing to $34.5 million in 2016/17. The deficit should shrink in succeeding years as more insureds are signed up in the system, Covered California says.

“We are a startup enterprise, and it would not be fiscally conservative to imagine we will make money as soon as we open our doors,” said spokesperson Anne Gonzales. “We are being frugal, setting aside reserves until our revenues ramp up. In addition, Covered California is currently helping the state’s fiscal situation. We are operating exclusively with federal funds, and many of those dollars go to create jobs for people who buy goods and pay taxes. We are an economic engine in that respect.”

This doesn’t mollify Gaines, who wants to know more.

He received a response to his letter to Director Peter Lee a day after CalWatchdog.com’s story appeared.

“From our early data, Tell a Friend – Get Covered has been a success and has surpassed expectations,” Lee wrote. “[W]e have measured a reach of over 202 million impressions throughout the campaign; a significant milestone amplified by over 60 media personalities who … have encouraged their own followers to learn more.”

The 8-hour web stream that featured Simmons also included spots by actress Olivia Wilde and comic Billy Eichner. Other celebrities blogged or tweeted for the campaign: President Obama, Adam Levine, Fran Drescher, George Lopez, Lisa Leslie and Kerry Washington.

Gaines said in an interview that Lee’s letter didn’t give specific details about how many people signed up during the campaign and a breakdown of dollars spent.

“They have these high-priced consultants for all this so-called great marketing advice,” Gaines said. “The millennials are not signing up at the rate that they should be and there are problems with the Latino outreach. I’m not convinced that the financial structure is going to bring us to the point of break even or profitability.

“I would like to ask these probing questions and have someone provide an account of how dollars are being spent,” Gaines said.

Marketing plan

However, the state audit said Covered California’s “outreach plans appear more than adequate” and it “appears to have engaged in a logical and deliberate process when developing its marketing plan.”

Torres also asked Covered California for an accountability on how dollars were being spent and details about its Latino enrollment.

“We didn’t get specific answers,” said Barrios, Torres’ spokesperson. “We believe in accountability. We asked in mid-December for this.”

Director Lee was invited to speak before the Latino Legislative Caucus and he provided some answers to questions, but not all of them, Barrios said.

“As a Democrat, Norma Torres wants to see Covered California do better,” Barrios said.

The Jan. 16 event — now immortalized on YouTube — showed celebrity fitness trainer Simmons writhing on the ground to an MC’s chant of “Get Covered, hashtag, uh-huh,” a reference to Covered California, the state exchange. At one point, he snuggles up to a contortionist following a dance-off. The full YouTube is at the end of this article.

Covered California faces a $78 million deficit during the next fiscal year due to cutbacks in federal funding. State Sen. Ted Gaines, R-El Dorado Hills, learned of the $1.37 million campaign cost from the CalWatchdog.com article. He had previously sought to obtain the information from Covered California Director Peter Lee, but received no response.

“What a waste of money — oh, my gosh,” Gaines said in an interview. “I looked at the video and was blown away that they would spend money on that. And for them to think that people would want to sign up for health insurance from seeing it? Give me a break.”

Gaines formally requested the audit Jan. 30 in a letter addressed to the chairman of the Joint Legislative Audit Committee. It was the same committee that recently discovered the exchange’s budget shortfall. The exchange was audited about a year ago. But the audit didn’t reveal the deficit or analyze funds spent on public outreach, so another audit should be conducted, said Gaines’ spokeswoman, Betsey Hodges.

“Covered California recently spent $1.3 million on a widely mocked infomercial featuring Richard Simmons,” Gaines wrote. “I fear that this is evidence that the Exchange shows little regard for the precarious fiscal condition it faces.”

Rate increase

Gaines, who is vice chairman of the Senate Standing Committee on Insurance, said Covered California didn’t appear to have a plan to fill in the deficit, and he fears that policy holders will be stuck with a massive rate increase.

“It is stunning to me that a Department this new and this small could be facing a deficit this big without a plan to cover it,” Gaines wrote. “In light of this deficit [and] the seemingly ill-advised informercial … an examination of the Exchange’s finances is in order.”

Covered California responded by saying it received a good rating from its last audit.

“We live up to any federal and state audit requirements,” said Covered California spokeswoman Anne Gonzales. “We are committed to being transparent, and we welcome any opportunity to explain our financial picture to the public, including lawmakers.”

Several steps have to occur before an audit. The Bureau of State Audits will determine a cost based on the scope of the work. Covered California Director Peter Lee and the general public will have a chance to respond to the proposal. And the committee will decide whether to move forward, table the request, or transfer it to another agency.

A hearing is scheduled for Feb. 11.

Covered California’s budget is $399.7 million, of which $102.6 million is spent on outreach, a legislative report showed. So far, about half a million people have enrolled.

Contact Tori Richards at tori@watchdog.org and on twitter @newswriter2. This was cross-posted from Watchdog.org

The full, six-hour video is below:

The “Tell a Friend — Get Covered” campaign by California’s Obamacare exchange features such other celebrities as Olivia Wilde, comic Billy Eichner, Fran Drescher and Tatyana Ali. The centerpiece of the effort was a six-hour live web stream that ran on Jan. 16. (See full YouTube below.)

The celebrities were not paid for their work, Covered California said.

In response, on Jan. 18, State Sen. Ted Gaines, R-El Dorado Hills, fired off a terse letter to Covered California director Peter Lee demanding to know why such a campaign was launched at taxpayer expense. The exchange likely will face a $78 million shortfall during the next fiscal year, said Gaines, who is vice chairman of the Senate Standing Committee on Insurance. Gaines’ letter singled out the web stream:

“On first review, this long advertisement seems a wasteful, unserious and insulting effort, especially when viewed against the backdrop of at least a million Californians having their health coverage … canceled as a result of Covered California’s actions. I question whether this is the time to pour tax dollars into what appears to be an ineffective and embarrassing quarter-day long marketing effort.” 

Public relations

Through the end of 2013, Covered California had enrolled 500,108 people. Its 2012-13 budget was $366.3 million, with $74.2 million going toward public relations, according to a Nov. 2013 legislative report.

Covered California’s 2013-14 budget increased by nearly $33 million with public relations funding going up by $28 million, the report said.

Gaines said in an interview that he doesn’t know where the money will come from to fund the $78 million deficit.

“About 900,000 people in California had [previous insurance] coverage canceled and were forced to go into the Affordable Care Act,” he said. “They are paying an extra 200, 300, 400 bucks a month. More people are canceled than actually have insurance through Covered California. Then we see these stupid commercials using taxpayer money and not even focused on the right demographic.”

Instead, he urged, Covered California should be focusing on the state’s large Latino population, which traditionally has been underinsured.

Lee defended the campaign. He said he’s using free social media to get the word out – a preferred method among younger consumers, the so-called millennials who are the target audience.

“Covered California’s programs such as Tell A Friend-Get Covered feature content that resonates among millennials and that can be spread by millennials to their friends and loved ones,” Lee said in a statement. “Millennials are not only our key audience, they also are our ambassadors in spreading the word about Covered California.”

The web stream was filmed at a Los Angeles studio and included skits, tips and interviews. During the segment, Simmons, wearing red tights and a black sequined tank top, was joined by a contortionist for a dance competition. Part of Simmons’ routine involved writhing on the ground and peeking through his split legs.

All the while, a DJ played dance music and the program’s hostess sang, “Get covered, Hashtag, Uh huh.” And, “This is beautiful…. I feel inspired to tell my friends to sign up online. That was beautiful, Richard!”

Up next was Simmons’ challenger, a contortionist with hip-hop moves prompting Simmons to quip, “I’m going to get sick. Is there a vomit bag like on an airplane?” The pair finished on the floor with the contortionist on his stomach and Simmons nestled near the man’s buttocks.

‘Embarrassment’

Gaines called the video “an embarrassment.” He told Lee that he wanted to know the cost breakdown between state and federal dollars to pay for it and whether there was a plan to gauge its value by monitoring the enrollment rate.

He also asked to see the exchange’s entire marketing plan, including cost and performance as a “benefit to taxpayers.”

So far, he hasn’t received a response. If Lee ignores his request, Gaines said he would consider issuing a formal demand through his Senate committee or holding a hearing.

Lee considers the event a success.

“The campaign has generated and continues to generate substantial social media distribution and wide press coverage,” Lee said.

President Obama has been claiming that people can keep their favorite doctors under the Affordable Care Act. But anyone who wants a premier hospital in California better do some homework before signing up.

A survey of the state’s top hospitals has revealed that most contract with only one or two insurance companies under Obamacare, even though the Covered California exchange has 11 companies to choose from. And one hospital, Loma Linda University Medical Center, has refused to participate altogether and has no contracts.

Obamacare is driven by low-cost policies. So the reimbursement rate that hospitals will receive from insurance companies just isn’t worth it to them. The end result is that the blue ribbon hospitals won’t have a large presence on the exchange, CalWatchdog.com has learned.

“The more we are learn about the insurance plans on Covered California, the more it becomes clear that the big name hospitals are sitting on the sidelines — some by choice, other by design of the insurers,” said Josh Archambault, senior fellow for the Foundation for Government Accountability and a frequent Obamacare critic. “Consumers get the short end of the stick.”

CalWatchdog.com looked at the top 15 California hospitals listed in U.S. News & World Report’s 2013-2014 annual report and contacted each one to determine their Obamacare insurance contracts. The full list is at the bottom of this article. We found that six hospitals only contracted with one company, another six had two companies, one hospital had none, and one hospital accepted all 12 companies at various levels. Stanford Hospital, listed as No. 2 by U.S. News, refused to respond to numerous requests for information.

For anyone keeping their old private insurance policy, most of these hospitals will still take myriad plans.

Money

The bottom line is money. And insurance companies are well aware of the costs of working with top tier hospitals, said Gail Wilensky, a board member of UnitedHealthcare and the director of the Centers for Medicare and Medicaid Services during the first Bush administration.

“Many plans … are concerned that they will be dominated by high using populations that have previously been in risk pools and wanted insurance, but couldn’t access it,” she said. “They are pressed to narrow networks to stay within the premiums.”

An investigation I wrote for Watchdog.org (no longer affiliated with CalWatchdog.com) showed that California’s hospitals were in line with the nation’s top hospitals, which had the same type of scenario. Most of the top 18 national hospitals accepted only one or two carriers.

Perhaps the biggest vote of no confidence came from No. 4-ranked Cleveland Clinic, which takes about 100 insurance plans if you have private insurance, but only Medical Mutual of Ohio under the exchange.

Los Angeles’ Cedars-Sinai Medical Center, which made U.S. News & World Report’s national list as well as California’s, took myriad insurance plans before Obamacare, but now in the Covered California exchange lists just Health Net. Shortly after Watchdog.org’s story appeared, radio stations began running frequent ads saying that not all plans were created equal on the exchange.

“Choose your plan carefully. Make sure your plan includes coverage for Cedars-Sinai Medical Center,” the ad intoned.

Many hospitals are in a wait-and-see mode, cautiously entering the exchange and then determining later whether more insurance companies will be added.

“It’s too early to tell what we will do in 2014 or years beyond as there has been more turmoil than expected and we are watching the [Obama] administration consistently introduce or change the regulations along the way,” said Chris Van Gorder, president and CEO of No. 6-rated Scripps La Jolla Hospitals and Clinics. “It’s almost impossible to know what is going to happen or how many patients will subscribe — and, accordingly, what will happen to insurance premiums purchased on the exchange or to the reimbursement to providers.”

Turmoil

And if government funding for indigent patients is reduced, that would create further financial turmoil for hospitals.

“Two of our five hospital facilities have historically received [Medicare] funding to help offset the number of indigent and government patients they care for,” Van Gorder added. “[Medicare] is supposed to be significantly reduced starting this year in exchange for more insured patients.”

So while Covered California is ahead of most states in that it lists the insurance companies on its site, the doctors and hospitals are still lacking. Prospective policy holders can check out our chart or call the medical provider to make sure they are getting what they want.

“Not having well known hospitals in-network on Covered California plans could come back to bite consumers in two ways: first, they cannot access those doctors and second, if they do, they will be stuck with a massively expensive out-of-network charge,” Archambault said.

Tucked inside nearly 11,000 pages of the Affordable Care Act is a little-known provision that doles out three months of free health care to individuals who choose to default on their premiums.

People who receive the federal subsidy to be part of Obamacare will be allowed to incur a three-month “grace period” if they can’t pay their premiums and then simply cancel their policies, stiffing the doctors and hospitals.

Their only repercussion is that they have to wait until the following year’s open enrollment if they want coverage on the exchange.

“It will help break the system,” said Rep. Louie Gohmert, R-Texas, one of a core group of Republicans who oppose Obamacare. “This is a huge piece of evidence to show this can’t work, you will break the system and bankrupt people involved. The hospitals, doctors and insurance companies will be left holding the bag. There will be disagreements over who will pay for what. Lawyers will get involved because we are talking about a lot of money.”

Under Section 156.270 of the Affordable Care Act, the insured needs to pay a premium for just one month before qualifying for the three-month grace period. The insurance company must pay the claims during the first month of the grace period; during the second and third month doctors and hospitals are left to collect unpaid bills.

Loophole

This loophole wasn’t lost on some unnamed individuals who queried the Department of Health and Human Services during an open comment period for the new law in 2011.

While officials at HHS did not respond to requests for comment on this story, they did offer a glimpse into their thinking in a March 27, 2012, report contained in the Federal Register.

“HHS will continue to explore options for incentivizing appropriate use of the grace period,” the register said.  “HHS will monitor this issue moving forward and will continue to work on the development of policies to prevent misuse of the grace period.”

Experts say the federal government has given people the green light to commit fraud.

“In a sense, it legalizes fraud,” said Wesley J. Smith, a senior fellow at the Discovery Institute of Human Exceptionalism and a frequent critic of the Affordable Care Act. “It legalizes putting your burdens on the insurance companies’ shoulders and never paying your premiums. The government wants people to be irresponsible and apparently they want the whole system to descend into chaos.”

In Massachusetts, where a variation of Obamacare already exists, the problem already has emerged, said Devon Herrick, senior fellow with the National Center for Policy Analysis.

“People are signing up and getting care and bailing out,” Herrick said. “I was talking to an insurance agent a few years ago (in Massachusetts). She said once a week she would get a call from a college girl who discovers she’s pregnant and wants health insurance. That’s an example of a condition that you can schedule.”

Some medical professionals are bracing themselves for the worst.

The Texas Medical Association is educating its members about the loophole and receiving feedback from worried doctors. Many in that state operate on a shoestring budget, sometimes taking out loans to stay in business. “It’s pretty scary,” said Dr. Stephen Brotherton, president of the Texas Medical Association, and in private practice in Fort Worth. “I fix your torn ACL, you don’t pay for your insurance and three months later you’re off the rolls for non-payment.”

And any doctor who is paid by the insurance company during the last two months of the grace period will have to return that money, he said.

“Our overhead is about 50 percent; I get $100 and it costs me $50 to stay in business,” Brotherton said. “The most obvious solution is anything through the exchange, we’re not taking it.”

Nefarious

The California Medical Association has taken the step of notifying the American Bar Association about the situation.

“The more nefarious insureds may take advantage of HHS-acknowledged opportunities to game the grace period and get 12 months of coverage for the price of nine before simply enrolling in a new plan under (Obamacare’s) guaranteed issue requirements,” wrote Association Associate Director C. Brett Johnson.

He chronicled a potentially nightmarish situation for a doctor:

“For instance, an oncology practice generally purchases the drugs to be used in a course of chemotherapy up front — which can run into the tens of thousands of dollars — and is then reimbursed by the payor as part of the medical service. Costs such as these are on top of the costs of displacing other patients with coverage.”

So what can be done about this now? Not much, says Gohmert. Changing the law would require a signature by Obama, and Gohmert holds out no hope for that scenario.

“You have a president who says doctors are greedy — they do surgery just so they get the money,” Gohmert said. “That’s what the president said.  That same president will certainly be willing to say, ‘Greedy doctors are demanding more money — we just need to have Washington take over all health care.’”

Editor’s note: This is cross-posted from Watchdog.org.

Contact Tori Richards at tori@watchdog.org and on twitter @newswriter2. 

One of the most liberal states in the nation has said no thanks to a key Obamacare provision and instead is enacting its own version of the law.

California has decided to skirt the “Buy 1, Get 3 Free!” loophole in the Affordable Care Act, a modest piece of the sprawling health care regulation with huge implications. The provision holds the insured blameless for failing to make monthly premium payments, while requiring doctors and insurers to continue to offer health care. During a three-month grace period before cancellation, subsidized policy holders can see doctors, have operations and rack up medical bills without paying for anything.

Doctors and insurers will be left holding the bag.

“California is usually leaning to the left, but Obamacare has gone so far that even the left coast is coming back a little to the center,” said Rep. Louie Gohmert, R-Texas, who is among a core group of congressional members who have tried to unwind Obamacare.

He has a counterpart in California: state Sen. Ted Gaines, R-Rocklin, who is vice chairman of the state’s insurance committee.

“When even California has stricter rules (than Obamacare) for a giveaway, that should tell you something,” Gaines said. “This three-for-one freebie is so bad that even the No. 1 Obama cheerleader state had to break ranks. I’m not shocked anymore by any ridiculous Obamacare example. I’m surprised it’s not four-for-one or six-for-one.”

CA version

To that end, the California Department of Managed Health Care is drafting its own version of section 156.270 of the Affordable Care Act that says policy holders will be suspended and unable to use their Obamacare plan after one month of non-payment, which is consistent with California law for all other plans purchased outside of the state’s exchange.

“From our perspective this makes it much clearer to the enrollee who ultimately is responsible to pay these bills,” said Marta Green, spokesperson for DMHC. “If I walk into an insurance provider in month two or three and if I get $10,000 worth of services, at the end of the month I am responsible for $10,000 worth of bills. We are not going to have people caught unaware.”

California is drafting language to the law and then it must go through a 45-day public comment period before it can be enacted.

“We have to analyze those comments and if everyone is on board we will finalize the regulation,” Green said. “It is our priority to get this resolved.”

March is the first month that doctors could conceivably be stuck with fronting free health care.

Freebie loophole

The freebie loophole first caught the attention of the vocal California Medical Association several years ago. CMA officials immediately began peppering the U.S. Department of Health and Human Services with notices of concern seeking clarification. Initial drafts of Obamacare left insurance companies on the hook for all three months of the grace period.

“Nobody really had any idea that the feds were going to go in this direction — that doctors are left holding the bag for months two and three,” said CMA Association Director C. Brett Johnson. “They came out of nowhere with this and didn’t give us a public comment period.”

When the federal government’s final ruling came down on March 27, 2012, the CMA found that it violated several California laws. But it was also missing something that would give the CMA some leverage: language stating that the Affordable Care Act was preemptive, meaning that the federal version would prevail over conflicting state laws.

So, armed with this bit of ammunition, the CMA set its sights on state health regulators and found a willing ally.

Besides the three-month grace period, Obamacare also violates these California laws:

• “Prompt pay,” which states that health plans must promptly reimburse health care providers; and
• “Recision,” which means California has a host of conditions that must be in place before retroactively terminating a policy. None of these is addressed in Obamacare.

In addition, Obamacare creates a federal dichotomy because the law states that insurance companies cannot charge different rates inside the exchange. In reality, rates would have to be higher inside the exchanges to compensate for the grace-period freebies.

So the DMHC contacted the Center for Medicare and Medicaid Services and told them what they intended to do.

“We got approval,” Green said. “What California is proposing is that, if you (the insured) get in the black and pay your premium retroactively, you are all good. If you had services, you will be reimbursed.”

On Tuesday, the American Medical Association passed a resolution stopping short of backing California’s version of Obamacare. It asked for doctors to be notified if patients were in the grace period and stated an opposition to any federal law that would preempt state law.

“States have been floating around saying, ‘This really sucks but it’s out there and we don’t know what we can do,’” Johnson said. “We have a solution.”

Editor’s note: This is cross-posted from Watchdog.org.

Contact Tori Richards at tori@watchdog.org or on twitter @newswriter2.