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.

CBS 13 reported 1,500 people showed up to apply and enroll in person. The health fair was sponsored by the Service Employees International Union-United Healthcare Workers West, the California Endowment and Covered California.

“People in Sacramento got a chance to sign up for the new health insurance option in person if they didn’t want to do it online,” CBS 13 said.

“No waiting lines, no problems with computers, people are able to sign up today,” said Betty Williams, Outreach Coordinator with Covered California. Williams is the former director of the NAACP in Sacramento, current Sacramento County ACLU director and lost a bid recently for the Sacramento City Council.

Even with 300 Covered California “assisters,” by the end of the day only 10 people completed applications, the Sacramento Bee reported.

CalWatchdog.com reader John Thomas Flynn told me he emailed Sacramento Bee reporter Richard Chang with questions, after the enrollment celebration, and after he read Chang’s story, “Health care sign-ups proceeding, at least in California.”

“I was told that they need 24 hours to approve the applications,” Chang wrote back to Flynn, in an email forwarded to me. “Therefore, I reported it as 10 enrollments completed. They were completed, but we don’t know whether they’ve been approved.”

Only 46 other applications were started. Oddly, Medi-Cal application numbers were not available for the event, even though some people attended just to sign up for Medi-Cal, according to the Bee.

Enrollment figures?

Covered California released its first enrollment figures Wednesday, showing only a small portion of the state’s 5 million uninsured had signed up.

According to Covered California CEO Peter Lee, “Thousands are enrolling. That is the loud and clear drumbeat that California enrollment is working.”

However, an “enrollee” isn’t truly “covered” until he or she has made a payment and been issued a policy, just as in the real world of insurance works. No payment, no insurance plan.

“With some of the snags that we’ve had in the past 40 days, it’s to be expected with something brand new like this; but, I do expect it to smooth out and it to be a humongous turnout,” said Williams.

“Sign-ups are proceeding all right. They got 10 of them on Saturday.…with 7 million uninsured, that means they’ll need 700,000 more enrollment parties,” Flynn quipped.

Defiant Board

The Covered California Board of Directors voted 5-0 Thursday to continue scurrying toward the state’s year-end deadline to cancel more than 1 million private, individual health insurance policies.

Covered California board members said existing policies are being terminated because they do not meet the new requirements under the federal Affordable Care Act.

The defiant decision by the Covered California Board, in opposition to President Barack Obama’s directive this week to extend existing health plans, demonstrates the left hand doesn’t know what they right is doing.

Granting privileges

The California Legislature and the new Covered California health insurance exchange have been handing out more than $500 million in taxpayer dollars to contractors. Much of the money is going for “outreach” and “education programs” connected to voter registration drives through the health exchanges, as I wrote in a recent story.

The California NAACP received $600,000 for door-to-door canvasing throughout the state, targeting African Americans. And the ACLU is actively involved in registering new voters through Covered California enrollments. Is it any wonder Betty Williams is an Outreach Coordinator for Covered California?

Covered California announced in May it would award $37 million to 48 organizations to “conduct outreach and education programs” on how Californians can access “affordable health care coverage.”

Covered California calls these “partnerships,” and the goal is to “increase awareness about the new benefits, to educate targeted audiences, and motivate consumers.”

“The Obama administration granted $910 million to California to set up its insurance exchange,” I wrote. “The $910 million was targeted not for actual health care, but for bureaucratic spending. This included $360,000 a year for the executive director, and other rich compensation packages for exchange employees.”

Radio host exposes Covered CA ‘con’

National radio talk show host Hugh Hewitt discussed Covered California on his show this week. As for the “Covered California is working fine” declaration, Hewitt linked to my recent story about trying to enroll. And he talked about why there are no numbers on current enrollees.

“In fact, the state exchanges — while not all as abjectly miserable failures as Healthcare.gov — are close behind the federal failure in ineptitude and some are actually worse,” said Hewitt, who broadcasts from Southern California.

Hewitt asked the questions the mainstream press will not:

* “Who, if anyone, has actually made a payment to their new health plan? Almost certainly no one, which Lee will excuse as unnecessary right now.

* “Who, at least then, has gotten a real bill? Who has in hand a policy that will pay claims incurred after 1/1/14?

* “How many people have a new insurance card in their wallet with a policy number and a known price, deductible and doctor network?”

He said of his home state, “The biggest con of all seems to be running out of California, where the huge flaws in the ‘CoveredCA.com’ scheme are getting easier and easier to understand as a fraud upon the people of the Golden State, even as the Los Angeles Times and other MSM outlets flee the facts.”

The Los Angeles Times story he was referred to was headlined, “Healthcare plan enrollment surges in some states after rocky rollout.” It claimed, “A number of states that use their own systems, including California, are on track to hit enrollment targets for 2014 because of a sharp increase in November, according to state officials.”

SB 639, by Sen. Ed Hernandez, D-West Covina, is one of several bills making their way through the Legislature that are designed to implement in California the federal Patient Protection and Affordable Care Act. It is scheduled for consideration by the Assembly Health Committee on Tuesday. SB 639 would:

—Limit annual out-of-pocket expenses to $6,050 for single coverage, according to the bill’s legislative analysis (Hernandez says it’s $6,250), and approximately $13,000 for a family.

—Limit deductibles for small group plans to $2,000 for an individual and $4,000 for a family.

—Require coverage to include the four “metal” tiers in Obamacare: bronze (covering 60 percent of medical costs), silver (70 percent), gold (80 percent) and platinum (90 percent).

—Prohibit insurers from offering anything other than a standardized insurance plan in the individual market.

The California Chamber of Commerce opposes SB 639, asserting on its bill priority list that it “[e]liminates lower-priced plans, inhibits competition and innovation, and leads to less affordable coverage for California businesses and their employees.”

The legislation is also opposed by the insurance industry. Although Covered California, which is running the insurance exchanges, announced on Wednesday that 12 insurance companies have signed up to provide coverage in the individual market and six companies will provide insurance for small businesses.

“Covered California and the insurance companies participating in our marketplace have worked hard to secure these contracts, which will mean affordable health insurance plans for millions of people who currently have no coverage or whose coverage is too expensive,” said Covered California Executive Director Peter Lee in a press release. “We are proud of the product mix, the robust provider network and the lower-than-expected premiums.”

Limiting out-of-pocket costs

The main debate on SB 639 took place at the Senate Health Committee hearing on April 17. Hernandez, who was an optometrist before becoming a senator, led it off by touting the benefits of the Affordable Care Act, starting with the limit on out-of-pocket costs.

“For families with health insurance this ends medical bankruptcy,” he said. “No longer will we hear stories about families who lose their houses because of the cost of medical care. It also means that someone with a chronic condition like MS or a serious condition like cancer can budget for the cost of care, knowing that they will never owe more than $6,250 per year.”

Hernandez also praised the standardization of insurance coverage.

“Californians purchasing health care coverage in the individual market face a vast array of products to choose from with different benefit design,” he said. “It makes price comparisons very, very difficult. This bill would require that individual market products sold outside Covered California be standardized to mirror the products sold inside. This will allow consumers to make apple-to-apple comparisons when selecting a product. Standardized products make comparison shopping much simpler for consumers.

“It forces carriers to compete on cost and quality rather than a difficult-to-understand benefit design. It limits the ability for health plans to cherry pick healthy lives. And it ensures that all products offered to consumers in individual markets have undergone a level of public scrutiny before being marketed to them. Keep in mind that a plan can add to it and make it even more robust, but they have to absolutely abide by the absolute minimum requirements.”

Hernandez countered the argument that placing limits on insurers will reduce consumer options in selecting coverage.

“Consumers will still have plenty of options with five tiers of coverage and at least two standards of benefits in each tier and a multiple of insurers in every geographical region in California,” he said. “Consumers will have 50 to 80 different insurance products to choose from within that market.”

The goal: ‘standardizing’ insurance

SB 639 was sponsored by Health Access California, which calls itself “the leading voice for health care consumers in California.” HAC legislative director Beth Capell echoed Hernandez in her remarks to the committee.

“There will be literally dozens of choices that consumers will face when they go to shop on the exchange,” she said. “There will be considerable choice. But what there will not be under this bill is the opportunity for insurers to design products that are intended to attract healthier lives and to avoid those people who have serious conditions. So this is a further effort to help standardize the insurance market.”

Betsy Imholz, with Consumers Union, the policy and advocacy division of Consumer Reports, explained why that is so important.

“Our research of consumers has found what we all instinctively know, which is that shopping for health insurance is among the most dreaded consumer tasks,” she said. “To date the wild west insurance market has led consumers to feel confused by the jargon and suspicious that the fine print contains ‘gotchas’ and exclusions that they don’t fully understand. Our research has also shown that the more choices people have, if it’s too much it’s overwhelming, it undermines sound consumer decision making.

“One of the favorite parts of the Affordable Care Act for consumers has been the idea that we would finally at last simplify the individual market and the shopping for insurance policies and make it simple to make those comparisons. And to really understand what’s covered, what’s not and exactly how much it costs. This bill goes a long way to doing that by standardizing the products outside the exchange as well as inside so people can see what’s the best value for their needs.”

Speeding down the road to hell?

But several SB 639 opponents warned that the road to insurance hell is paved with good intentions.

“We appreciate the sponsor and author’s intent to create a healthy and strong marketplace where insurers compete on price and quality,” said Steffanie Watkins, representing the Association of California Life & Health Insurance Companies. “We fundamentally disagree that SB 639 will achieve that goal. On the contrary, we believe that this measure will have a very chilling effect on the market. And it will specifically limit consumer access to new and innovative quality health care options that might better suit their needs.

“Our members have demonstrated a strong commitment toward serving the needs of consumers by offering a multitude of competitive and unique products that cater to the individual consumer. We believe SB 639 will severely impede an insurer’s ability to offer these types of unique benefit options to consumers in the individual market. And make it nearly impossible for insurers to respond to the changing needs and preferences of consumers. And instead grant the exchange sole authority over product design, a role they have had very little comparative experience with.”

Watkins argued that AB 1602, which was approved in 2010, addressed many of the concerns about the difficulty in comparing insurance projects. It required insurers to offer at least one standardized coverage product in each of the four metal tiers.

“We believe the requirements set forth in AB 1602 strike the perfect balance by protecting consumers and providing flexibility in the market, so that individuals obtain the coverage that best suits their needs,” she said. “We believe it is critical at this juncture to put our resources toward implementing the ACA in a seamless way. And in a way that helps all individuals make a very seamless transition into having affordable health care come 2014. We are firmly concerned that [SB 639] places additional and unnecessary limitations on insurers without any commensurate benefits to consumers.”

Nick Louizos, representing the California Association of Health Plans, agreed that SB 639 is unnecessary because current law already provides standardization in the insurance market.

“Taking that extra step in terms of eliminating products outside of the exchange and essentially allowing the exchange board to control the outside market is a big policy question that deserves some debate,” he said.

Julianne Broyles, California Association of Health Underwriters, shares the concern about reducing consumer choice in California.

“We certainly do not believe that there was ever an intention with the federal law to take away all choice outside of the exchange with plans that only mirror exactly what’s inside the exchange,” she said. “We think that’s not what is fair to the consumer and takes away choice and competition, and stops the ability to test innovative new products here in California that might lead to better savings down the line. As ACA goes into effect and we head into open enrollment in October just a few months away, the market should be calming down. It should not be churned up further with legislation such as this.”

Sen. Anderson sees specter of ‘single payer’

The only committee member to comment on SB 639 was Sen. Joel Anderson, R-San Diego, who voted against the bill based on several concerns. The main one was that it appears to be leading toward government-run health care, also known as socialized medicine or single-payer care.

“If we limit what the private sector can offer, then aren’t effectively we making this single payer?” Anderson asked. “I mean, part of the private sector participating in this is their ability to address risk. If they are offering the same product in and out of the exchange, wouldn’t the cost be identical? And therefore why would we need the private products? Why wouldn’t everything just be solely with the exchange with single payer?”

Hernandez responded, “It’s not even close or wouldn’t even mirror any type of single-payer system. [Insurers] still have the ability to have other kinds of products above and beyond products that aren’t in the ten [required benefit] essentials that they can compete to try to bring in those individuals, whether it’s acupuncture, chiropractic services. In the exchange right now there are numerous insurance companies bidding for that new business. So it is not one system paying. It is the free market system that will be within that system.”

Anderson wasn’t convinced.

“By limiting those choices to consumers, we are artificially trying to force people into the exchange that may not want to be there at all,” he said. “And if you didn’t artificially limit it, then people have more choice. At some point if we continue to limit that choice, you’re going to have everybody in the insurance industry going to the PUC and requesting that they be regulated like the PUC. Because we have no longer turned them into insurance companies, we have turned them into payment plans.

“The final point is, I find it somewhat insulting that we are saying that our consumers can’t make choices for themselves and we want to limit their choices, as opposed to giving them a broad opportunity. I want to see the exchange work. But I’m worried that we’re weighing down the exchange and making judgments when I just want to get it to work. We have people in October [when enrollment begins] and the first of the year [when insurance plans go into effect] that are going to be counting on us. And I fear that we are trying to predict too much.”

Despite Anderson’s concerns, the committee voted 6-2 along party lines to pass SB 639.