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.”

Audited

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.”

Penalty warning

The current enrollment period, the exchange’s third since the Affordable Care Act began to be implemented, offered its officials — and allied Democrats — an opportunity to breathe a sigh of relief. After a very rocky start, especially through the federal enrollment process, Obamacare found traction as its parallel expansion of Medicaid coverage gained adherents even among some Republican governors. But even though critics have contended that the evidence suggests Obamacare still faces a cloudy future, Covered California has so far managed to rack up the kind of enrollments capable of keeping it going.

At a recent press conference, top California Democrats touted the state exchange’s numbers to date. “Nearly 1.3 million people have received access to vital treatment at top hospitals through the health insurance program known as Covered California since it launched in January 2014, Democratic Leader Nancy Pelosi announced this week at a press conference held at UC San Francisco,” the university reported.

On the other hand, Peter Lee, the exchange’s executive director, also used the conference to warn residents that penalties for flouting the individual mandate would go into effect, warning Californians to sign up “rather than send a check to the IRS.”

A full court press

The so-called “tax penalty” referenced by Lee, which the Supreme Court authorized to enforce the implementation of Obamacare, has now been expected to “run into thousands of dollars,” according to the Sacramento Bee. To avoid the lower enrollment numbers, riskier pool of insureds, and bad business and political publicity associated with them, Covered California officials went into overdrive this year to keep signup numbers looking respectable enough to keep off critics’ heat. “They’ve spent $29 million on advertising, opened 500 storefronts, beefed up call centers and trained hundreds of health insurance enrollment counselors who speak 12 languages, from Arabic to Vietnamese,” as the Bee reported. “They’ve also rolled through 21 cities in a statewide bus tour to highlight this year’s open enrollment season, projecting the words ‘Enroll Now’ on iconic buildings such as Sacramento’s Tower Bridge and San Francisco’s Coit Tower.”

Covered California was rewarded with an uptick in signups, which, in an apparent irony, created administrative burdens great enough to force the extension. “Friday’s announcement came after a surge of enrollment, which saw tens of thousands sign up for health care plans this week leaving certified enrollers with more applications to file before the deadline Sunday,” the Orange County Register noted. “The extension will help prevent consumers from getting turned away just because they got ‘caught up in a wave of last-minute shoppers,'” as Lee described the situation.

Technical difficulties

Although the federal government did not offer a similar extension through its own web portal for signups, analysts surmised that California faced some problems similar to those that have plagued Obamacare’s online registration process in the past. “In previous years, the federal government was forced to extend the open enrollment deadline because of glitches with its website, long wait times for customers and other technical issues with the enrollment process,” the International Business Times noted.

“This year, California likely faced similar issues, as the California Health Care Foundation found in an analysis that customers frequently struggled to complete online applications, even if they spent hours trying to figure them out.”

Whereas Maryland, another state to extend its deadline, had to contend with customers impacted by the massive blizzard that recently hit the eastern seaboard, California didn’t put forward weather as an excuse, the IBTimes added.

Expanding the exchange

Officials have set their sights on increasing enrollment by upping the public profile of the state exchange, which has struggled in years past to fully connect with potential customers. “There are 750,000 California residents without insurance that are eligible for Covered California,” according to CBS San Diego, with an estimated 2.2 million uninsured Californians eligible for subsidized coverage through either Covered California or Medi-Cal. According to the Los Angeles Times, the total population of uninsured Californians sat at around 4 million. “Of those, officials estimate that 1.4 million would qualify for Medi-Cal, the state’s Medicaid program for low-income residents.”

This time around, added the Times, an informal goal has been set to sign up 295,000 to 450,000 more residents over the three month enrollment period. “We want to make sure all uninsured Californians know that financial help is available to help people buy health insurance and that they can join thousands of Covered California consumers who are getting the care they need when they need it,” said exchange chief Peter Lee, as CBS San Diego noted.

Hoping to avoid service problems that plagued the exchange in previous enrollment periods, Covered California has also moved to staff up its telephone operators. “The scramble is on for up to 500 temporary call-center workers to answer questions and help enroll consumers,” the Sacramento Business Journal reported. “Virginia-based Faneuil Inc., in partnership with InSync Consulting Services in Roseville, won a $12 million contract for the business early this month.” Last year, however, the size of that contract hit $14 million.

Keeping subsidies central

Subsidized care has emerged as a centerpiece of Covered California’s effort to get and keep new enrollees. Officials believe that widespread public ignorance around subsidies has limited signups. “One of the biggest hurdles,” Lee told the Sacramento Bee, “is that more than a third – 36 percent – of uninsured Californians don’t realize they’re eligible for financial subsidies, according to a recent survey. That compared with 84 percent of uninsured who were aware of the existing federal tax penalty for going without health care coverage.”

But the vast majority of plans have already benefitted from subsidies. “Covered California has 1.3 million consumers, about 90 percent of whom receive subsidies to help cover their premiums,” the Times noted.

“After surpassing its first year goal by 400,000 — signing up 1.1 million people in private plans — Covered California’s enrollment climbed to only 1.3 million this year, wildly off its 1.7 million target for 2015,” the San Jose Mercury News reported, calling the situation a “crossroads.”

“Experts are watching carefully because the financial health of the exchange depends on growing its number of enrollees. If that doesn’t continue — or even backslides — shrinking dollars could threaten the way the exchange now operates. Finally, provisions of the law designed to offset possible losses for health insurers will expire in 2017. That could also impact premiums — and enrollments — even further.”

The rocky road recalled to mind warnings from early Obamacare critics who raised the specter of a so-called “death spiral” brought on by insufficient enrollment to even out insurance risk across pools of beneficiaries. But according to the Mercury News, “Peter Lee, Covered California’s relentlessly upbeat executive director, remains unfazed.”

Lee has invested much of his time and reputation in the exchange’s success, at least relative to other, ailing setups in states around the country. Steeling his nerve, Covered California recently “awarded its executive director a $65,000 bonus,” just “four months after giving him a 24 percent raise,” as the Los Angeles Times observed. That brought Lee’s annual salary to $333,120, according to California Healthline. (Meanwhile, Deputy Director Yolanda Richardson saw her yearly pay rise over 11 percent to $265,668; all told, the exchange’s top 14 most highly-paid executives all cleared five figures in income per month.)

Rising rates, unknown figures

One explanation for the handsome compensation packages would be familiar to advocates of high pay for CEOs in the private sector: retaining talent. Some consumer advocates, according to the Times, “have credited Lee with securing lower-than-expected rates from health insurers the last two years and reaching substantial enrollment of nearly 1.4 million people.”

But California Insurance Commissioner Dave Jones dismissed that claim. In an interview with State of Reform, Jones characterized California’s health insurance providers as a virtual monopoly, “attributable in part to decisions made by Covered California and unchecked rate increases as top issues.”

Inside and outside the exchange, he said, “you have an extraordinary concentration of the market going to a handful of carriers. As a result, they function in a classical economic sense as monopolists or oligopolists who are able to dictate prices for what is an essential good that people desperately need and are willing to pay just about anything to get.”

Jones has raised hackles among Democrats for challenging Covered California’s effectiveness and propriety. But activists further to his left have created bigger headaches. Not all consumer groups have been kind to Covered California executives. In a letter to Lee, Santa Monica-based Consumer Watchdog demanded that Covered California release its planned rate increases for next year. California “has successfully lobbied the federal government to delay public disclosure of qualified health plan rate change proposals for 2016,” the organization noted, becoming the only state in the nation to do so.

“Citizens of every other state now have access to proposed rate hikes, except the people of California, who are already disadvantaged by the absence of rate regulation in this state,” the letter warned.

Privacy worries

Complicating the picture of Covered California’s health, the exchange has spread unease among would-be allies by forging ahead with a controversial centralized data plan.

“Exchange officials say they’re planning to create a large database with information on patients’ doctor and hospital visits, and prescription drugs. The information could be used to determine whether patients are getting appropriate care,” KPBS reported, but “privacy rights experts are raising some questions.”

Concerns have extended to the prospect of a further leveling off in enrollment. “We’re very concerned that it’s going to chill people from getting health care,” said World Privacy Forum executive director Pam Dixon.

Two years later, the Kaiser Family Foundation has issued a report that suggests these warnings were more accurate than the upbeat predictions of Covered California Executive Director Peter Lee. A key finding:

“Among adults who say that they pay a monthly premium for their health coverage, nearly half of newly insured adults (47 percent) say it is somewhat or very difficult to afford this cost, compared to just 27 percent of adults who were insured before 2014. When looking specifically by type of coverage, 44 percent of Covered California enrollees (not all of whom are newly insured) report difficulty paying their monthly premium, versus a quarter of adults with other types of private coverage. Medi-Cal enrollees do not pay monthly premiums for their coverage.”

Cost, not glitches, slowing CA sign-ups

The Kaiser report, which was based on interviews with 4,555 Californians, says the cost factor is the biggest barrier to higher enrollments, not online technical snafus:

“Cost continues to prevent many uninsured adults from seeking coverage. While many people focused on website glitches and administrative barriers during 2014, uninsured adults say that the reason they still lack coverage is because it’s too expensive, with most not even trying to get ACA coverage, and many who did still saying they are ineligible or believe the coverage is too costly.”

The cost of premiums is also prompting Californians to quit Covered California, KCRA TV in Sacramento reported, citing documents showing that 150,000 people dropped their state coverage in 2014.

These developments come in a pivotal year for Covered California — the last year in which federal subsidies will help cover the subsidies provided by the state agency. By law, beginning in 2016, the agency cannot seek state subsidies and must rely only on revenue it generates from premiums. Its goal was to have 1.7 million residents enrolled by Feb. 15, but it fell far short, with 1.4 million signups.

More criticism from national media

Meanwhile, Covered California is again provoking comment from outside of California. A May 31 Columbia Journalism Review essay by Trudy Lieberman criticized coverage of the agency as misleading:

It’s not easy to figure out how to monitor the progress of Covered California, the country’s largest state-run health insurance exchange.

 

Is it the total number of people who have signed up for an insurance plan on the exchange during open enrollment? The rate at which people renew? The number of new sign-ups in a given year? The number of Latino sign-ups? The number of “covered lives”? The number of Californians who have had coverage through the exchange at any point? Or, simply, the overall rate of uninsured adults across the state?

 

“In recent months, Covered California has cited each of these measures to tout its success. And though outside analysts have raised some notes of caution, press coverage has largely followed the lead set by the exchange. The result is coverage that has too often been reactive, short on enterprise, and with missed opportunities to ask some necessary questions. Covered California may ultimately have a success story to tell — but it will need to face some sharper skepticism before we can be sure.”

Lieberman wrote that California journalists should spend more time talking to affected state residents about their experiences with the agency and be less inclined to accept Covered California’s characterizations of its record.

The Kaiser Family Foundation poll, taken in December of last year, added another piece of discouraging data to an increasingly daunting pile. “Forty-four percent of exchange policyholders surveyed said it’s somewhat or very difficult to afford their premiums,” the Los Angeles Times reported, “compared with 25 percent of adults who had employer-based or other private health insurance.”

Analysts paid close attention to the figures for two reasons. First, they contributed to the growing perception that Covered California — one of the nation’s biggest, most important and most successful exchanges — is now on a path toward underperformance.

Second, as the Times noted, the numbers will foster an intensified debate between the exchange and the insurance companies on premium rates for the new year. “Many analysts are predicting bigger premium increases for 2016 in California and across the country. Insurers have more details on the medical costs of enrollees, and some federal programs that help protect health plans from unpredictable claims will be winding down.”

Calling audibles

As California’s struggles have reflected the even greater challenges faced by other failed or failing exchanges, policymakers and regulators have turned to consider how to sidestep disaster. One notion that has attracted attention — possibly in Gov. Jerry Brown’s office — is an exchange merger.

“The idea is still only in the infancy stage,” reported The Hill. “It’s unclear whether a California-Oregon or New York-Connecticut health exchange is on the horizon. But a shared marketplace — an option buried in a little-known clause of the Affordable Care Act — has become an increasingly attractive option for states desperate to slash costs. If state exchanges are not financially self-sufficient by 2016, they will be forced to join the federal system, HealthCare.gov.”

The idea would be that a state with a failed marketplace could offer a surge of enrollees and revenue to a state with a struggling marketplace. Intuitively, the arrangement would tend to cluster smaller states around larger ones, effectively extending the insurance regimes of the former to the latter.

In part, The Hill observed, states have turned to the merger idea because federal law requires their exchanges to be financially self-sustaining if they wish to avoid joining the federal exchange. But states have also been pressured by the King v. Burwell case currently pending at the Supreme Court, where the legality of federal subsidies for states without their own exchanges is on the line.

“Most Republican state leaders have avoided talking about how they would respond to a decision against the use of subsidies on the federal exchange,” according to The Hill. “Behind the scenes, however, many are anxiously contacting states that run their own exchanges.”

Expanding coverage

Perhaps paradoxically, legislators in Sacramento have responded to the climate of uncertainty surrounding California’s exchange and the broader exchange system by pushing for expanded coverage, including to unlawful immigrants.

Under the terms of a new bill, SB4, successfully advanced through committee by state Sen. Ricardo Lara, D-Bell Gardens, “the undocumented will be able to buy health insurance on the Covered California exchange, always providing that the federal government authorizes it, but they will not automatically benefit from Medi-Cal, the state medical subsidy, however low their annual incomes,” according to Fox News Latino.

Questioning assessment

As the policy shifts play out, at least some news analysts have raised a key side issue: just how experts and lay readers are supposed to confidently assess just how well or poorly Covered California is doing.

In a recent essay, Trudy Lieberman at the Columbia Journalism Review noted that the exchange has frequently put forth different measures and metrics by which its success might be judged. Sometimes, the standard has been total enrollees or new yearly enrollees. Sometimes, it has been the renewal rate, the number of Californians covered through the exchange itself, or, “simply, the overall rate of uninsured adults across the state[.]”

Coverage of the exchange’s fortunes, Lieberman observed, “has largely followed the lead set by the exchange. The result is coverage that has too often been reactive, short on enterprise, and with missed opportunities to ask some necessary questions. Covered California may ultimately have a success story to tell — but it will need to face some sharper skepticism before we can be sure.”

Like the national Obamacare system as a whole, Covered CA has launched successfully, but has yet to set clear expectations for the kind of costs and services that enrollees — and officeholders — will have to contend with.

With Florida now exceeding California in Obamacare signups, some of the pressure is off of Covered CA’s executives to deliver chart-topping numbers to keep the national system afloat.

“Florida’s roughly 1.6 million enrollees include both first time enrollees and some of the nearly 1 million Floridians who enrolled last year,” Fox News Latino reported. “California led the country last year with 1.2 million consumers, but lagged behind this year with a total of 1.4 million — 300,000 fewer than the state’s goal.”

Meanwhile, as The Hill observed, signups nationwide have hit some 10 million — “higher than the Obama administration’s goal of 9.1 million, though meeting that goal is dependent on people paying their premiums.”

Despite the shortfall, Peter Lee, Covered CA’s executive director, called the Golden State’s enrollments “a huge number, a number we’re proud of,” according to The Hill.

The Times also reported Lee saying, “It isn’t so much losing people as getting a better sense of the inflow and outflow on a month-to-month basis.”

According to Times, Lee “explained that last year’s projections for how many people would maintain coverage were too high, which he attributed to people dropping out of the exchange to get insurance at a new job or through Medicaid.”

As CalWatchdog.com recently reported, Medi-Cal — California’s name for its Medicaid program for the poor — has seen explosive growth since the implementation of the Affordable Care Act began.

Competing against itself

Critics have argued that Obamacare has undermined its own state exchange system by pushing enrollees with disqualified private health plans into Medicaid/Medi-Cal. As Dr. Jeffrey Singer noted last year in The Wall Street Journal:

“A recent Boston University/Harvard Medical School study suggests that up to 80 percent of people participating in Obamacare’s Medicaid expansion have been shifted off their private insurance. These patients’ plans — that they liked, and were told they could keep — did not meet Affordable Care Act requirements, and were wiped out. Healthcare.gov offered them Medicaid.”

The practical effect, in other words, was that the Affordable Care Act competed against itself, shifting millions of potential state exchange participants away from plans issued by health care companies and onto government-entitlement care.

Rolling deadlines

Meanwhile, Covered CA executives have begun to discuss the prospect of new signup windows, created to compensate for adverse circumstances facing enrollees and would-be enrollees.

Healthcare.gov, the signup portal bedeviled by failure during Obamacare’s first enrollment period, offered many users more glitches this time around.

The website, IBT reported, “had problems with the income verification portion of the sign-up process, and officials spent about six hours working on the issue before it was fixed. Some state exchanges reported similar issues. Katie Hill, the Department of Health and Human Services press secretary, explained the problem as being due to ‘intermittent issues with external verification sources.'”

That led to deadline extensions in California and across the country. Sunday, Feb. 15, was the Covered CA enrollment deadline. However, due to the problems, for those who already have begun the enrollment process, the deadline was extended another week, to Feb. 22.

Tax penalty

The website glitches presented a special problem because of a late rush among enrollees to avoid the first instance of Obamacare’s so-called “tax penalty” for failing to possess health insurance.

“The prospect of paying a federal tax penalty for being uninsured drove much of the last-minute enrollment, according to California officials, enrollment counselors and insurance agents,” according to the Los Angeles Times. “About 36,000 Californians signed up Sunday compared with 13,000 one day last week.”

Lee, reported the Times, explained his lingering concerns over public uncertainty about the penalty had led him to consider “a special enrollment period for people subject to those federal fines.”

Such a move would put California in line with a broader agenda being pursued by some members of Congress who want the federal government to introduce new signup periods as well.

If you thought the rollout of Obamacare was problematic last year, this year could be worse — including its implementation here, called Covered California.

State officials are still struggling to clear a huge backlog of Medi-Cal applications from the past year, while legislators field numerous complaints from frustrated constituents, insurance premiums are increasing and Medi-Cal renewals are down. The open enrollment period for 2015 begins Nov. 15.

“As much as the first year of enrollment was big and rocky, on some levels the second year is going to be harder,” said Covered California Executive Director Peter Lee at a recent Senate Health Committee informational hearing.

Both Lee and Department of Health Care Services Director Toby Douglas are proud of their progress in implementing Obamacare in California.

“We reduced the number of uninsured by 3.4 million people in this state, from 22 to 11 percent,” said Lee. “That’s the largest reduction by percentage in the entire nation. We can feel proud of California serving as an example for the nation how to do this right.”

“[We] have had tremendous success with the implementation of the Affordable Care Act,” agreed Douglas. “We have within our Medi-Cal program dramatically changed the perception. The perception overall is positive and it gets high marks.

“That being said, we’ve had challenges, many challenges with the process. We know our implementation has not been without problems. We have to continue to learn from those challenges, continue to improve it and make it a better experience for all of those, whether applying for Covered California or enrolling into our Medi-Cal program.”

Backlog

One of DHCS’s biggest challenges has been clearing the Medi-Cal application backlog. It had reached 487,000 pending applications in July, which were whittled down to 171,681 by Oct. 15. Nearly 1,400 applicants have been waiting a year to find out whether they’ll receive coverage.

This has not only been an embarrassment for state health officials, but it’s also illegal. State law requires that health insurance applications either be accepted or denied within 90 days. Several social advocacy organizations have filed a lawsuit to get the state to abide by its own law.

“There has been an increase recently,” acknowledged Douglas. “Covered California has been going through administrative renewals, and that has pushed populations over to Medi-Cal. And we know that there’s at least 40,000 that are duplicates that need to be denied within the system of 171,000. And there’s 20,000 where we’re looking at our administrative strategies that are eligible.

“We have been going through a lot of different enhancements to try to reduce the pending cases and bring it down. Our ultimate goal is we want all applications determined eligible in the required time frame. And we might still always have pending cases, because counties might be waiting for verification information. But we want to make sure that there is no one out there stuck and pending because of system problems.”

Renewal

Another challenge for Douglas is getting Medi-Cal recipients to renew their coverage. The renewal rate in 2013 was 60-70 percent in many of the state’s larger counties. But that range has dropped to 50-70 percent in 2014, with some counties below 50 percent.

That decrease concerns Sen. Holly Mitchell, D-Los Angeles. “This is deeply troubling,” she said. “We spend all this energy talking about congratulating ourselves about our enrollment numbers and that number will be a moment in time because we get to re-enrollment and we lose them.

“And the Legislature will have kneejerk reactions like, ‘Get rid of the status reports, get rid of this, get rid of that’ to try to fix that number. That’s why I ask what the problem is so we can be a partner rather than kneejerk to try to plug this hemorrhage – because that’s huge and a problem.”

Douglas responded, “We’re not sure. We delayed the actual disenrollments to get more outreach. We would have thought it would be the same. This is not what we wanted. We think it’s because it’s a new process. There’s been concern from community groups that … thought it was confusing. It’s going to take a lot of grass roots work to break down and understand this new process and why it’s different.”

Mitchell said the confusion is inherent in the way government does things.

“Government does a horrible job in communicating,” she said. “At first I thought it’s because we really don’t want to enroll people. And I don’t think that’s the case. We are bitten by the IRS bug. Every form we create we have to make it as complicated, use as many words and make it look as academic and unfriendly as possible. It’s not just you, it’s government across the board. I’m not sure why that is. We have a bad habit of making the process as difficult and complicated unnecessarily as possible.”

Lee disagreed: “We certainly don’t, as either a matter of habit or purpose, try to make things complex, as you know.”

That prompted Mitchell to laugh, saying, “It’s government – we can’t help ourselves.”

Outreach

She also criticized the state’s education and outreach efforts to blacks.

“The effort in the first go around was lackluster,” she said. “And we need to have a clear conversation and commitment around who is engaged and contracted to do the advertising and outreach to this very specific and targeted community.

“I sponsored a [Covered California] storefront [in the Crenshaw mall] because I happened to think it was a great idea when I was approached by community-based organizations. But I have to say, I was quite disappointed at the outcome. We had five kazillion touches, but our enrollment numbers were nowhere near what I anticipated.”

Lee responded, “The Crenshaw mall enrolled not as many people as you thought it would and we thought it would. But a lot of people came and asked questions. And one of the things we learned is that it’s not a one-touch-and-done enrollment process. So the fact of having a storefront where people can come in, ask questions, take material home, come in again and then maybe go enroll with an insurance agent at that storefront we say, ‘Hallelujah, wherever you are enrolling is OK.’”

Calls

Committee Chairman Sen. Ed Hernandez, D-West Covina, voiced a complaint made by legislators at an Assembly Health Committee hearing on Obamacare in September.

“My office on a regular basis is getting calls,” he said. “They get funneled up to Sacramento. These are people who are in support of the Affordable Care Act. And they are just really upset. It can be anything from [a lack of] network adequacy to call time to wait time to length of time in Medi-Cal to get enrolled.

“So I want to make sure that not only California continues to be the leader, but absolutely most important that we address as many if not all of the concerns that the consumers of the state of California have.”

Sen. Bill Monning, D-Monterey, has also received numerous complaints from constituents.

“I represent rural areas where in much of my district there is no competition” among health insurance providers, he said. “Our phones are ringing off the hook with people who have coverage and can’t find a [health care] provider who will accept that coverage. So, coverage without access is not real coverage.

“We have a health care plan in Monterey County advising providers at a local hospital that diabetes prevention is not covered. It’s wrong. They are giving disinformation, turning people away. A major health plan that is our only health plan in the region of Monterey County is advising providers it will not cover preventing for diabetes.”

Lee said preventive care is covered, and insurance companies are reviewed annually to make sure they are providing adequate coverage.

“When we sit down with health plans, we don’t say the first question is: What’s the cost?” he said. “The first question is: Are there adequate networks of doctors, hospitals to make sure people get the necessary care? Not all, but in a number of cases there were areas where we specifically said there appear to be shortfalls in networks. And part of what plans came in with was expanded networks of hospitals or of doctors.”

Lee and Douglas assured the committee that they are working to fix the problems and improve service, but acknowledged that will take time.

State governments routinely consider competing bids for work. It’s a process designed to prevent corruption and the appearance of impropriety.

In the past, government contracting that skirts the process has been a target of prominent Democrats. During Republican President George W. Bush’s 2004 run for re-election, Democratic rivals Sen. John Kerry and Sen. John Edwards campaigned against the energy company Halliburton’s no-bid government contracts in Iraq. Republican Vice President Dick Cheney had been the head of Halliburton.

Now officials with close ties to the Obama administration have come under scrutiny for the practice.

During the Halliburton controversy, the Bush administration’s defenders appealed to one of the few established excuses for no-bid contracts, arguing that no other company was capable of doing the necessary work in the time available. Similarly, Covered California has responded to the current revelations by invoking a state of emergency.

In a statement, executive director Peter Lee explained Covered California “needed experienced individuals who could go toe-to-toe with health plans and bring to our consumers the best possible insurance value.”

Cozy ties

Among those individuals, it turned out, were members of The Tori Group, a contractor whose founder, Leesa Tori, had worked closely with Lee in the early 2000s. Amid the scramble to get Covered California up and running, the exchange’s board approved a grant increasing The Tori Group’s contract to $4.2 million.

“Contractors like The Tori Group,” Lee continued in his statement, “possess unique and deep health care experience to help make that happen and get the job done on a tight deadline.”

Covered California’s relationship with The Tori Group, however, was not a one-time affair. Leesa Tori became Covered California’s director of plan management — one of nine Tori Group personnel with current positions at Covered California.

Lee’s close relations with Tori mirrored those he has maintained with the White House. In the Obama administration, he was a deputy director at the Centers for Medicare and Medicaid Services, after working on national policy with HHS Secretary Kathleen Sebelius.

A case of emergency

Although Covered California has not necessarily broken any laws in its no-bid contracting, the impropriety of Lee’s intimate professional ties with The Tori Group underscored the risk the exchange was willing to run to succeed in their race to establish viability. Without moving quickly enough to implement the health-care system made possible under Obamacare, officials worried Covered California would befall the same fate as such failed state exchanges as neighboring Oregon’s.

In addition to the political humiliation visited on officials whose state exchanges failed, policymakers feared an excess of failures and a shortfall in enrollments would cause the state exchange system itself to collapse. That, in turn, would place a burden on the federal government which could make Obamacare implementation prohibitively costly and complex.

Through Lee’s efforts, however, Covered California survived. Those efforts, as the no-bid revelations have confirmed, blurred the line between appropriate and inappropriate action.

‘Death spiral’

To stave off a so-called “death spiral” of under-enrollment, for instance, Lee oversaw the inclusion of hundreds of thousands of Covered California applicants with missing or suspect identification. Those numbers helped give Obamacare the critical mass of enrollees it needed for political and policy purposes.

Alone, Covered California was responsible for over one-eighth of individual enrollments in Obamacare, even though California has only one-twelfth of America’s population.

In sum, the story that has emerged about Covered California’s success has captured the weakness of Obamacare implementation. While supporters of the health care law insisted it faced only a few bureaucratic bumps in the road, the reality was different.

Without a successful state exchange in California, the future of the Affordable Care Act would be in doubt. The stakes were high for Peter Lee, and he delivered — netting him a five-figure bonus this year.

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.”