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.”

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.