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Covered California Takes Conservative Fiscal Move Toward Self-Sufficiency

Covered California officials yesterday released a budget proposal for the 2015-16 fiscal year. As expected, the agency has scaled down its advertising and outreach budget, and cut back the large initial outlay for information technology services.

Those moves lay the fiscal groundwork for the exchange’s long-planned effort to become self-sufficient by the end of the next fiscal year.

There were two developments that were less expected:

Covered California will continue to charge the same fee of $13.95 per month on individual policies to maintain operating expenses. Exchange officials previously discussed the possibility of lowering that fee slightly.

In the proposed budget, the exchange will spend its $100 million reserve, the last of its federal funding.

“They have to be self-sufficient, they’ve always planned to be self-sufficient. The question is: How do you achieve self-sufficiency?” said Gerald Kominski, director of the UCLA Center for Health Policy Research.

“It seems like they’re on sound financial footing, but they cannot afford to risk running a deficit,” Kominski said. “They need to be fiscally conservative.”

In this case, Kominski said, Covered California officials decided to take a more conservative financial approach, in part by cutting back on advertising and outreach, rather than continuing to spend on outreach and paying for it with, for instance, an increase in the per-month administrative fee.

The cutback in spending by exchange officials should be expected, Kominski said.

“This is a startup, a $400 million startup,” he said. “You would expect expenses to diminish. … Once you’ve gone through two open enrollment periods, those expenses should diminish over time.”

For instance, he said, the costs to launch the computer system were significant, as were the costs necessary to introduce Covered California to the entire state’s population in a short amount of time.

Enrollment numbers in the past year have been lower than expected. Kominski said the 1.4 million enrollees is closer to the conservative projection made when the exchange first started, rather than the optimistic and hoped-for number of 1.7 million.

“There was a little more churn than we might have forecasted, and maybe a little less take-up right now,” Kominski said. “If you use our base estimate, our more conservative estimate, that’s more on target [than the optimistic projection].”

One explanation for the dip in enrollment numbers, Kominski said, is that a prime motivator for enrolling was the tax penalty for remaining uninsured — but not many people knew much about that tax penalty because of a general reluctance by health officials to advertise that penalty.

“The president’s administration walked a fine line when promoting the law because they wanted to avoid the word tax for the remaining uninsured,” Kominski said. “It was going to be in April this year that the reality of that hit.”

“In the last two years, we established a solid foundation,” said Peter Lee, executive director of Covered California, in a written statement, “and we are confident as we transition now from startup mode to ongoing operations. … As we move ahead, we are glad to have the resources we need, and we will continue to work to bring affordable health coverage within the reach of all Californians.”

The budget is expected to be approved by the four-member board of directors at their June meeting.

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