Exchange Success Helps Nudge First Budget Near a Half-Billion Dollars

Covered California’s spending rose to $488 million in its first fiscal year of operation — about 22% higher than the initial projected budget of about $399 million.

Actual expenditures in FY 2013-2014 were lower than that because some of the computer costs were paid back by other state agencies. Factoring in actual costs, the exchange budget rose by 16%, about $60 million more than originally forecast.

Exchange officials pointed out that enrollment also went far beyond original forecasts. They said the extra money spent on website upgrades and call center staffing was well worth the boom in enrollment numbers.

“You have to step back and put it in perspective with the enrollment,” said Anne Gonzales, public information officer for Covered California. “We exceeded [enrollment] expectations by 43% over the enhanced model, over the rosiest expectations we could make. … Really, it’s almost to be expected that something so big and with such results would spend a little more.”

The biggest cost increase was for the computer system, which not only processed higher-than-expected web activity and enrollment for the exchange but also helped another 1.9 million Californians enroll in Medi-Cal.

“We are a new startup, a new enterprise, and you can only crystal ball so much,” Gonzales said. “Because of that enrollment, this system had to be constantly improved and adjusted. This system was a very heavy lift from the beginning, and [so much consumer interest and use] created a bandwidth issue for us.”

According to Stan Rosenstein, former chief deputy director of Medicaid services for the state Department of Health Care Services, it’s remarkable the exchange didn’t go further over budget given the scope of its own goals coupled with expanded Medi-Cal enrollment.

“This was a major task and there was not much time to do it,” Rosenstein said. “I can’t think of any project that has had the massiveness and the quickness of this project in the past 20 years, public or private.”

From Rosenstein’s point of view, it’s stunning that the exchange even approached its budget projections.

“There was more demand than anyone anticipated. And computer system startups are expensive. So it’s not surprising it cost more. It cost more and it worked great — that’s the incredible news,” Rosenstein said.

“I look at this and say, this is probably the biggest success California has had in decades.”

‘Closest Thing Was Healthy Families’

Rosenstein said that enrolling 1.2 million people in the exchange and another 1.9 million in Medi-Cal over a six-month period is unlike anything California has undertaken during his two decades of service to the state.

“The closest we came to that was Healthy Families,” he said. “But the most we ever had there over six months was about 200,000 kids enrolled. This is incredible, what they’ve actually accomplished.”

Rosenstein said he was intimately involved with the introduction of Medicare Part D for Medi-Cal recipients.

“That was under Governor [Arnold] Schwarzenegger [R], and we had to have emergency legislation passed for that. We had to have a backup program for people who are dually eligible. It was a mess.”

In comparison, the problems the exchange has had with website functionality have been nominal, Rosenstein said. “No one remembers the early startup problems in 2006. The startup problems will be forgotten here, too. And they didn’t have the kinds of problems you saw in Medicare Part D,” he said. “When you look at it historically, none of these changes are easy, but this was monumental, and incredibly well done.”

That’s music to the ears of Gonzales, who has taken heat for website issues, lagging Latino enrollment, a dearth of Spanish-speaking call center staffers and now the budget question.

“Covered California has enrolled an estimated 1.2 million people, and we did so relying on federal funds without costing the state anything, and now we have a good outlook for sustainability [of the exchange after federal financing ends],” Gonzales said.

“So not only are we not drawing from state funds at all, but we’re also adding to state funds by taking this federal money and adding jobs in the state. I’d say that’s a pretty good deal for the state.”

Outlook for Coming Years

Eventually, the exchange will need to be self-sustaining, run on assessment fees charged to participating health plans.

That financial issue has been helped immeasurably by the surge in enrollment numbers, Gonzales said.

The current budget projections assume the assessment remains at the same rate this year ($13.95 per member per month). But now that might change, Gonzales said.

“If the spending and revenue numbers hold steady,” she said, “the board will likely want to consider lowering the assessment level, given the amount of the large reserve.”

According to exchange officials, even after the higher budget numbers were approved, the exchange still has approximately $363 million left in its federal grant funding.

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