Obamacare

Calif. health exchange planning for budget deficit

California health exchange to cover initial budget gap with federal grants; solvency a concern

LOS ANGELES (AP) -- Covered California, held up as a jewel in the nation's up-and-down health care overhaul, is setting aside nearly $200 million to fight off projected budget shortfalls as it prepares for what it says is a challenging financial future without hundreds of millions of dollars in federal aid.

Officials brimmed with confidence after the agency tallied 625,000 individual or family health care enrollments through mid-January, the most of any state. They also say its survival is not assured, in part because of the uncertainty around sign-ups that are key to the exchange's success.

The greatest vulnerabilities include the "long-term sustainability of the organization" after federal grants that have been its sole source of support, more than $1 billion so far, dry up this year, the agency's executive director, Peter Lee, wrote in December to the California Department of Finance.

Lee outlined a list of potential risks that, along with the pace of enrollments, included safeguarding personal data, staff training and turnover, and protecting the agency from fraud and waste. To be self-sustaining, he said, the agency will make changes "to reflect ... revenue realities."

That followed a state audit last summer that labeled the agency "high-risk" because of the uncertainty around enrollments. The financial test comes as Minnesota and other states contend with meager sign-ups and questions about the potential for financial bailouts unless participation begins to surge.

The exchanges being operated by 14 states and the District of Columbia are supposed to be self-sustaining by next year, according to the Affordable Care Act. A monthly surcharge on insurance policies is intended as the main money-maker for Covered California.

In its short life, Covered California has grown to oversee a $400 million budget, more than 860 employees and offices throughout the state. The agency is in the process of hiring 350 additional call-center employees, mostly in Fresno.

If the agency fails to generate enough income to pay for its operations, it's not clear whether California taxpayers would be on the hook.

The state law that created the California exchange requires it to operate with a balanced budget and a cash reserve. Additionally, it's prevented from drawing dollars from state government's main checkbook, the general fund, which is supported by taxpayers.

That is, unless there is a separate action by the Legislature, now dominated by Democratic lawmakers who generally support the ACA's goals. The law contemplates the potential for a cash crisis and a "contingency plan should it be impossible to operate the exchange without the use of general fund moneys."

Covered California considers the potential for a taxpayer bailout remote. "So far, our enrollment numbers are outpacing our projections, so we don't anticipate any shortfalls in our budget that might create a need for this," exchange spokeswoman Anne F. Gonzales said in a statement.

The pace of enrollment so far suggests the agency will be able to support its operations in 2015 and into future years, provided sign-ups continue to increase through 2016 and then at least remain stable, said Dylan H. Roby at the University of California, Los Angeles' Fielding School of Public Health.

Roby said in an email that the agency's goal is to maintain a reserve that could cover its expenses for a minimum of three months, even if its income stalls, and that monthly fees paid on policies could be raised if necessary to generate more money.

Agency documents show Covered California plans to put aside $184 million of the more than $1 billion in federal grant money it has received to date as a hedge against anticipated budget shortfalls.

The records show the exchange will need $78 million in reserves to plug a budget hole after July 2015, when expenses will outrun income, and another $34 million to cover a deficit the following year.

While agency officials say Covered California is on track to meet enrollment targets — nearly 2 million individuals by June 2016 — planning documents and government reports sketch out the danger if those numbers ebb.

The state auditor raised the possibility of a troubling cycle in which enrollment falls and fees are raised to fill the gap. The threat is that higher policy premiums would then push sign-ups even lower.

In one scenario, the auditor said that if enrollment dips sharply below projections, individual fees in the year that begins July 2015 could surpass $20 a month, up from $13.95, to keep the agency solvent while retaining a reserve.

Sluggish enrollment also could force cuts to service-center staffing and other expenses to keep the budget in line.

"Covered California's financial sustainability is wholly dependent on enrollment," the auditor concluded.

Enrollments were averaging about 100,000 a week in December, but they fell to an average of 58,000 in the first two weeks of January, according to agency figures. Agency officials hope enrollment will be robust so fees paid by individuals and small businesses can be lowered.

Since insurance policies purchased under the ACA took effect Jan. 1, the agency has faced criticism for lackluster sign-ups among Hispanics and younger people, as well as confusion over billing and paperwork problems that have left an unknown number of consumers in limbo.

There also are complaints about long wait times at the exchange's three telephone call centers and problems with the online enrollment site — issues that could discourage enrollment.

A state lawmaker last week called for a probe of the agency's balance sheet and advertising spending, which is on track to top $300 million for TV ads, billboards, door-to-door visits and other sales pitches intended to encourage sign-ups.

"I'm not sure the way it's structured it's actually going to contain costs, and I'm not sure what the costs are going to be," said state Sen. Ted Gaines, a Republican who submitted the request to the Joint Legislative Audit Committee.

Taxpayer dollars, he predicted, "could be at risk at some point in the future."