What ACA ruling means for Covered California

It is usually not a good idea to take the risk of predicting what politicians and bureaucrats will do, but here’s a shot: California will decide to wind down the failing Covered California Obamacare exchange and transfer its operations to healthcare.gov, the federal exchange. That won’t solve any of the fundamental problems of Obamacare itself, but at least it will relieve the state of a problem child.

California established Covered California because the Affordable Care Act, passed in 2010, only allows tax credits to be paid to health insurers in exchanges established by states. These tax credits are the only way to make the expensive Obamacare plans affordable to beneficiaries. All but 16 states and D.C. rejected Obamacare and declined to establish exchanges. That did not stop the federal government, which set up healthcare.gov to funnel tax credits to health insurers in the majority of states without exchanges.

On June 25, the U.S. Supreme Court decided King v. Burwell, rewriting the law to allow the federal government to continue to pay tax credits through healthcare.gov. Although a disappointment for the rule of law, the decision gives California an off-ramp from the exchange business.

The opportunity comes just in time. Until a few months ago, Covered California was able to disguise its problems because it was burning through federal grants. Nobody within the state was accountable for how the money was spent. Those days are coming to an end. Covered California has $100 million of federal cash left over to spend this fiscal year, but then that gravy train comes to a halt – and it will have to fund itself. This will be a struggle because its future funding depends on the number of enrollees, which is well below expectations.

Covered California’s business case is very weak. Last April, investigative journalist Sharyl Attkisson exposed gross incompetence and mismanagement in a two-part feature for the Daily Signal. Trudy Lieberman of the Columbia Journalism Review wrote an indictment of the mainstream media’s lack of coverage of Covered California as it fails to hit its targets.

With 1.4 million signing up in the 2015 open season, enrollment is 300,000 lower than previously estimated. Indeed, it is almost exactly the same as the number of enrollees at the end of the first open season last year. Covered California cheers itself for enrolling almost half a million new people this year, but soft-pedals the fact that the same number dropped out between the close of 2014’s open enrollment and the start of 2015’s. It seems as though 1.4 million enrollees is the high-water mark for Covered California.

This amounts to only 53 percent of the population eligible for subsidies. However, Covered California asserts it will enroll 70 percent to 80 percent of those eligible for subsidies after 2018’s open season. That would be about 1.9 million to 2.1 million enrollees. This is unrealistic.

Instead of projecting enrollment based on its own two years of operations, Covered California figures its enrollment will match that of completely unrelated programs, like the Special Supplemental Program for Women, Infants and Children. It is not reasonable to believe that there are at least half a million Californians who are not yet aware of Covered California and the deeply discounted health plans they can get there. On the contrary, they know all too well. They just want no part of it.

This means that, instead of earning its projected 2018 budget of $300 million to $340 million, Covered California’s revenue will be unlikely to top $220 million. And that is if everyone who signs up stays enrolled. We know that about one-third of those who sign up in open season drop out during the year.

The sooner Covered California winds up, the better for Californians. And though the federal healthcare.gov is no joy, it will be with us until Obamacare is repealed. There is no need to replicate its bureaucracy at the state level. Although Covered California’s first few years were characterized by spending on contractors, it has a stated goal of entrenching more government bureaucracy, which it will do “by relying less on contracted services and instead relying more on the talents of state personnel to accomplish its goals and serve its customers.” Right now, the exchange has only about 1,400 employees. The more that grows, the more likely the exchange will be able to lobby for its continued existence, despite its failures.

John R. Graham is a senior fellow at the Pacific Research Institute

in San Francisco and the National Center for Policy Analysis in Washington, D.C.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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