California Cuts Health Insurance Exchange Budget

Published August 11, 2015

Covered California, the California’s state health insurance exchange set up under Obamacare, will cut spending and lower enrollment expectations for 2016, after 2015 sign-ups failed to meet state agencies’ goals.

About 1.7 million Californians were expected to enroll through Covered California during spring 2015, but only 1.439 million actually signed up, a slight increase from the 1.4 million enrollees who signed up in 2014.

In June, the Covered California Board of Directors voted to adopt a new, slimmer budget more accurately reflecting the less-than-anticipated enrollment in the state-established health insurance exchange. The new budget reduces spending for the fiscal year, which began July 1, by $58 million, a 15 percent reduction.

Uninsured by Choice?

Devon Herrick, a senior fellow at the National Center for Policy Analysis, says the unexpectedly low enrollments in California could be due simply to individuals preferring not to pay monthly premiums.

“Eighty-six percent of people enrolled in exchanges receive government subsidies to pay their premiums,” Herrick said. “Those who don’t enroll may not value an insurance policy enough to pay even a minimum, heavily subsidized premium.”

Bad Deal for Consumers

Paul Guppy, research director at the Washington Policy Center, a think tank in Seattle, Washington, says Covered California is in trouble, like other state exchanges, because it is not a voluntary insurance market; it’s a government agency managing a highly regulated health care program.

“The individual and employer mandates in Obamacare force people to make decisions they wouldn’t otherwise make,” Guppy said. “At their core, the state-based exchanges are based on intimidation: If you don’t buy the kind of health coverage required by law, you will be penalized. People don’t even have the option of viewing plans offered by exchanges in other states; they are stuck with the limited options permitted in their state. All this is a perfect formula for inefficiency, waste, and poor decision-making.” 

Guppy says in a free-market insurance market, prices and policies are designed to respond to the real needs of consumers, not the dictates of government regulators or congressional lawmakers.

“That is why health savings accounts work so well for many families,
 said Guppy. “They are flexible, tax-free, and voluntarily selected by the people who use them. They are also mercifully free of the politics and budget fights entangling most state exchanges.”

In contrast, enrollment in Covered California is down because people are finding better alternatives, such as employer-based coverage or an entitlement program, says Guppy. Many others are simply choosing to remain uninsured despite the law’s individual mandate.

“Now that the Supreme Court has decided people can receive the same insurance subsidy directly through the federal exchanges, many states may decide to shut down their exchanges,” Guppy said. “Their citizens would receive the same money under Obamacare, and the state would be freed from having to run a costly public agency.”

Bruce Edward Walker ([email protected]) is a policy analyst for The Heartland Institute.

Internet Info

Loren Heal, “California Obamacare Exchange Is Running Out of Money,” The Heartland Institute, June 17, 2015:

Sean Parnell, “Choice and Competition On California’s Exchange,” The Heartland Institute, January 16, 2015: