California Obamacare Exchange Is Running Out of Money

Published June 17, 2015

After spending more than $1 billion on startup costs, California’s state-run Obamacare health insurance exchange has failed to produce the expected returns and is rapidly running out of money.

Covered California signed up fewer people than was required for it to become self-sufficient, Lanhee Chen of the Hoover Institution says.

“Even spending all of the money they did on advertising, they still managed to sign up far fewer Californians than they expected,” Chen said. “In fact, they’ve signed up about 1.27 million people, when they expected to enroll 1.8 million.

“Covered California receives $13.95 for each enrollee into the program, so falling half a million enrollees short will mean financial strain for the exchange,” Chen said.

Covered California’s 2015­–16 budget proposal outlines possible consequences of such a shortfall.

“If enrollment is larger than anticipated, we will look to lower the assessment we charge health plans,” the proposal states. “If enrollment were to be lower, we would look at reducing costs, reduce our reserves or raise the assessment we charge health plans.”

Federal Money Drying Up

All the federal money given to help start the exchanges is gone, so Covered California will begin cutting its budget and drawing down on the approximately $200 million it set aside during the startup period, Chen says.

In addition to the revenue shortfalls, Covered California is not an effective way to help Californians obtain health insurance, Chen says.

“Consider that even before the passage of Obamacare, California had a robust individual insurance marketplace where folks could buy insurance from many different places,” Chen said. “For example, you had web brokerages like that were revolutionizing the way that people bought health insurance.” 

Bureaucracy clearly played a role in the downfall of Covered California, Chen says.

“Covered California required Californians who wanted to buy subsidized coverage to complete their enrollments by telephone, even where a Web-based option was available,” Chen said. “This added layer of bureaucracy is demonstrative of why Obamacare is driving up costs in our health care system and ultimately making it more difficult for people to get access to quality, affordable health coverage.”

Unrealistic Estimates

The revenue and spending estimates used in setting the Covered California budget were unrealistic, Chen says.

“They expected to bring in $242 million in revenues, but they are going to fall far short of that number, and it is unlikely they will remain sustainable in the long run without federal funding, which goes away next year,” Chen said.

Chen says there have been countless media stories about the failure or impending failure of state-operated health insurance exchanges, and although California’s exchange isn’t quite there yet, it demonstrates the folly of trying to create organizations that are both regulators and marketplaces.

“Ultimately, what’s needed is a system where people can get access to a wide variety of plans and can choose the one that suits them best, rather than being forced to shop in a constrained marketplace where only certain plans are offered and people are forced into buying potentially much more coverage than they need,” Chen said.

“That’s what is helping to drive up costs under Obamacare, and why citizens in some states are sure to experience even more rate shock when they try to buy Obamacare plans next year,” Chen said.

Loren Heal ([email protected]) writes from Neoga, Illinois.

Internet Info:

“Financial Reports,” California Health Benefits Exchange: