Covered California is facing a project budget deficit for Fiscal Year 2015-16. The federal grant put in place to establish the state’s health care exchange is set to expire in December.
Two months after the Affordable Care Act went into effect, Covered California staff project that the state health care exchange will have a more than $78 million budget deficit in Fiscal Year 2015-16.
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It is unclear what impact, if any, this will have on health care customers, doctors and insurance companies in the long term, but the organization is already take precautions to address the deficit, said Covered California Spokesman Larry Hicks.
The deficit stems from the fact that the federal grant put in place to establish Covered California is set to expire in December.
“This is the final year of federal dollars,” Hicks said.
But Hicks also wanted to address what he considered to be confusion about the word “deficit.”
While Covered California will likely spend $78 million more than it brings in, projected high enrollment numbers, fees charged to insurance companies and federal money saved from previous years will cover the difference, Hicks said.
Covered California, by law, is not allowed to draw from the state’s general fund to cover costs.
State Assemblyman Scott Wilk, R-Santa Clarita, expressed uncertainty about the health insurance exchange’s future.
Not only is it against the law for Covered California to use general fund money, but it is also against the law for them to have a deficit, Wilk pointed out.
And while the state essentially has a balanced budget, it’s due to temporary tax increases and the stock market, Wilk said, and there still is debt to be paid down.
“Having to pay to cover Covered California’s shortfall–one, we don’t have the money and, two, it’s against the law,” he said.
Currently, there are 625,000 California residents enrolled in a Covered California insurance plan.
By the end of 2013, about 132,209 consumers had enrolled in subsidized or unsubsidized plans in Los Angeles County, 26 percent of the 500,108 statewide enrollees at the time.
Enrollment was ahead of projections in January, Hicks said.
“(We’re) very optimistic about our future and future of California getting quality affordable health care,” he said.
Despite record enrollment numbers since October that have helped bring revenue into Covered California, Wilk expected to see enrollment decline in the long term, because premiums would go up and young, healthy consumers would choose to opt out.
While federal law under the Affordable Care Act allows insurance companies to charge higher rates to customers who smoke, California is one of seven states that does not allow insurance companies to discriminate against smokers, according to WebMD.com.
“All things being equal, a smoker pays the same thing as a non-smoker,” Wilk said.
He also pointed out that young, healthy residents are paying more than their fair share into the insurance pool to cover the costs of those who need more medical care.
He suggested that recent decisions by legislators have made it more difficult to sustain Covered California.
“The legislature made some decisions that are going to exacerbate the situation–non-smokers are subsidizing smokers. Younger people are subsidizing old people,” Wilk said.
To help cover costs, 2014 is the first year that insurers will have to pay a fee per customer to Covered California, it was a policy that they planned to implement all along, once federal grants stopped.
Insurance companies are now required to pay $13.95 per individual insurance plan and $18.60 for plans they sell through the SHOP Program for small businesses.
“Federal dollars will more than cover that deficit,” Hicks said. “In the meantime, charging fees to insurers that will ultimately cover our operating cost.”
Ultimately, because Covered California is such a young organization, the future of enrollment and revenue remains to be seen, Hicks said.
Wilk also called it “unchartered territory.”
“In out years, if enrollment declines, we would have to make adjustments to make sure that we’re still operating significantly,” Hicks said.
Covered California remains committed to providing affordable health care by keeping in-house costs down, according to the most recent budget proposal on the website.
“In keeping with our value of affordability, Covered California aims to limit its cost of operations in order to deliver products and services that offer high value to our consumers,” the site stated. “This includes consideration of the amount of participation fees on the cost of coverage, balanced with the need to establish modest reserves.”
And in keeping with “a responsibility to provide transparency into the management of its finances,” the budget proposal is available online, here.
For more information about enrollment numbers across the state and county by county, click here.
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Source: Santa Clarita News