Covered California's Plans to Become Self-Sufficient

by David Gorn

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California's health benefit exchange, now also known as Covered California, eventually is supposed to run by itself without state or federal money. The exchange board took a couple of steps toward that end at Wednesday's board meeting.

It released its draft Level II establishment grant proposal, which now will be forwarded to federal officials. The proposal is a blueprint for how the exchange will operate in California.

As part of the proposal, exchange officials laid out plans for the exchange to be self-sufficient by 2017.

"The feds are basically saying, 'We will help you start up, we will prime the pump,' " said Peter Lee, executive director of the board. "So with the establishment grant, the federal government is saying it's not here to support the exchange in an ongoing way, that it's only here to help start it up."

The federal money for the exchange can be seen as seed money, Lee said. "We can never go to the state general fund," he said. "That's in our charter. No state general fund dollars. And the federal money runs out at some point."

Covered California's plan includes an assessment fee on premiums. The exchange will set aside some of the money from those premium fees for a three-month operating reserve, as a precautionary measure.

Eventually, Lee said, the exchange hopes to operate on a 2% premium assessment fee.

"We want to aim high but plan for uncertainty, and plan for what happens if we don't meet our goals," Lee said. "We need to be able to scale up or down quickly, so we're looking at three months' operating expenses as a reserve balance."

According to David Maxwell-Jolly, chief operations officer at the exchange, there are three paths toward self-sufficiency -- the enhanced scenario, the base scenario and the worst-case scenario.

• In the enhanced scenario, if the exchange builds enrollment at the pace it hopes to do, the premium fee would be 3% in the early years, and would go down to 2.5% in 2016, then level off to 2%, Maxwell-Jolly said. "The plan here would be very good news for the exchange," he said. "And we would end with a three-month reserve, which we identified as our minimum."

• The base enrollment model, Maxwell-Jolly said, "would be considerably less enrollment in the first year of the 3% of premium, so in that case we'd need to have the premium assessment fee go up to 4% in 2015 and then down to 3.5% in 2016 and 2.5% in 2017." Maxwell-Jolly pointed out that, with lower enrollment numbers, some of the expenses would go down, as well, such as the number of calls that need to be handled by the customer service center.

• The worst-case scenario involves 20% lower enrollment than the base scenario, with only about 325,000 enrollees. In that extreme case, Maxwell-Jolly said, the assessment fee in the second year (2015) would bump up to 5%, then down to 4% in both 2016 and 2017.

The worst-case scenario is extremely unlikely, Lee said.

"Right now, we have approximately 600,000 Californians who pay for the same insurance today, who could buy it for tomorrow with federal help." It's likely most of those 600,000 would sign up with Covered California and get the federal subsidy, Lee said.

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