California doesn't need to be selling health insurance

Commentary by John R. Graham

Source: The Orange County Register

It's taken longer than it should have, but Covered California, California's Obamacare health insurance exchange, is finally being exposed as a billion-dollar boondoggle.

In 2013, as news about the glitches and scandals in other Obamacare exchanges became impossible to avoid, the New York Times' Paul Krugman, former Princeton professor and Nobel laureate in economics, went into a defensive crouch around Covered California: “What would happen if we unveiled a program that looked like Obamacare, in a place that looked like America, but with competent project management that produced a working website? Well, your wish is granted.”

Well, not really. In October, the Associated Press reported that $184 million of “no-bid” contracts were given to firms with professional connections to Peter Lee, executive director of Covered California. This April, investigative journalist Sharyl Attkisson reported the story of whistleblower Peter Hill, a former project manager at the exchange's call center. After complaining to the board about waste and cover-ups, Hill's contract was terminated.

Emails between Hill and Covered California colleagues are inexplicable. He was told not to use his government email to search for information on “best practices,” and not leave an electronic trail of draft contract language or clarifications.

Covered California's customer service is appalling: On Yelp, it had 205 reviews on April 27, of which 185 were one star out of a possible five – the lowest ranking possible. When tax season rolled around, 100,000 Covered California customers got either inaccurate tax forms or none at all. This is important because Obamacare through the IRS levies a tax penalty on people who do not have government-qualified coverage.

Lee is a veteran executive of the Pacific Business Group on Health, a nonprofit coalition of large employers (including Bechtel, Boeing and Safeway) that operated a previous health insurance exchange established by the state. PacAdvantage was created to give small businesses the same leverage as big employers in negotiating health benefits. PBGH took it over in 1999 and shut it down with minimal warning in 2006 because insurers fled and the exchange was losing money. Remarkably, under Lee's leadership, Covered California gave PBGH two contracts worth $525,000.

It is not hard to understand why it took so long for the problems to surface at Covered California. First, the billion dollars that the exchange burnt through were federal grants. Nobody at the state level really cared to be accountable. Second, nine in 10 of Covered California's enrollees are paying artificially low premiums because of tax credits paid to insurers in the exchange. These people have no choice but to put up with poor customer service because they cannot get covered outside Covered California.

Fortunately, Covered California's enrollment has peaked at about 1.4 million people, effectively unchanged from 2014. However, about a thousand people enroll every day because of events (such as job loss or marriage) that qualify them for Obamacare. And there will be another surge of about half a million people when 2016 open season starts Oct. 15. (There is a lot of “churn” in Covered California. Almost one third of 2014 enrollees did not sign up for 2015. A similar number of new enrollees signed up.)

Every Californian should be concerned, because federal funding is finished. Although Covered California's budget “assumes” $360 million is left for 2015, there will be no more funding after that. The exchange's operating budget of almost a half million dollars will have to be financed by a fee of $13.95 added to each enrollee's premium each month. Any bets on when Covered California's board might have to go to the Legislature for more money?

Here's the good news: None of this is necessary. The government has no more business running a health insurance exchange than the DMV does running a car dealership. Brokers and agents, either in person or online, are perfectly competent to inform people about their choices and help them make the right one. Indeed, two California businesses, eHealthinsurance.com and GetInsured.com both had a national online presence years before Obamacare and state exchanges interfered with their markets.

Even Obamacare's strongest opponents agree that individuals should receive a tax break for buying individual health insurance. Obamacare forces us to use unnecessary government-run exchanges to get it. Partisans on both sides of the Obamacare debate should agree that shutting down Covered California deserves to be a priority for both Congress and the state Legislature.

John R. Graham is a senior fellow at the Pacific Research Institute and at the National Center for Policy Analysis.