NCPA - National Center for Policy Analysis

What ACA Means for Covered California

July 8, 2015

California established Covered California because the Affordable Care Act only allows tax credits to be paid to health insurers in exchanges established by states. These tax credits are the only way to make the expensive Obamacare plans affordable to beneficiaries. On June 25, the U.S. Supreme Court decided King v. Burwell, rewriting the law to allow the federal government to continue to pay tax credits through healthcare.gov. The decision gives California an off-ramp from the exchange business, says John R. Graham, senior fellow at the National Center for Policy Analysis.

Until a few months ago, Covered California was able to disguise its problems because it was burning through federal grants. Those days are coming to an end. Covered California has $100 million of federal cash left over to spend this fiscal year, but then that gravy train comes to a halt -- and it will have to fund itself. This will be a struggle because its future funding depends on the number of enrollees, which is well below expectations.

Covered California's business case is very weak:

  • With 1.4 million signing up in the 2015 open season, enrollment is 300,000 lower than previously estimated.
  • Covered California cheers itself for enrolling almost half a million new people this year, but the same number dropped out between the close of 2014's open enrollment and the start of 2015's.
  • Instead of earning its projected 2018 budget of $300 million to $340 million, Covered California's revenue will be unlikely to top $220 million.
  • About one-third of those who sign up in open season drop out during the year.

The sooner Covered California winds up, the better for Californians. And though the federal healthcare.gov is no joy, it will be with us until Obamacare is repealed. There is no need to replicate its bureaucracy at the state level. 

Source: John R. Graham, "What ACA Means for Covered California," Orange County Register, July 5, 2015.

 

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