Covered California, the state-based health insurance exchange, plans to be financially self-sufficient by 2017 -- a goal all the more pressing in a state with some $617 billion in government debt.
In its financing proposal to the Center for Consumer Information and Insurance Oversight (CCIIO), the Centers for Medicare and Medicaid Services agency in charge of HIXs, Covered California laid out plans for generating revenue through premium fees and participation fees, based on various enrollment estimates.
To date, Covered California has received about $230 million in federal funding and is requesting about $700 million more through 2014.
"We can never go to the state general fund," Peter Lee, Covered California's executive director and a former CMS official, said at a November meeting, as California Healthline reported. "That's in our charter. No state general fund dollars. And the federal money runs out at some point."
The plan includes a mix of premium fees on qualified health plans sold in the exchange, premium fees assessed on the qualified plans sold in the private market, fixed participation fees for insurers, fees for customers, fees for supplemental coverage like dental and vision plans and a participation fee on companies selling other insurance products in the exchange, like life and disability plans.
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Using market simulation software developed by researchers at University of California Los Angeles and Berkeley, Covered California officials are estimating several scenarios for enrollment, the base estimate, the "enhanced" scenario and a worst case scenario where only a few hundred thousand of California's 20 million residents buy insurance through the state HIX.
In the base estimate, subsidized and unsubsidized enrollment in the exchange is expected to grow from 500,000 to 1.6 million by 2017. Under the enhanced estimate, which the board has set as its target goal, about 2.3 million Californians could buy coverage through the exchange by 2017.
Targeting for the enhanced scenario, Covered California has a $900,000 PR contract with Ogilvy Public Relations Worldwide, and is crafting a robust outreach and marketing campaign aimed at young people, first-time insurance buyers and California's many multicultural communities, including people who speak English as a second language.
If the exchange meets its enhanced enrollment goals, the premium fee would start at 3 percent and drop to 2.5 percent in 2016 and then later to 2 percent. Exchange officials say this would generate about $138 million in revenue in 2014, and would steadily increase each year along with enrollment. Costs during 2014 are estimated at $390 million, covered by both federal grants and premium-generated revenue. In 2015 the costs are estimated to level out at around $315 million. As federal funding ends in 2015, Covered California expects revenue to increase with enrollment to fill the gap. The exchange, under its founding legislation, also must establish a three month cash reserve.
Under the base scenario, the premium fee would start at 3 percent and reach 4 percent in 2015, to compensate for lower enrollment.
Under a third "worst case" scenario with enrollment 20 percent lower than the base estimate, the assessment fee would reach 5 percent in 2015.
That estimate is extreme and not very likely, exchange officials say. It assumes about 326,000 enrollees in the 2014, compared to the target of 1 million.
Covered California currently has around 70 people on staff, which by 2014 is planned to grow to 293, not including the customer support center, which is estimated to require a staff of about 850.