Covered California Audit Raises Worries

A new report by the California Auditor has concluded that the state's health insurance exchange has to take more aggressive steps to ensure its financial solvency over the long-term and eschew the awarding of no-bid contracts.

The report, issued earlier this week, concluded that Covered California's relative youth may be a strike against it. It noted that its revenue projections are based on enrollment forecasts, which vary based on several scenarios.

According to Covered California's accounting, it projects enrollment of 1.66 million for 2016-17, generating assessments on participating health plans of $269.2 million. That compares to the 2015-16 numbers of 1.47 million and $234.4 million. 

For 2016-17, assessment revenue is combined with a cash reserve of $197.2 million, down from 2015-16's $297.9 million. The exchange projects 2016-17 expenditures of $310 million and a total ending reserve of $156.4 million. That reserve is projected to grow to $189.2 million by 2018-19, based on enrollment growing to just short of 2 million.

The report noted that actual enrollment could fall short, requiring Covered California to raise health plan assessments, which could also impact enrollment. Budgets for marketing could also be impacted as well.

The report also raised concerns about scores of sole-source contracts Covered California has awarded without competitive bidding. 

Although non-bid contracts from government agencies are technically against the law, Covered California has a process in place that allows no-bid pacts  when timeliness or unique expertise are of the essence.

Howle's office reviewed 40 different exceptions for awarding no-bid contracts, and found nine instances when the justifications behind the awards were not sound. That including the awarding of a marketing/PR contract in 2013 to Weber Shandwick for $134 million, the biggest sole-source contract awarded by the exchange. Although Covered California cited the agency's ability to create an entire marketing campaign within just a few months, “we believe Covered California did not sufficiently justify using a noncompetitive procurement process as its board-adopted policy outlined,” the report said.