After using most of $1 billion in federal start-up money, California's Obamacare exchange is preparing to go on a diet.
That financial reality is reflected in Covered California's proposed budget, released Wednesday, as well as a reduced forecast calling for 2016 enrollment of fewer than 1.5 million people.
The recalibration comes after tepid enrollment growth for California during the second year of the Affordable Care Act. The state ended open enrollment in February with 1.4 million people signed up, far short of its goal of 1.7 million.
A number of factors contributed to the shortfall, but health policy experts said that some uninsured folks still find health insurance unaffordable despite the health law's premium subsidies.
Those pocketbook issues make holding the line on costs an imperative for state officials. Covered California can't draw on the state general funds, and its primary source of revenue is a $13.95 monthly fee tacked onto every individual policy sold.
The fee is unchanged in the proposed $332.9-million budget for the fiscal year starting July 1. The exchange's four-member board is expected to take a final vote next month on the financial plan.
"This budget marks a turning point for Covered California of moving from a start-up with federal support to demonstrating we can operate under our own steam for years to come," said Peter Lee, Covered California's executive director.
The budget details include proposals to:
• Spend $58 million less compared with the current fiscal year, a 15% reduction.
• Devote the largest portion, $121.5 million, to outreach, sales and marketing. That's down 33% from the current year.
• Maintain the monthly $13.95 fee for each individual policyholder, which would raise $233.2 million in revenue.
The state also would draw on $100 million in federal money in reserves — the last of the start-up grant. No further federal funding is expected.
Some consumer advocates would support a slightly higher fee on policyholders to invest more in outreach and the service center. Many consumers have complained about long wait times, erroneous notices and other enrollment glitches with Covered California.
"We don't want to short-shrift customer service or outreach," said Anthony Wright, executive director of Health Access, a consumer advocacy group.
But health insurers are pressing the exchange to be frugal to keep costs within reach of the average consumer.
"Holding fees flat like they did is an important safeguard for the affordability of Covered California coverage," said Nicole Evans, a spokeswoman for the California Assn. of Health Plans.
"As the myriad of interest groups pressure the board to fund their projects, they need to stand firm in protecting premium prices and holding down the budget," she said.
Health plans have submitted initial rates for 2016, and negotiations are underway with exchange officials. An announcement on next year's rates could come as soon as July.
One of the biggest changes in the budget blueprint is a more gradual increase in projected enrollment compared with previous state estimates.
Covered California projects 1.48 million people enrolled and paying on their premiums next year. It wants to reach nearly 2 million by 2019.
The state made little progress this year. California was one of the worst-performing states, with 1% net enrollment growth, according to a recent analysis by consulting firm Avalere Health.
Among two other state-run exchanges, Connecticut reported 39% enrollment growth and New York saw a 10% increase.
"We are seeing higher attrition and ongoing difficulties in bringing new people into the market," said Caroline Pearson, senior vice president at Avalere. "It's a little unclear whether exchanges are really maxed out on enrollment or whether implementation will take longer than initially thought."
Covered California did sign up nearly 500,000 new enrollees during the second wave of the health law. But it also lost a significant number of customers for a variety of reasons.
It retained 65% of the 1.4 million people who originally signed up during the first open enrollment, which ended in April 2014, according to Avalere. Many consumers dropped out right away because they failed to pay their initial premium for coverage to take effect.
In addition, Covered California said, about 160,000 people whose incomes fell shifted into Medi-Cal, the state's Medicaid program for the poor. And fewer people than expected migrated to Covered California from Medi-Cal, officials said.
Health insurers also have predicted higher churn in the Obamacare market as the economy recovers and more people obtain health coverage through work.
Gerald Kominski, director of the UCLA Center for Health Policy Research, said he sees no cause for concern yet in the state's enrollment trends. He said a banner turnout in the first year was difficult to match.
"If you have huge enrollment in year one and don't do as well in year two, that's not a failure," he said. "They may have reached a saturation point a year quicker than expected."
Many Californians who signed up in 2014 were closer to the federal poverty line and often paid just a few dollars a month for health insurance, thanks to generous federal subsidies.
The remaining uninsured were closer to the cutoff for those federal dollars, meaning they had to pay more of the premium themselves.
"Those people may just be doing the math, and they simply cannot afford the premiums," Pearson said.
Lee said the exchange is planning to survey consumers who have left the exchange to get a clearer picture of what's happening in the market.
"Our sense is there are very few people leaving because of unaffordability," he said.