Blaming Obamacare for the cancellation of more than a million policies, on Wednesday state Sen. Ted Gaines announced he had filed a lawsuit against Covered California and its director, Peter Lee.
Covered California is the state-run health exchange established in the wake of the passage of the Affordable Care Act (aka Obamacare).
Gaines, who is running for State Insurance Commissioner this November, said the lawsuit seeks to stop any future health insurance policy cancellations by the health care exchange. In addition, the suit seeks to hold Covered California accountable for hundreds of millions in expenditures that have failed to increase the number of insured Californians.
The lawsuit alleges that Covered California unnecessarily eliminated the individual health insurance of more than 900,000 Californians, forcing them to scramble to find replacement plans that were often extraordinarily expensive and full of provisions that consumers did not necessarily need but had to purchase. It claims millions more consumers with employer-provided insurance will face the same cancellations in the upcoming years.
The lawsuit notes that insurance companies that wanted to participate in the exchange were required to sign the Qualified Health Plan Contract for 2014 that called for the cancellation of policies that did not meet its requirements.
The lawsuit also criticizes how Covered California has spent its budget, saying, “Facing a $78 million budget deficit in 2015-16, Covered California has spent millions of dollars in a failed attempt to attract more enrollees, including the widely mocked Richard Simmons infomercial.”
That commercial was estimated to cost $1.3 million. In addition, the lawsuit alleges the agency spent $10 million for public relations work with the firm of Weber Shandwick “with no discernible results or success,” an additional amount on media work by the firm of Ogilvy Public Relations, as well as $103 million, out of a total budget of $400 million, for “outreach,” which according to the lawsuit, “failed to obtain significant enrollment, or a demographically or actuarially diverse enrollment.”
So far Covered California has relied on more than $1 billion in federal grants to fund its operation. Last summer, a state audit labeled the agency “high risk” because of uncertainty around enrollments. The state exchanges are supposed to be self-sustaining by next year with the monthly surcharge on insurance policies as the main source of funding for the program.
Gaines said he filed the lawsuit as a private individual after his office received hundreds of complaints from people throughout the state regarding the implementation of Obamacare. “Many had coverage in place and were happy. But because of Obamacare, those policies were canceled and they had to start over. Several individuals had acute care needs and lost their doctor and hospital or specialist to deal with their particular ailment,” he said.
“Obama said if you liked your policy you could keep it, but the Covered California Board of Directors did not follow that opportunity to extend coverage. They made the decision unilaterally not to renew those policies and I don’t believe they have the authority,” Gaines said.
“The second issue is transparency. They have a billion dollar budget and a lot of money was wasted in marketing. The budget year for 2015-16 has an estimated deficit of $78 million. How are we going to make up the deficit? Are we going to go back to taxpayers and ask them to pay more? Are we going to increase premiums or policy fees? There is very little transparency on the issue of the budget and marketing dollars and how they were spent.”
Gaines said he likes parts of Obamacare, such as coverage for preexisting conditions, but he doesn’t think having mandated coverage makes sense since not everyone has the same health needs.
“A lot of these canceled policies were for catastrophic coverage and were what people wanted,” he said. “The complaints we heard were not being able to find a doctor or a hospital that can treat them, and premiums were going up from $100 to $500 a month. We were told Obamacare would drive down the cost of health care and that was blatantly untrue. I believe California acted illegally when it refused to extend existing coverage to individual policy owners.”
He did note that as of Feb. 14, 828,638 Californians had signed up at the health exchange, which has been in operation since Oct. 1 of last year.
An estimated 2.6 million Californians are eligible for the subsidized health care program with the open enrollment period ending March 31.
Asked about marketing expenses, Kennedy said the budget for 2013 was $35 million and in 2014 was $45 million. He said the amount spent for outreach and education was only $39 million.
On Wednesday, the Obama administration announced it would allow people with health insurance plans that don’t comply with Affordable Care Act standards to keep them through October 2017, if their states allow it.
The administration also plans to give insurers additional financial help to offset the costs of benefits claims from new enrollees to keep Obamacare premiums “affordable” in coming years.
However, these changes will not affect Covered California, according to Kennedy. In an e-mail, he said, “California law does not allow for renewal of those plans and in November the Covered California board voted against any extension of those non-compliant, non-grandfathered plans. Therefore the federal extension announced late yesterday (Wednesday) does not affect Covered California.”
The lawsuit by Gaines seeks various forms of relief with the main points of the lawsuit being to repeal or cancel the Qualified Health Plan Contract required of insurers along with allowing people to renew their existing health care coverage without violating Obamacare.
Gaines said he hopes what he is doing will prevent millions of future cancellations that are expected to occur leading up to the Jan. 1, 2016, requirement that businesses with more than 50 employees provide health insurance. The lawsuit estimates that provision will result in as many as 60 million policy cancellations nationwide.
Contact Dawn Hodson at 530-344-5071 or [email protected] Follow @DHodsonMtDemo on Twitter.