February 16, 2016 2015-605
The Governor of California
President pro Tempore of the Senate
Speaker of the Assembly
Sacramento, California 95814
Dear Governor and Legislative Leaders:
This report presents the results of our high risk audit concerning Covered California's administration of California's Health Benefit Exchange (exchange). State law required Covered California to create and operate the exchange to implement provisions of the federal Patient Protection and Affordable Care Act (Affordable Care Act).
This report concludes that Covered California has made progress in implementing key federal and state requirements pertaining to the establishment of an exchange, but certain concerns remain. Covered California is required to be self-supporting and, although it has developed a plan to help ensure its future financial viability, it needs to continue to monitor its plan and conduct a formal analysis of its reserve level. Covered California projects that in fiscal year 2017–18 it will have enough consumers enrolled in qualified health plans that its revenues will cover its operating expenditures. Covered California annually updates its enrollment projections and used six key assumptions to determine its multiyear enrollment projections. Using these assumptions, Covered California has developed a range of enrollment estimates, from low to high, all of which show continued enrollment growth through fiscal year 2018–19. However, as with all forecasts, some degree of uncertainty about future enrollment should be anticipated, and Covered California's short operational history suggests that its enrollment projections are an area of risk that it will need to carefully monitor in order to ensure its financial sustainability.
Covered California's contracting practices must be improved to ensure the integrity of the process it uses to award sole-source contracts. We reviewed the justifications for 20 of Covered California's sole-source contracts and another 20 applicable amendments to those contracts, for a total of 40 justifications. The policy adopted by Covered California's board of directors (board) and in place during our review stated that sole-source contracts should be justified in writing. In our review, we found that nine of the 40 justifications were insufficient according to Covered California's board-adopted policy. For example, Covered California did not sufficiently justify the use of a noncompetitive procurement method to award a contract for marketing and outreach services totaling nearly $134 million. In addition, we question the validity of an additional three justifications because, even though Covered California asserts either timeliness or unique expertise as a basis for using the noncompetitive procurement process, available documentation indicates that either Covered California had sufficient time to use a competitive procurement process or the vendor was not unique. Finally, although the California Healthcare Eligibility, Enrollment, and Retention System (CalHEERS) is functional, its rapid design, development, and implementation have resulted in some risks to system maintainability. Without continued oversight, specifically from independent verification and validation, these system issues may go unidentified or unresolved, resulting in long-term cost and schedule implications for the ongoing maintenance of CalHEERS.
ELAINE M. HOWLE, CPA