High-Risk Pools: a Precarious Pillar of Republican Reform
Filed under: Insurance Companies, Private Insurance
Photo by Noodle Snacks
At the Health Summit last week we were able to more fully observe the Republican vision for reforming health care. A constant idea that the Republican leadership came back to was the concept of “high risk pools.” But what are high risk pools, and what potential do they have to lower costs?
High-risk pools are state-run programs that provide insurance for those who suffer from pre-existing conditions or have some other issue that makes them “medically uninsurable.” They are often utilized by those in limbo who were previously covered by an employer’s group coverage, but for whatever reason are now relegated to the veritable disaster that is the individual market. Currently, 34 states have high-risk pools, with the combined number of insured from those pools at 200,000. (See Kaiser Family Foundation, State High Risk Pools: An Overview). As noted by Kaiser, coverage is typically at 125% to 200% of the standard market rate for health insurance. In some states, the high-risk pool insurance costs as much as $14,000 per year. Thirty states offering high-risk pool coverage have waiting periods before pre-existing medical conditions can be covered.
Edmund Haislmaier of the Heritage Foundation has provided a succinct and helpful discussion of the relationship between high-risk pools and the related concept of “reinsurance.” Haislmaier breaks down these risk-transfer tools into two groups: “inclusionary” and “exclusionary” risk-transfer mechanisms:
The “exclusionary” mechanisms segregate high-risk individuals from the low-risk population, subsidizing them in a separate pool. The “inclusionary” mechanisms keep high-risk individuals in the same pool as everyone else but seek to redistribute and/or subsidize their more expensive claims.
A common exclusionary mechanism is a state-run “high-risk pool” for the individual health insurance market. The pool offers coverage to people who have been refused coverage in the individual market due to poor health status. Although coverage carries high premiums, the premiums are not enough to cover the cost of claims by enrollees. To make up the difference, lawmakers use a mix of assessments on private insurers and public subsidies. In some states, the losses are funded entirely out of assessments on insurers and, thus, ultimately included in the premiums paid by everyone with health insurance coverage. In other states, the losses are funded primarily out of general revenue appropriations and, thus, are ultimately born by all the state’s taxpayers. Still other states use a mix of both funding sources.
Inclusionary risk transfer mechanisms operate on essentially the same principle, except that high-cost individuals are not given separate coverage. Instead, some portion of their claims is pooled and then proportionately redistributed among the carriers in the market. As with high-risk pools, public subsidies may also be used to offset some of the cost of claims. This type of mechanism is often called, somewhat inaccurately, a “reinsurance pool.” A more precise termed is “risk-transfer pool.”
Notably, Haislmaier recognizes that high-risk pools offer little help when it comes to the true goal of health reform: reducing costs:
Regardless of design, risk transfer mechanisms only shift or redistribute costs among funding sources. Specifically, risk transfer mechanisms offer ways to more equitably redistribute the costs of a small number of expensive cases or individuals across a broader population. While these features enable health insurance markets to function more smoothly, they are not a solution for controlling health care costs in general.
This is noteworthy coming from the Heritage Foundation. However, to be sure, high-risk pools are not peculiar to Republican health reform proposals. Both the House and the Senate bills provide for high-risk pools. The follow table is from The Kaiser Foundation’s paper “High-risk Pools: An Overview”:
Courtesy of Kaiser Family Foundation
The important row of the above table is “Timeline.” Whereas the House and Senate bills utilize high-risk pools as a temporary measure to provide insurance to those with pre-existing conditions before the exchanges take shape, the Republican proposal would implement risk transfer mechanisms as the primary means by which individuals with pre-existing conditions can obtain coverage. For those purchasing on the individual market, the Republican proposal would provide federal funding for state-run high-risk pools. Reinsurance mechanisms would operate in the small group market.
This is in contrast to both the House and Senate proposal which both prohibit the insurance exchanges from denying coverage because of an applicant’s pre-existing condition–thus negating the need for high-risk pools. Instead of subsidizing high-risk pools that would segregate the sick from the healthy, the individual mandate in the Democrats’ bill would ensure that the costs of high-risk and currently sick individuals would be spread throughout the exchange.
As Haislmaier noted, it is unclear how risk transfer mechanisms would lower health care costs. For example, whereas exchanges would increase competition by making the purchase of health insurance more accessible, high-risk pools and reinsurance would not alter the current maze that is the individual insurance market. It is somewhat remarkable that the Republicans opt for high-risk pools instead of a proscription against pre-existing condition preclusions, especially given the public disdain for pre-existing condition preclusions. But the Republicans have little choice. Since they are wholly opposed to the individual mandate, insurers and states running high-risk pools under the Republican plan would not have healthy individuals paying into the system to offset the cost of sick insureds.
Posts from Health Reform Watch have been cited by media sources throughout the country, including The New York Times, Washington Post, L.A. Times, Kaiser Health News, The Health Care Blog, NPR's Planet Money Blog, Duke Univ. Med. Center News, American Health Line Alerts, BusinessWeek.com, Concurring Opinions, Balkinization, The New England Journal of Medicine, Harvard's Nieman Foundation for Journalism, Las Vegas Sun, Maggie Mahar, Ezra Klein, Tom Geoghegan, and the official homepage of the Office of the Democratic Majority Leader of the House of Representatives, Steny Hoyer.
I don’t think that Americans realize that a very great many of them won’t be able to afford either the insurance or the high risk pool components of the administration’s insurance company written reform. If it does anything, it should be an object lesson to us that we cannot win until there are huge changes in Washington, which may not ever happen. I have a friend in Holland who gets high quality, comprehensive (100%, not 65%) coverage for under $200 a month in Holland. Also, its taken out of taxes, so if you get sick and can’t pay, you DON’T lose it. Over each of our lifetimes, we probably spend at leasta quarter of a million dollars more than a similarly situated Canadian or European on what passes here for health care. But it isn’t good health care, its absolutely terrible care. And thats if you have insurance, if you have none, God help you. Increasingy, even rich Americans get terrible care now. Poor people in the UK, on the whole, with the NHS, get better care than almost all Americans do here, with the HMO model.
And as the death spiral continues, its getting worse fast. I used to be a big supporter of single payer, but now I think its too late for that. We should nationalize healthcare. The 2008 election was a huge victory for the healthcare corporations. Americans swallowed the big lie. Another decade will be wasted while we cough up trillions a day. But their “victory” came at the expense of our nation’s future.