Everybody in the Pool — High Risk That Is

By Labinot A. Berlajolli

Photo by wsuNate via Flickr

Individuals with pre-existing medical conditions may now begin applying for the Pre-Existing Condition Insurance Plan. Under the recently passed health care law (PPACA), the government set aside $5 billion to fund the plan from July 1, 2010 through Jan 1, 2014. Money is expected to be allocated based on each state’s population as well as its costs. Although, HHS officials said they might shift funding among states if the new $5 billion program to cover the uninsured runs out more quickly in some states than in others.

To qualify for coverage, individuals must be U.S. citizens or legal residents, have been denied coverage because of a preexisting medical condition, and have been uninsured for the past six months.  Administration officials said people who apply by July 15 will begin receiving coverage by Aug. 1.   States were required to let HHS know by April 30 whether they wanted to use federal grant money to set up a high-risk pool.  As of now, 21 states have chosen to join the federal run pools and 29 states and the District of Columbia have chosen to go it alone.  The 21 states that have chosen to opt into the federal plan are: Alabama, Arizona, Delaware, Florida, Georgia, Hawaii, Idaho, Indiana, Kentucky, Louisiana, Massachusetts, Minnesota, Mississippi, Nebraska, Nevada, North Dakota, South Carolina, Tennessee, Texas, Virginia, and Wyoming.  Several of the largest states operating their own plans, including California, Illinois and New York, are not expected to begin enrollment until August. The administration expects that all states will begin enrolling people by the end of the summer.

Joining the plan will not be cheap. The Los Angeles Times reports that premiums, as well as benefits, are expected to vary greatly from state to state, with some plans charging as little as $140 a month and some as much as $900 a month. Independent experts, on the other hand, estimate premiums will average around $400 to $600 a month.

However, serious questions remain about the new risk pools.  Specifically, whether the $5 billion allocated will be enough. Many experts expect the $5 billion to run out well before 2014 because of high demand. The Centers for Medicare and Medicaid Services has estimated that the $5 billion will last for only two years. The Congressional Budget Office has estimated that the funding is not enough to cover all eligible participants, and that the administration will have to limit enrollment to only 200,000 people through 2013, though there are roughly 12.6 million with pre-existing conditions, according to the Miami Herald.   Others who advise Congress and the administration have warned the funds could be exhausted as early as the end of 2011.

Those interested in applying for the high-risk pools may visit the newly launched website, healthcare.gov, for more information and instructions on how to apply.

High Risk Pools: Then and Now

By Christine Davis

Photo by Koen Cobbaert via Flickr

For medically uninsurable people, or people with pre-existing conditions who cannot find coverage, coverage may soon materialize.   Even before President Obama signed the PPACA, CMS had provided “Qualified High Risk Pool” grants to qualifying states, in order to cover these higher risk people since 2007.  (45 CFR Part 148)  Thirty-five states participated.  Before health care reform passed in 2010, states could qualify for operational or seed grants, which they could use to cover eligible individuals.  (Federal Register, v 73, no 81).  PPACA authorizes the development of  a temporary national high risk pool, which will operate similar to what is happening now with the state grants and will function as a temporary fix until the insurances exchanges kick in after 2014 and insurance companies are mandated to cover all individuals with pre-existing conditions. This is a unique part of the new bill because it seems to be something both Republicans and Democrats can agree on.    Previously, the majority of these state high risk pools had lifetime maximum payouts, usually around $1 million, (three states had lifetime maximums of $500,000). Once these individuals reached that amount, they had no other way to be insured. (http://www.federalgrantswire.com/seed-grants-to-states-for-qualified-highrisk-pools.html).

The goal of the national risk pool is to transition the uninsurable until health care exchanges are established in 2014.  Once that happens, there will no longer be lifetime or annual limitations on coverage.  The idea here is that an individual will never reach a point where there is absolutely nowhere else to go for coverage.

By 2014, eligible individuals will be people “who have not had creditable coverage for the previous six months and now have a pre-existing condition.”   As of now, most state pools require those seeking coverage to (a) submit proof that they have been denied coverage due to a pre-existing condition, or (b) show that they have applied recently for coverage and were a victim of “adverse underwriting actions,” such as limiting benefits or charging extraordinary premiums (for example, diabetics). (Coverage: Creating a Temporary National High Risk Pool: the New Health Dialogue Jan 12, 2010). One concern of these eligibility requirements is that they might discriminate against those who only recently lost coverage, because they are making every individual prove they have not had coverage in the past.

An advantage to a national high risk pool as opposed to a state high risk pool is that it will be more balanced and less costly, because the premiums charged won’t be as high.  Although, if annual or lifetime limits aren’t capped once these exchanges kick in, these costs could skyrocket. However, a downside is that in some states, these high risk pools have limited eligibility and low enrollment, and for example, monthly premiums costing an individual well over $1,000/month.  However, the news is not all bleak. States like Minnesota have been doing it right all along, even with broad eligibility, by finding additional streams of revenue, such as tobacco settlement funds, with which to support the pool.  In order to  be successful, the national pool, should model itself after successful states like Minnesota.

High-Risk Pools: a Precarious Pillar of Republican Reform

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.