Do High-Risk Pools Work? It Depends

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Source: The Washington Post

If the American Health Care Act ultimately becomes law, states will have the option to once again let insurers on the individual market charge those with preexisting conditions more than healthy people. Among the more contentious pieces of the AHCA, which the House of Representatives passed narrowly on Thursday, is a provision allowing states to request waivers to rules otherwise forbidding higher premiums based on a person’s health status. To get a waiver, states would have to explain how their approach would reduce premium growth and increase enrollment or competition; a late amendment to the bill added $8 billion to help defray higher costs to individuals with health conditions.

I have helped manage one federal and two state “high-risk pools” of the kind that could be re-created under this provision of the AHCA. Before the full implementation of the Affordable Care Act, states had significant discretion over their individual insurance markets, and most allowed plans to place a surcharge on individuals with preexisting conditions. Such “risk rating” was allowed because, before the ACA’s coverage mandate, those who didn’t get health insurance through their employer, Medicare or Medicaid could simply go without until they needed it, with no tax penalty. As a result, those who chose to buy insurance on the individual insurance market were more likely to have preexisting conditions and to incur higher health-care costs.

In 35 states, surcharges were applied to those with health conditions through the mechanism of high-risk pools — or plans that segregated these individuals from the rest of the commercial market. High-risk pools insulated healthier customers from higher costs to encourage people to buy coverage before they needed to use it. With adequate funding and affordable pricing, some state high-risk pools worked well.

I was the executive director — and the first employee — of Maryland’s high-risk pool when it opened in 2003. The state provided $120 million a year in subsidies for the plan, and people were eligible to join if they had been turned away by commercial carriers because of conditions ranging from cancer to hypertension, obesity, depression and even acne. Because commercial insurers denied 14 percent of applicants, Maryland’s pool grew to cover 21,000 enrollees — or approximately 20 percent of the market, a good take-up rate. While premiums were approximately 30 percent above what healthy individuals paid, pool members received more extensive coverage. And lower-income members had access to subsidies — this was well before Obamacare’s became available — that cut their premiums up to half what healthy individuals paid.

Inadequate funding produced different results elsewhere, however. Before Maryland, I helped manage California’s high-risk pool, which received $40 million a year in subsidies from tobacco taxes — one-third of what Maryland provided for a state six times more populous. California’s pool enrollment reached a peak of 21,000 in 1999, but it gradually declined as funding remained stagnant, resulting in a waiting list of up to a year. Premiums were 20 to 37 percent above what healthy individuals paid, with no low-income subsidies. Furthermore, California’s pool capped individual coverage at $75,000 annually — a limit hit by 3 percent of members with catastrophic levels of claims.

Another inadequately funded high-risk pool was actually created under the ACA. Because the Obamacare marketplace took nearly four years to launch, the bill established a temporary federal high-risk pool, which I helped set up. Four months after President Barack Obama signed the bill in 2010, the federal Pre-Existing Condition Insurance Plan began covering individuals who had been rejected by commercial carriers. The plan imposed no premium surcharge and was funded through a one-time, $5 billion appropriation. Enrollment peaked at 115,000 before we had to close it to new enrollees, nine months before the Obamacare exchanges opened, to stay within the $5 billion appropriation.

As these experiences show, funding mattered greatly to whether states took a somewhat benevolent (Maryland) or more neglectful (California) approach to high-risk pools. Is the money in the AHCA sufficient to subsidize premium surcharges for those with health conditions? The answer depends on many factors: How would insurers adjust their premiums in the new market? How would consumers respond to the end of the tax penalty, restructured tax credits and a 30 percent premium penalty on those who don’t maintain coverage? Would the elimination of Medicaid expansion coverage affect demand on commercial markets? How many states would request waivers? How well would programs and subsidies be promoted to those with preexisting health conditions?

The AHCA would also provide $130 billion over 10 years — a significant amount — to stabilize the individual and small-employer insurance markets, and states would be required to add tens of billions for market stabilization in the 2020s. How would those funds be applied? How much difference would they make?

If well-administered, the American Health Care Act could allow premiums to stabilize and help those with health conditions acquire affordable coverage. But if not, uninsured individuals with health conditions could end up longing for the good old days of the ACA.

Last Updated 01/23/2019

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