High-Risk Pools and Health Reform

High-risk pools have received brief mention in the media lately. They were included in a bipartisan nod by Obama and are part of the Senate Finance Committee’s transitional plan toward universal coverage. Having participated in a study on high-risk pools and published a paper on it (Health Care Financing Review, Winter 2004-2005, with Steve Pizer and Marian Wrobel), I know a bit about them.

Scott Hensley of NPR explains that that under the Senate Finance Committee’s plan, until 2013 insurance companies could still deny coverage based on pre-existing conditions. Individuals uninsured for six months for this reason would be eligible for coverage through state high-risk pools, which would be subsidized with $5 billion in federal funding. This is a transitional measure, and by 2013 pre-existing exclusion restrictions would be illegal. My interpretation of language in the Chairman’s Mark (bottom of page 2) is that plan premiums would be subsidized so that participants paid no more than a healthy individual would.

At least in concept, if not in detail, this is a sensible plan. First, outlawing pre-existing exclusion restrictions is the right thing to do. But it can’t be done overnight. It will take time to implement this and other insurance reforms and to allow for the individual insurance market and exchanges to develop. Therefore, it is sensible to provide some transitional assistance for individuals who are in desperate need of health insurance coverage but who cannot obtain it (the medically uninsurable).

Second, high risk pools already exist in 35 states and can be set up in the other states relatively quickly. Where they exist they’re already designed to accommodate individuals with substantial medical needs. Many, if not all, include participation of patient advocacy and consumer groups. In short, if one is looking to quickly assist the medically uninsurable, leveraging existing high-risk pool organizations is a good way to do it.

Third, directing funds toward coverage of those otherwise medically uninsurable is an efficient use of taxpayers’ dollars. It steers the money and the benefits toward individuals who need it most.

What about that six month waiting period? Presumably it is included to avoid crowd-out of unsubsidized plans. The concern, no doubt, is that people who aren’t really uninsurable will cause themselves to appear so in order to obtain subsidized coverage from the high-risk pool. Therefore, forcing individuals to be uninsured for six months before eligibility for high-risk pool coverage protects the pool from gaming, albeit at the expense of additional suffering by those who badly need the coverage.

And what does my research say about high-risk pools? The paper made the following main contributions:

In 2000, high-risk pool enrollment was a small proportion of the number of medically uninsurable individuals: 8% nationally, with state variation between 1% and 54%. So, high-risk pools were making a dent, but only a small one. Recent reports suggest not much has changed in this regard. The main limitations to greater enrollment were enrollment caps and affordability. These are really two symptoms of the same thing: low levels of funding. Some states capped enrollment due to limitations of funding. And premium subsidies were, of course, subject to funding limitations.

We estimated that high-risk pool premiums were above 25% of family income for 29% of the medically uninsurable population. That is, even when high-risk pool enrollment was possible, for a large minority of medically uninsurable individuals, it was unaffordable. We simulated the effect of lowering high-risk pool premiums to 125% of the individual market rate and found that doing so would increase enrollment by 33%.

The main policy conclusion was that an injection of federal funds, accompanied by appropriate regulation, could dramatically increase the affordability of high-risk pool plans and provide much needed assistance to medically uninsurable individuals. This appears to be exactly what the Senate Finance Committee intends to do.

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