What High-Risk Pools Are Good For

High-risk pools have come up again (see Ezra Klein and Jonathan Cohn). Their best application may be as a transitional measure, to fill the gap between health reform passage and full implementation. In this regard, the House health reform bill has the right idea.

Under the House bill subsidies for a national high-risk pool for the medically uninsurable would be established immediately and patch a hole in the safety net, remaining in place until 2013 at which point pre-existing exclusion restrictions would be abolished.  As explained by Timothy Jost, this high-risk pool

would cover persons who are not eligible for Medicaid, Medicare or SCHIP and who have been uninsured for six months or more, or who have been denied coverage or been offered limited or unaffordable coverage because of a preexisting condition. … Premiums could cost up to 125% of the prevailing rate for individual coverage in the market and deductibles of up to $1500 and out-of-pocket limits of up to $5000 individual/$10,000 family could be imposed, so the coverage would not be a bargain.

As I wrote last month about a similar provision in the Senate Finance bill, 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).

My own research on high-risk pools makes a few important 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%. Recent reports suggest not much has changed in this regard. So, high-risk pools are making a dent, but only a small one. The main limitation to greater enrollment is low funding. Some states cap enrollment due to limitations of funding. And premium subsidies are, of course, subject to funding limitations.

The paper’s 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 House leadership intends to do.

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