High-Risk Pools as Fallback for High-Cost Patients Require New Rules

This was published as a Wall Street Journal Think Tank column on January 23, 2017.

Republicans see high-risk pools run by states playing a central role in their Affordable Care Act replacement plans as a fallback option for sick people who do not have insurance or lose coverage. Based on experience in the states, it’s clear that these pools will need to operate differently and be funded much more fully than they have been in the past if the sickest people who fall through the cracks are to be protected.

Under the ACA, there is a single risk pool in each state for the non-group insurance market in which healthier people–who may themselves be sick someday–pay more to offset the costs of sicker people who are guaranteed coverage and comprehensive benefits.

Embodied in Republican replacement plans is a very different idea of how the market should work. They would split the risk pools, giving healthier people the option of choosing less costly insurance plans–generally with high deductibles and savings accounts–with more limited benefits packages that they feel fit their needs. Separate arrangements would then be made for sick people who may not be able to keep their current coverage, with the state high-risk pools as their primary fallback option. The health law signed by former President Barack Obama has set a high bar for protecting the sick and people with pre-existing conditions but uses its individual mandate to help accomplish that, a provision Republicans intend to eliminate.

While details of the Republican replacement plans aren’t known, the number of people who could be uninsured or have a gap in coverage and need “last resort” insurance could be substantial. We do know that every two years, about 32 million people with coverage lose it and have a gap in coverage. Almost 30% of the nonelderly population has conditions that would have left them uninsurable before the ACA, and about half of Americans report that they, or a family member, have a pre-existing condition.

Before the passage of the ACA, 35 states operated high-risk pools for people in the non-group market who could not get standard coverage. The performance of these pools was so anemic that their total enrollment across these states peaked at 226,615 in 2011. Perhaps surprisingly, nearly all of them excluded coverage for pre-existing conditions for a period of time–usually six months to 12 months–while providing other coverage for the enrollee. If this seems counterintuitive to you, join the club; wasn’t coverage for pre-existing conditions the main point?

The vast majority of the high-risk pools in the states also imposed lifetime dollar limits on covered services ranging from $1 million to $2 million, totals easily exceeded by someone with a serious illness.

Most plans chosen by enrollees had high deductibles and most pools offered plans with premiums one and a half to two times higher than the rates generally offered in the non-group market. A few states discounted premiums for people with more modest incomes.

Premiums did not cover costs in the state risk pools, with a combined shortfall of over $1.2 billion in 2011, and some states capped enrollment.

Due in part to the spotty performance of the state risk pools, the ACA established a separate national high-risk pool program called the Federal Pre-Existing Condition Insurance Program (PCIP) to cover uninsurable people until the ACA’s insurance reforms kicked in in 2014. The federal high-risk pool did not exclude coverage of pre-existing conditions and charged more typical premiums despite serving sicker people. But only 100,000 enrolled in it, and it also experienced a shortfall of about $2 billion in its last year of operation, 2013.

Among the GOP’s ACA replacement plans, Rep. Tom Price, now President Donald Trump’s nominee to lead the Department of Health and Human Services, has proposed $3 billion over three years for state high-risk pools and incentives for states that hold premiums under two times standard rates. The Ryan Better Way plan in the House proposes $25 billion but does not specify a time period for the funding.

Past experience shows that any strategy to split the risk pool into the healthier and the sick and set up state high-risk pools as the fallback for high-cost patients who lose coverage will require new rules that protect people with pre-existing conditions immediately when their coverage starts, eliminate lifetime caps, and have adequate funding if policies are to be affordable and the large losses are to be avoided.

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