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High-Risk Insurance Pools: A Flawed Model for Reform

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In This Issue

High-Risk Pools: A Model for Reform?

high-risk app

SOURCE: Flickr/lilituc

An application for the Washington state high-risk insurance pool.

Chaim Benamor, 52, is a self-employed renovator who went without health insurance. But last year, he had a mild heart attack. After his illness, he had a $17,000 hospital bill, $400 in monthly prescription costs, and a desperate need for insurance. Many commercial carriers rejected him because of his “pre-existing condition,” so he turned to the Maryland Health Insurance Plan, one of 35 state programs for high-risk applicants whom no private company is willing to insure. But at an annual premium cost of $4,752, the plan was more than Benamor could afford on his income of about $35,000 and loads of medical bills to pay.

And Benamor is not alone in seeking coverage without finding an affordable option. Many individuals with high-cost medical conditions are often denied coverage in the individual market.

Under conservative plans for health care reform, many more Americans with pre-existing conditions would find it even more difficult to obtain reasonably priced care. This is because conservative plans often seek to substitute insurance coverage purchased in the individual market for group coverage, such as the insurance that many Americans have through their employers. These proposals also call for expanding existing high-risk pools, such as the Maryland program, to provide coverage for people with chronic illnesses and costly health histories. Today’s state-based high-risk pools provide an important coverage option for some individuals, but the coverage is expensive, and it’s only available to a small portion of those eligible.

High-risk pools have been around for over 30 years and currently exist in 35 states, but they only cover about 207,000 Americans. The biggest barrier to enrollment is cost. High-risk pools are inevitably expensive because all of the enrollees have medical conditions that could potentially result in costly medical bills, which means the pools cannot spread costs across low-risk and high-risk individuals. Despite attempts to cap premium rates, the coverage is still unaffordable for many. In fact, a recent study found that premiums for high-risk pools are unaffordable for about one-third of eligible individuals. High premiums and high deductibles are often a greater burden on individuals with expensive medical conditions who have already spent large amounts of their income on health care.

Some proponents refer to high-risk pools as “safety nets,” but in reality, the pools do not provide a guarantee of coverage. Most have an exclusion period—some period of time during which an insurer can exclude coverage for certain medical conditions that exist before the insurer issues coverage. These exclusion periods can last anywhere from 90 days to 1 year. Some pools cannot afford to admit more individuals; they either have waiting lists or are completely closed to new enrollees. In the meantime, individuals with costly conditions must go without coverage.

In theory, these pools could provide a viable option for high-cost individuals. In practice, using these pools as a model for nationwide reform would be extremely expensive. Policymakers should consider other approaches to providing affordable, adequate coverage to costly individuals, such as expansion of group coverage options and guaranteed availability of health insurance, known as guaranteed issue in insurance parlance.

Background Basics

What are high-risk pools?

High-risk pools are state-sponsored associations that offer health insurance to the “medically uninsurable,” or individuals who are unable to obtain coverage in the private market due to their medical history. High-risk pools also offer coverage for those who can only find very limited or expensive plans because of pre-existing conditions and, in some states, for individuals who qualify under state health insurance portability provisions. Some of the medical conditions commonly covered under high-risk pools include Alzheimer’s disease, diabetes, cirrhosis of the liver, heart disorders, kidney failure, cancer, Parkinson’s disease, morbid obesity, and stroke.

Currently, 35 states have established high-risk pools. According to the National Association for Comprehensive State Health Insurance Plans, these pools provide coverage for 207,000 Americans. It is estimated, however, that approximately 1 percent of the population under age 65, or about 2.6 million Americans, are considered “medically uninsurable.”

What kind of coverage do high-risk pools provide?

Each state creates it own regulations about the benefits, deductibles, and premiums offered under its high-risk pool. Most state pools have pre-existing condition exclusion periods. This waiting period differs, but, on average, an individual must wait 6 months before their high-risk pool plan will begin covering their pre-existing condition.

This waiting period can have consequences both in cost and for health. In one case, Thomas, a 35-year-old married father of three, was diagnosed with testicular cancer in March 2004. At the time, he was insured and able to get the appropriate care to successfully treat his cancer with surgery and radiation. During his remission, Thomas started his own business and lost his previous coverage. When he went for necessary follow-up care to ensure his cancer remained in remission he learned it would cost him more than $2,500. Since his remission, Thomas tried to get health insurance, but because of his cancer history, he was denied. Thomas was eligible for his state high-risk pool; however, the 12 month pre-existing exclusion period meant he wouldn’t be able to get his follow-up care for a year—the whole reason he needed the high-risk pool plan in the first place.

While high-risk pools cover most standard benefits, some pools limit or exclude certain types of care, like mental health and maternity care. For example, Louisiana completely excludes mental health care, and Mississippi’s pool does not cover maternity benefits. Although many individuals with pre-existing conditions amass high medical bills, some state pools limit the amount of benefits that enrollees can claim. California, for example, caps annual benefits at $75,000 and lifetime benefits at $750,000. In comparison, only 1 percent of employer-sponsored insurance plans have lifetime limits of $1 million or less.

What do high-risk pools cost?

High-risk pools are expected to be expensive. In a standard pool, the healthier members, or “risks” subsidize the unhealthy ones. High-risk pools, however, are only composed of “unhealthy risks.” In order to pay for these individuals’ expensive medical care, the premiums charged in high-risk pools are higher than those charged for coverage of healthy individuals in the individual market.

High-risk pool premium rates are capped between 125 percent and 200 percent of standard market rates, but many individuals still find them unaffordable. In 2006, the median premium for a $1,000 deductible plan was $620 a month or $7,440 a year, and only 13 states offer premium subsidies to low-income individuals. Enrollee cost-sharing can also push up the total cost of high-risk pool coverage—only 17 states offer plans with deductibles of less than $1,000.

Even though state high-risk pools charge high premiums and high deductibles, the pools are not self-sufficient. They operate at a loss, and states still must draw funding from additional sources. Some states collect funds through assessments on health insurance companies, some use state funds, and others use a combination of available state and federal resources. According to the Kaiser Family Foundation, the total cost of all high-risk pools in 2006 was over $1.7 billion, and high-risk pools needed over $719 million in subsidies.

For additional reading:

Deborah Chollet, “Perspective: Expanding Individual Health Insurance Coverage: Are High-Risk Pools The Answer?” Health Affairs, Web Exclusive, October 23, 2002, http://content.healthaffairs.org/cgi/content/short/hlthaff.w2.349v1

Bernadette Fernandez, “Health Insurance: State High Risk Pools,” Congressional Research Service Report to Congress, May 9, 2008, http://www.cahc.net/documents/RL31745.pdf

Karen Pollitz and Eliza Bangit, “Federal Aid to State High-Risk Pools: Promoting Health Insurance Coverage or Providing Fiscal Relief?” The Commonwealth Fund,

Issue Brief, November 2005, http://www.commonwealthfund.org/usr_doc/Pollitz_highriskpools_875.pdf?section=4039

Families USA, “High-Risk Health Insurance Pools,” Issue Brief, May 2006, http://www.familiesusa.org/assets/pdfs/High-Risk-Pools-May-2006.pdf

Interactive Map: High Cost, Low Coverage

Point-Counterpoint: High-Risk Pools Are Not the Solution

Point

Counterpoint

The Bottom Line

High-risk pools support the existence of a competitive and affordable individual insurance market.

High-risk pools have a limited ability to make insurance accessible and affordable to those deemed “uninsurable.”

Removing high-risk individuals from the standard individual market is not the answer to creating affordable coverage for all. Instead, it is vital that risk is balanced across a diverse group of enrollees.

Very few individuals are ever denied insurance in the first place.

The chance of being denied insurance coverage or being charged high rates is very real.

Regardless of the magnitude of eligible participants, high-risk pools are not an adequate safety net. With exclusion periods, high premiums, and waiting lists, there is no guarantee that those who desperately need health care will actually receive coverage.

The cost of funding state high-risk pools is small in relation to its “safety net access guarantee.”

It would cost countless billions of dollars to adequately cover the nation’s most costly individuals with high-risk pools.

Subsidies already cover around 50 percent of high-risk pool costs, and expansion of these programs could cost $100 billion. Other, more efficient reform options should be explored.

In the News

  • The New York Times examines the expansion of high-risk pools as an option for national health reform and the potential costs of such a plan. Read the article here.
  • After the Centers for Medicare and Medicaid Services announced its high-risk pool grant awards for 2008, Florida Health News discusses Florida’s state pool and its failure to obtain federal funding. Read more here.
  • A USA Today article details the difficulties of obtaining coverage in the individual insurance market, especially for those with pre-existing medical conditions. Read it here.
  • The Washington Post looks at the recent development of health “credit reports.” Commercial databases of consumer’s prescription drug usage have been created to help insurance companies decide to whom they will offer coverage. Some critics cite privacy and accuracy concerns about such databases. Read more here.

The Last Word

“…In every state that covers the uninsurable with their high-risk pool or offers coverage to the uninsurable, the very condition that made you uninsurable will be excluded as a pre-existing condition, usually for 6 to 12 months. That is a conversation stopper for most people. If you have been diagnosed with cancer, you cannot wait six months to start treatment.”– Karen Pollitz, Health Policy Institute, Georgetown University

 

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