High Risk Pools Solve the Problem of Preexisting Conditions
One reason health insurance premiums exploded under the Affordable Care Act is the law’s requirement that health insurers accept anyone who applied for individual coverage, known as guaranteed issue. The provision destroys an insurance market because it allows people to wait until a medical incident has occurred to get coverage.
Yet Republicans driving the Obamacare “repeal and replace” effort know the public believes uninsured individuals should have access to coverage even if they have a major medical condition. That’s why most Republican replacement plans provide federal funding for state-based high-risk pools.
The Congressional Research Service explains:
“High risk pools (HRPs) generally cover people who have sought health coverage in the individual (nongroup) market, but have been denied coverage, received quotes from insurers that are higher than the premiums offered by the high risk pools, or received offers from insurers that permanently exclude coverage of preexisting health conditions.”
State-based HRPs began in the mid-1970s. Thirty-five states eventually established one, providing coverage to some 200,000 uninsurable individuals. Since each state made its own rules, some HRPs worked well and some didn’t. Florida, for example, never adequately funded its pool. California placed a cap on enrollment, so some people who needed the coverage couldn’t get it.
But lawmakers can avoid those mistakes by learning from some of the best-operating HRPs. Consider Wisconsin.
The Badger State was one of the early entrants, creating its pool in 1979 and covering more than 20,000 people when it shut down because of Obamacare’s guaranteed issue.
The plan allowed anyone to join who had been denied coverage because of a preexisting condition or who would be charged more than the risk pool’s premium.
Like all HRPs, the Wisconsin pool charged more than a healthy applicant would pay—in this case, less than 50 percent more, according to Wisconsin’s deputy insurance commissioner, J.P. Wieske. HRP critics complain about the higher premiums, and some states were significantly higher than Wisconsin. But higher premiums helped partially offset the much higher costs. Besides, most people buying individual coverage today would be thrilled if their premiums were only 50 percent higher than they were pre-Obamacare.
Even with the higher premiums, all HRPs lost money because individuals with serious medical conditions were allowed to enroll.
Wisconsin covered those losses by assessing fees on health insurers operating in the state. Most Republican replacement plans provide federal funds to cover HRP losses, but states might still need to impose an assessment on insurers.
Wisconsin imposed a limited preexisting condition exclusion provision to discourage people from waiting until right before they needed surgery to sign up, but newly created HRPs could provide an open enrollment period where preexisting condition exclusions were waived, and it contracted with an insurer in the state to manage the program. It offered a range of health plan options and every doctor and hospital in the state accepted the plan.
And best of all in these very partisan times, Commissioner Wiekse contends the blue-leaning state’s HRP had bipartisan support.
However, HRP critics point out only about 200,000 people enrolled in HRPs even though the Government Accountability Office estimated that 4 million could have benefited.
That discrepancy is, in part, because many HRPs did not offer financial assistance to lower-income participants, a few charged much higher premiums than Wisconsin, and because of some state-imposed limitations. All of those problems are easily fixed.
Republicans have made it clear they want to ensure low-income families, even those with serious medical conditions, can afford coverage. Newly created HRPs should use their federal grants to do just that.
As the actuarial firm Milliman, Inc. has shown, guaranteed issue has always wreaked havoc on the individual health insurance market, making policies unaffordable and driving insurers out. Obamacare is just the latest example.
While Republicans need to repeal the ACA so the individual health insurance market can begin to function normally once again, they should also ensure there is a taxpayer-funded social safety net providing quality coverage for those who are both uninsured and uninsurable. State HRPs—at least some of them—provided such a safety net for decades. Lawmakers should learn from the best practices of those pools and make that part of their Obamacare replacement plan.
Mark E. Litow is a retired health actuary and served on the board of the Wisconsin high risk pool. Merrill Matthews, Ph.D. is a resident scholar with the Institute for Policy Innovation in Dallas, Texas.