One thing is certain about the future of the health care marketplace as the calendar counts down to the June 18 deadline for plans to file their 2018 rates: uncertainty prevails. But if you’re looking to place bets on one component of the nongroup market that has the best chance of enduring, you might want to put your money on state-run high-risk pools. Like the cockroach that will survive a nuclear attack, this is one animal that has a good chance of living another day.
High-risk pools are not new. Before the ACA, 35 states had them. Today, only a handful still function. But in March, HHS Secretary Tom Price encouraged a comeback, sending letters to governors inviting them to apply for ACA innovation waivers to implement state-by-state high-risk pools and reinsurance programs. Alaska was the first to take the bait, and, as we went to press, Minnesota’s legislature was clearing the way to be next in line. High-risk pools were also an important part of House Speaker Paul Ryan’s replacement plan for the ACA before he yanked the legislation back because it didn’t have enough votes to pass.
Cecil Bykerk, a former chief actuary at Mutual of Omaha from back in the day when the company sold traditional health plans, is now treasurer of the National Association of State Comprehensive Health Insurance Plans (NASCHIP), the association for state high-risk pools. He’s also executive director of high-risk pools for three different states, including Alaska.
“The most difficult part about high-risk pools is that it seems to be hard to communicate with the constituent that they’re available,” says Cecil Bykerk of the National Association of State Comprehensive Health Insurance Plans.
High-risk pools are supposed to make individual coverage available to people with high-cost, pre-existing conditions who couldn’t otherwise afford the premiums, explains Bykerk, although they would still pay more than people who buy coverage in the regular nongroup market. The markup is typically about 50% over regular market rates, according to Bykerk. It can be as much as two times higher.
An amendment to Ryan’s American Health Care Act (AHCA) which is still languishing in the legislative pipeline, would create a $15 billion risk-sharing fund for 2018 through 2026. Beginning in 2020, states could take over the program.
That’s a paltry $1.7 billion a year nationally. Larry Leavitt of the Kaiser Family Foundation calls it “chump change.”
Indeed, back in 2008, health care advisers to Sen. John McCain’s campaign figured more than 50 times as much money would be needed. A 2010 HHS analysis estimates that almost 18 million people with pre-existing conditions were uninsured at the time, and the cost for all of them to go into high-risk pools would’ve been $195 billion in 2010 dollars, with premiums covering only $103.3 billion, leaving a $92 billion shortfall that’s in the ballpark of what McCain’s advisers came up with.
The numbers for covering people with pre-existing conditions are daunting. Up to 133 million nonelderly Americans—or about half the adult population—have a pre-existing condition. Simply getting older is a risk factor: More than 80% of Americans, ages 55 to 64, have at least one pre-existing condition, according to the HHS analysis. Whom among them would enter the high-risk pools has not been spelled out in either Price’s letter to governors or the House Rules Committee’s AHCA amendment.
The pre-ACA experience
The high-risk pools prior to the ACA offered limited coverage and didn’t do much to bring prices down in the rest of the nongroup market, says Jean Hall of the University of Kansas Medical Center.
The high-risk pools prior to the ACA had lots of problems. Jean Hall, a health policy professor at the University of Kansas Medical Center, notes that they were very expensive for the people who enrolled in them and the states that administered them. “They tend to have limited coverage, high out-of-pocket costs, and people who enroll in them, even though they have insurance, are often underinsured,” she says. Moreover, siphoning off people with high medical expenses didn’t do much to bring prices down in the rest of the nongroup market, says Hall, who has researched high-risk pools for the Commonwealth Fund.
An analysis by the National Conference of State Legislatures found that these high-risk pools enrolled 226,615 people by the end of 2011. On average, state high-risk pools covered about 2% of the people participating in the nongroup market—ranging from a low of 0.02% in Florida to a high of 10.2% in Minnesota, according to a Kaiser Family Foundation analysis of NASCHIP data.
Thomas Huelskoetter, a health policy analyst for the liberal Center for American Progress, noted in a recent blog post that high-risk pools are a clunky way for high-cost individuals to get coverage and leave people far short of the uncapped coverage that is available to them under the ACA. In California, enrollees with pre-existing conditions had to wait three months to get into the pool—a shorter wait time than average for pre-ACA state high-risk pools—and saw their benefits capped at $75,000 annually and $750,000 lifetime. Then the state capped enrollments and extended wait lists. The premiums got so high that many Californians simply dropped out.
Even a high-risk pool advocate like James Capretta, an American Enterprise Institute fellow and an associate director of the Office of Management and Budget under President George W. Bush, sees a seemingly intractable problem with high-risk pools. In a 2010 National Affairs piece about high-risk pools, Capretta mentioned “the large mismatch between the number of people who need them and the amount of money made available to subsidize them.”
Copy Plan D
The ACA set up a transitional high-risk pool program called the Pre-Existing Condition Insurance Plan (PCIP) to cover people with pre-existing conditions until 2014, when the law’s rules barring discrimination based on health status kicked in. Karen Pollitz, a senior fellow at the Kaiser Family Foundation, wrote in a detailed report earlier this year that by the end of 2012, only 100,000 people had enrolled, and the plan had burned through nearly half of its $5 billion appropriation. Other problems with PCIP: Premiums were typically 150%–200% above market rates, which would have made them outliers under pre-ACA state-run high-risk pools, and the claims-to-premiums ratio climbed steadily from under 200% in 2011 to 600% in 2013.
Hall says HHS has had a model for covering high-cost lives under its nose since 2006: the GOP-backed Medicare Part D drug benefit, which pays plans risk-adjusted benefits and reinsurance for high-cost beneficiaries. “It’s a great model,” she says. “No one has ever debated that they shouldn’t do it that way.” The ACA had similar mechanisms—risk adjustments, reinsurance, and risk corridors—for nongroup marketplace plans, but the reinsurance and risk corridors were only temporary, and the Republican-controlled Congress defunded the risk corridors before their three-year lifetime expired.
Successful high-risk pools need more than just money thrown at them, although enough money would certainly help. In Bykerk’s opinion, they need a network of providers who are willing to accept lower fees for serving a population that otherwise wouldn’t pay anything—almost like found money, if you will. If there’s anything to take away from those pre-ACA high-risk pool days, it’s that states could have fewer limitations in dealing with providers. “A lot of states weren’t able to cut those deals,” Bykerk says.
Another challenge from the pre-ACA days was just getting people to sign up, he says. “The most difficult part about high-risk pools is that it seems to be hard to communicate with the constituent that they’re available,” he says. “There’s also a certain degree of stigma to it.”
Alaska’s newly enacted reinsurance pool will subsidize carriers for certain high-risk beneficiaries. It’s an example of one of the GOP’s proposals for solving the stigma problem: Make the high-risk pools “invisible” by having marketplace plans administer the benefits while the pool quietly pays the claims in the background. The enrollee might not even realize he or she is in a high-risk pool, says Bykerk.
Even if invisibility helps with the stigma, the difficult math of high-risk pools remains, and, so far, Republicans don’t seem prepared to spend the money to make them work.