Reinstating High-Risk Pools – Is It a Good Idea?
The health insurance industry is rife with confusing terms and concepts. If you’ve been paying attention to the news lately, then you know that Republicans want to bring back high-risk pools. But what is a high-risk pool, and how does it impact health insurance? While high-risk pools were developed as early as the mid-1970s, insurers and state governments utilized them primarily throughout the 1990s and early 2000s to provide coverage for people with pre-existing conditions. This might sound strange in a post-Obamacare system. Since the Affordable Care Act became law, people with pre-existing conditions have been able to sign up for health insurance without any problems, but that wasn’t always the case.
Before the ACA, people with medical problems – like diabetes, heart disease or cancer – faced a different set of challenges when buying health insurance. They generally paid much higher rates than healthy people, and some insurers denied them coverage entirely. Up to 20 percent of high-risk applicants were denied coverage during the underwriting process. To help people with pre-existing conditions buy coverage, high-risk pools were implemented on a state-by-state basis, with each state administering its own program using federal funds.
High-risk pools served a purpose, but they had flaws. For one, people who needed a lot of medical care were paying much more for health insurance than their healthier counterparts. Since the pool was made up of a specific demographic (sick people), there was no way to distribute the cost well enough to make insurance affordable. States also didn’t fund their high-risk pools well, which meant consumers got the brunt of the financial impact.
Obamacare made major medical coverage guaranteed issue, which means anyone who wants health insurance can sign up, even if they have a chronic medical problem. There’s no medical underwriting anymore. The ACA effectively eliminated the need for high-risk pools. Now, people with pre-existing conditions and healthy people are in the same pool. Costs get distributed among sick and healthy enrollees. As long as enough healthy people sign up for insurance, premium rates go down.
Unfortunately, rates have gone up instead. One of the major problems of Obamacare has been lack of participation. Plenty of people with pre-existing conditions have signed up for coverage since the marketplaces opened in 2013, but not enough healthy people have followed suit. As a result, premiums have increased as insurers attempt to adjust their rates based on a sicker risk pool than they anticipated. For 2017, several major insurers and many smaller companies pulled out of federal and state marketplaces, causing premiums to skyrocket again. Republicans believe that one way to fix the system is to reinstate high-risk pools.
The Role of Risk Pools in “A Better Way”
House Speaker Paul Ryan introduced his health care plan, called “A Better Way,” earlier this year. While there’s still some debate among Republicans over specific tenets of health care reform, Ryan’s plan appears to represent the conservative consensus. Risk pools play an integral role in the plan. Believing that the absence of risk pools is one of the major flaws in Obamacare legislation, Ryan is looking to correct the issue by bolstering state high-risk pool programs and returning to the pre-ACA practice of putting people with pre-existing conditions into a separate insurance pool.
Shifting the Risk
States first began passing high-risk pool legislation in 1976. They were intended to help individuals who were deemed completely uninsurable by private health insurance companies. People who needed coverage but couldn’t get it using traditional underwriting were finally able to purchase health insurance via state governments. Minnesota was the first state to pass such legislation, but many other states followed shortly after.
The Affordable Care Act made high-risk pools obsolete, but many states still offer them. As of 2016, 34 states still offer these plans for high-risk individuals. Implementation of high-risk plans varies widely from state to state based on cost, level of coverage, how the plans are funded and the way they operate.
Obamacare was signed into law in 2010, but federal and state marketplaces didn’t open for coverage until 2014. In the interim, the ACA created a program called the Pre-Existing Condition Insurance Plan (PCIP), which helped people with pre-existing conditions get covered before the health insurance exchanges officially opened. These plans ended in 2014. Under the ACA, people with pre-existing conditions have access to the same coverage as healthy enrollees, making state high-risk pools and the PCIP program unnecessary. If Republicans repeal the Affordable Care Act or change it drastically to conform to their own vision of health care reform, then risk pools may be reinstated.
Problems with State High-Risk Pools
Until people with medical problems gained access to affordable health insurance, finding coverage could be challenging. State governments tried to rectify the situation by instituting high-risk pools, which have been proven to be effective by insurance companies. However, these programs have had a slew of problems since the start, including:
- Limited coverage
- Lack of appropriate funding
- Higher costs than plans offered by private companies
- Limited number of enrollees
- Coverage caps for medical expenses
- Mandatory waiting periods
Under the Republican plan, health insurance may no longer be guaranteed issue, which means that people who need the greatest amount of care could be right back to where they started before the ACA. High-risk pools were better than nothing, but they included substantial hurdles for enrollees to overcome, primarily in terms of quality and cost.
How “A Better Way” Addresses Key Issues
Ryan’s A Better Way addresses some of the issues with high-risk pools via federal funding and federal regulation. States will still administer individual programs, but federal funding and better oversight will, according to the plan, ensure that these high-risk plans actually serve the people they’re meant to serve. The goal is to prevent high-risk pools from evolving into another inflated bureaucratic project. Instead, Republicans want to give power back to the states to regulate their own programs.
Federal funding can be a double-edged sword. On the one hand, the federal government typically has access to more funding since it collects taxes nationwide, and more funding can yield better results. But the downside is that federal funding usually comes with heavy strings attached, as with any financial agreement between two parties. Under the Republican plan, the federal government would allocate $25 billion in health care reform legislation for state high-risk pools. There would also be funding for innovation so that states have even more motivation to improve their high-risk programs.
While “A Better Way” would be the first systematic, large-scale implementation of federal funding for state high-risk pools, there is precedence for the federal government assisting states with these programs. However, funding was relatively inconsequential and didn’t have much of an impact on operations. Now that these high-risk pools are going to be more widespread, there will need to be a corresponding increase in funding. It’s expected that a large number of Americans would use state high-risk pools, which would in turn increase the cost to operate and administer them.
Federal regulation could also be tricky, especially since conservatives tend to favor less government involvement. The Republican plan gives state control over their own high-risk pools, but the federal government would keep an eye on operations. This will ensure uniformity and efficiency across the U.S. The federal government’s oversight will be linked to innovation grants, which will encourage the states to keep improving their plans. Any advances that they make can be adopted by other states. In theory, innovation grants would spur rapid advancement in the efficacy and efficiency of state health insurance plans nationwide.