By: Rachel Schulze, senior staff writer
State-run high-risk pools could make a comeback as part of Republicans' health reform efforts, but some experts warn that high-risk pools historically have proven costly and challenging to operate—and that Republican proposals wouldn't provide enough funding to make the pools sustainable.
High-risk pools are not a new concept: According to a Kaiser Family Foundation (KFF) issue brief, the first high-risk pools were launched by Minnesota and Connecticut in 1976 to serve high-cost patients who could not otherwise obtain insurance, but the model largely fell out of favor after the Affordable Care Act (ACA) prohibited insurers from charging more for coverage to individuals with pre-existing conditions.
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Now, high-risk pools are back in the spotlight as Republican lawmakers and President Trump seek to make good on campaign promises to repeal and replace the ACA. Some experts have touted high-risk pools as a better, less-market-distorting way to provide care to patients with pre-existing conditions, while others say the pools are expensive and unsustainable. Let's take a deeper dive.
What are high-risk pools?
States commonly created high-risk pools in the pre-ACA era—a period when insurers were able to deny coverage to people with pre-existing conditions or charged them prohibitively high premiums, according to KFF.
Through high-risk pools, states provided coverage access for those high-cost patients who would otherwise be unable to enroll in a health plan on the individual market. "Instead of financing coverage through risk pooling, which is what insurance does, where a mix of healthy and sick people all pay premiums reflecting their collective average cost, the high-risk pool takes some of the high-cost people out of the insurance pool and provides them coverage through a government insurance program," Karen Pollitz, a senior fellow at KFF who served on the board of Maryland's high-risk pool, told American Health Line.
Prior to the ACA, 35 states had implemented high-risk pools covering a total of 226,615 consumers, but states often took steps that restricted residents' access. For instance, some commonly adopted features included:
- Enrollment limitations;
- High deductibles;
- Lifetime dollar limits on covered services or benefits;
- Pre-existing condition exclusions; and
- Premiums above standard individual market rates.
Further, experts at the time said that many states did not provide enough funding to create successful high-risk pools. According to KFF, the combined net losses for the 35 state high-risk pools in 2011 averaged $1.2 billion, or $5,510 per enrollee.
"Most states just didn't commit—or politically felt like they couldn't commit—enough public dollars to make this work for all the people that could have benefited from it," Linda Blumberg, a senior fellow in health policy at the Urban Institute, told American Health Line.
Further, a 2011 study that examined Minnesota's high-risk pool, which is considered a success by some experts, suggested that spending on enrollees increased over time and that the state experienced challenges keeping controlling costs securing public funding.
How did the ACA change the role of high-risk pools?
The ACA effectively killed state-run high-risk pools in health insurance. For the first time, people with costly medical conditions who were searching for coverage on the individual market were no longer funneled away from the healthy population, Blumberg and John Holahan, also of the Urban Institute, wrote in a Health Affairs Blog post published last March.
The ACA's temporary high-risk pool, which like many of its state predecessors struggled financially, wound down in 2014 when insurers could no longer deny coverage to individuals with pre-existing conditions or charge them higher premiums. In addition to the law's bans against coverage discrimination, Blumberg and Holahan touted the law's modified community ratings, minimum benefits and cost-sharing standards, income-related financial aid, and individual mandate for significantly increasing the insurance market's risk pooling.
"The ACA ensures that all insured individuals share in each other's health care costs, yielding a more diverse pool than would otherwise exist," Blumberg and Holahan wrote.
But now the ACA appears to be in political peril, leading some Republican lawmakers to embrace the high-risk-pool model once again.
How might Republicans approach high-risk pools?
Republicans in recent years have offered several ACA replacement proposals that would revive state-run high-risk pools, including House Speaker Paul Ryan's (R-Wis.) "A Better Way" plan and HHS Secretary Tom Price's Empowering Patients First Act of 2015 (HR 2300), which he introduced during the House's last session.
Ryan's proposal would provide at least $25 billion over a decade for states to run high-risk pools. The proposal calls for capping the premium rate and prohibiting wait lists.
Price's bill would give states $1 billion annually for three years to get high-risk pools up and running. The measure would allocate more funding to states that keep premiums below 200 percent of standard rates and offer subsidies for low-income residents, among other standards, according to KFF.
The latest House GOP bill to repeal and replace the ACA takes a slightly different approach by giving states funding to pursue cost-controlling measures, such as high-risk pools, as they see fit. Instead of "imposing high-risk pools on every state in a one-size-fits-all fashion," Avik Roy in Forbes' "The Apothecary" wrote House Republicans would "let states figure out whether high-risk pools, or some other mechanism, works best to cover people with" pre-existing conditions.
Specifically, the bill, which is being marked up by committees this week, would establish a "Patient and State Stability Fund" that would allocate $15 billion for 2018 and 2019, after which it will allocate $10 billion annually through 2026.
What we can learn from past high-risk pools?
While high-risk pools—whether implemented broadly or left to state's discretion—make sense in theory, actually getting them running and providing comprehensive coverage is another story.
For one, history has shown they cost a lot of money.
When it comes to cost, high-risk pools are "expensive by definition," Pollitz said, because they are designed to serve only the most expensive patients. To put the cost issue in perspective: The sickest 10 percent of the population accounts for roughly two-thirds of population health spending, according to KFF.
Blumberg called the $1 billion and $2.5 billion a-year-proposals "a proverbial drop in the bucket when you take individuals who are the highest need and separate them off from everybody else." According to Blumberg, adequately funded high-risk pools need tens of billions of dollars annually to stay in business.
James Capretta, a resident fellow at the American Enterprise Institute, in 2010 estimated that adequate funding for a high-risk pool to cover 4 million individuals would be $15-20 billion annually. But if the ACA's coverage protections are repealed, the number of individuals in need of such coverage could be much higher: The Government Accountability Office in 2012 estimated that between 36 million and 122 million U.S. adults had medical conditions that could be deemed a pre-existing medical condition.
Douglas Holtz-Eakin, a former director of the Congressional Budget Office and supporter of high-risk pools, conceded that effective high-risk pools would be expensive and tricky to design, and many Republicans wouldn't like having billions of dollars of their cost passed on to taxpayers. "But you have to subsidize the care of these individuals," he said. "You can make the case that we're spending a lot on the ACA for not good effect, so let's spend it instead on high-risk pools. There's no way around it."
In addition to being expensive, high-risk pools are also "difficult to administer," according to Benedic Ippolito, a research fellow at the American Enterprise Institute. Further, he questioned the efficiency of a coverage model that encourages individuals "to generate a lot of expenses" to maintain eligibility.
A recent Health Affairs study that looked at the ACA's temporary Pre-existing Condition Insurance Plan noted that it "was difficult for program managers to chart a steady course," in part because costs were hard to predict.
However, Dean Clancy, a policy consultant at Adams Auld and a former senior health policy adviser to congressional Republicans and the George W. Bush administration, said the model—which he likened to "targeted welfare"—"is a lot better approach than distorting entire markets with mandates and price controls."
As the experts noted, there are significant questions that need to be answered before Republicans move ahead with their ACA alternative: they need to agree on appropriate funding levels, determine the level of flexibility states will have in setting eligibility criteria, and, hopefully, learn from the past.
For as Ippolito said, high-risk pools are "understandably attractive in theory" but running a high-risk pool is not "any easier to do in practice right now than it ever has been."