The Republican solution to sick people who need health insurance in a post-Obamacare world is increasingly coming to center on three words: high-risk pools.
The White House has reportedly secured the support of Rep. Fred Upton (R-MI), a longtime legislator, by promising an additional $8 billion to fund these programs. That would mean the Republican plan has nearly $115 billion that states could use, if they wanted to, for high-risk pools.
High-risk pools are a way for the government to offer subsidized health insurance to the most expensive patients — people with illnesses that could range from diabetes to cancer. The idea is to give those people coverage but keep premiums lower for other, healthier patients by pulling these sicker patients out of the insurance pool.
But high-risk pools also have a history of running into a big problem: They cost a ton of money. Pooling together the sickest patients means that a state high-risk pool will have really high medical claims.
“There is nothing definitionally broken about the concept of a high-risk pool,” says Karen Pollitz, a senior fellow at the Kaiser Family Foundation who helped launch Maryland’s high-risk pool in the early 2000s. “The hurdle is it’s expensive.”
History suggests that the high-risk pools congressional Republicans want to encourage states to create would likely face funding challenges, and struggle to cover all those who might want coverage. Those with preexisting conditions may not be able to access the pools and could find themselves once again uninsured.
There were 35 state high-risk pools before the Affordable Care Act passed. To control costs, they would often do things like charge higher premiums than the individual market. Most had waiting periods before they would pay claims on members’ preexisting conditions, meaning a cancer patient would need to pay premiums for six months or a year before the high-risk pool would cover her chemotherapy treatments.
“The GOP has improved the bill by putting more money on the table, but they probably need to stack even more up to make this work,” says Tom Miller, a resident fellow at the conservative American Enterprise Institute. “This is a get-out-of-jail payment. If you want a less regulated market, you have to pay more for a safety-net side program for people.”
High-risk pools are expensive. Really, really expensive.
Before the Affordable Care Act, there were 35 states with high-risk pools. In 2011, these pools covered 226,234 people, or 0.0007 percent of the American population.
But the small group generated a massive number of health care claims. They spent a collective $2.5 billion on health care in 2011. States lost a collective $1 billion on these bills. Even though high-risk pool members paid premiums — sometimes double those charged on the individual market — it just wasn’t enough to cover the really high medical bills.
“The costs continued to go up, and it started to become expensive for a lot of people,” says Lynn Blewett, director of the University of Minnesota’s State Health Access Data Assistance Center, who has studied Minnesota’s pools. “The premiums kept a lot of people from signing up.”
States usually funded their high-risk pools with a tax on health insurance companies. That could be hard to increase, so they would do things to tamp down on the actual cost of running the high-risk pool itself. Thirty-three states had lifetime limits on coverage, most between $1 and $2 million. Most had preexisting condition clauses, which excluded treatment for known medical conditions during the first six or 12 months of membership.
In Texas, for example, a patient with hemophilia would have to pay premiums for an entire year before the high-risk pool would begin to cover his treatment. That’s a big deal: Hemophilia is an expensive condition to treat, with medical bills upward of $150,000annually.
Those policies, Pollitz said, tended to keep enrollment low. A hemophiliac may not want to pay — or not be able to afford — a full year of premiums before having coverage for the condition kick in.
The Illinois high-risk pool was known for its especially strong restrictions. It was among the few pools that capped enrollment, requiring interested patients to join a waiting list when the program reached capacity.
“Limiting enrollment, directly or indirectly, was a key strategy to limit the cost of high-risk pools to states,” a recent report from the Kaiser Family Foundation on high-risk pools found.
High-risk pools don’t have to take these steps. The federal government runs what is essentially a high-risk pool for people with kidney failure: People who aren’t yet 65 but are experiencing end-stage renal disease, a costly condition, can sign up for Medicare and have their costs taken care of by the federal government. That program does not have waiting lists or lifetime limits. But it also has an open-ended funding commitment from the federal government. State budgets are typically more constrained.
The Republican bill doesn’t require states to build high-risk pools — it just gives them the option. And it has little to say about how states should build them if they decide to do so. It is possible they would also have lifetime limits and preexisting condition waiting periods. Those details are hugely important, but are unlikely to get sorted out until after the bill passes and the Trump administration begins to write regulations.
It’s hard to estimate how much it would take to fund adequate high-risk pools. Emily Gee, an economist with the left-leaning Center for American Progress, estimates that the Republican bill would need another $200 billion in high-risk pool funding, plus the $115 billion it already appropriates, to cover 1.5 million people (5 percent of current small-group and individual market enrollees).
But whenever there is a funding cap, like there is in the Republican bill, high-risk pools get, well, risky. The program has to live within a budget and serve a group of incredibly sick patients. The way states typically have done that in the past is by serving as few patients as possible, while also asking them to pay a lot for the program.
How Republicans want to fund high-risk pools
The American Health Care Act includes $115 billion for a Patient and State Stability Fund, which is meant to help offset the health care bills of especially high-cost patients.
This funding has become especially important with a recent amendment to the Republican plan, which would allow some states to waive out of Obamacare’s requirement that sick patients be charged the same premiums as healthy patients.
That change could make insurance prohibitively expensive for some sick people, who would then be looking for another way to gain coverage.
States can use the $115 billion to build high-risk pools, but they don’t have to — an important distinction that has often gotten lost in the health care debate. Instead, states have seven options:
- Set up a high-risk pool
- “Provide incentives” for nongovernment entities to help the state stabilize the insurance market
- Reduce the cost of providing health insurance to expensive patients still in the individual market
- Promote participation in the individual market
- Promote access to preventive services
- Provide payment to health care providers directly for “health care services”
- Lower copayments and deductibles in the individual market
States could set up high-risk pools — or they could help offset copays in the individual market. The choice is up to them.
The Congressional Budget Office estimates that states would use most of this money not to set up high-risk pools, but rather to stabilize the individual market and provide payments to insurers there that get stuck with especially high-cost patients. This is known as “reinsurance,” and CBO thinks it would be the most popular option:
CBO and JCT expect that grants from the Patient and State Stability Fund would largely be used for reinsurance programs, particularly in 2018 and 2019, when many states would rely on the federal default before establishing their own programs and, as explained earlier, that those payments would help lower premiums in the nongroup market.
This has Pollitz skeptical that the high-risk pools could actually serve high-risk patients well. Miller and Jim Capretta have estimated that a robust high-risk pool would need $150 to $200 billion. By allowing states to use this money for other purposes, AHCA would likely fall short of that amount.
“If all of the money in the stability fund were available to high-risk pools, that could make a dent,” Pollitz says. “But the CBO estimates that virtually all the money will go to people who get private insurance. There is not enough money in the stability fund.”