Under the Affordable Care Act (ACA), insurers can’t raise individual premiums based on factors such as health status, gender, or previous medical claims. But some of the more recent discussions by Congressional Republicans have centered around the possibility of allowing states to request waivers for this portion of the law. To get such a waiver, states would need to participate in a “high-risk pool”, which would either be run by the federal government or established by the state (potentially with some seed money from the federal government).
High-risk pools are nothing new. They existed in many states prior to the passage of ACA, and at a federal level early in ACA implementation when not all provisions had kicked in. Ultimately, the ACA removed the need for high-risk pools, since insurers could not deny coverage to people due to a pre-existing condition.
What is a high-risk pool?
At the most basic level, all types of insurance work on the principle of evaluating risk factors and estimating the statistical likelihood that you’ll cost the insurance company money. Insurance is based on pooling funds from many people to pay for losses incurred by a few. The higher your risk factors are predicted to be, the more the company will charge, since it believes it is more likely that it will have to pay for services rendered.
The idea behind high-risk pools is that by removing the small group of people who significantly skew the overall risk pool, a more stable pool with more affordable pricing for the majority of people insured is established. Views vary on whether high-risk pools discriminate against people who have health problems or whether they help people who have health problems with funding a form of subsidy or charity.
High-risk pools pre-ACA
The pre-ACA high-risk pools varied significantly by state. Several factors hampered their success. First, most had benefit-specific and/or lifetime coverage limits, which sick people frequently met. Additionally, some didn’t cover pre-existing conditions for a period of time. Most had high deductibles and very expensive premiums. And because funding was an issue, some limited how many people could enroll, and thus there were waiting lists to get coverage. So while, in theory, they were meant to serve the needs of people who have health conditions, they were not always effective.
Funding was the real issue – whether paid for by a tobacco tax, hospital assessment, insurance premium assessment, and whether at the state or federal level or a combination – without sufficient funding, high-risk pools cannot succeed.
What’s different now?
Congressional Republicans are proposing funding state high-risk pools with $25 billion in federal dollars over 10 years. They are looking to avoid some of the problems of the past by capping premiums and prohibiting wait lists. But it’s debatable whether $25 billion over 10 years would be sufficient funding if the barriers to enrollment were removed and more sick people join.
An alternative approach, one taken by Alaska, is reinsurance. Reinsurance is essentially insurance for insurers, meaning that they pay into a fund that then covers medical costs above a set threshold and up to a capped amount. With reinsurance, insurers can keep premiums lower as their risk of unexpected costs incurred by sicker people is limited. Everyone stays in the same pool and is offered the same plans, benefits, and networks.
While making plans affordable and avoiding insurer losses are key to achieving market stability, it’s also critical to ensure that any efforts to take us “back to the future” with high-risk pools are approached thoughtfully. It’ll be interesting to see how these discussions evolve and how we can best assist insurers as the health insurance landscape changes.