High-risk pools didn’t work before — so why would they now?

One of the central threads of the current debate over the American Health Care Act is how the bill protects people with preexisting conditions. While the bill recently passed by the House includes protections for preexisting conditions, it also allows states to file for a waiver to create an alternative process and state high-risk pools. These pools would allow insurers to charge higher premiums for people ineligible for the “standard” risk pool for a defined period of time.

For example, if you are one of the 29 million Americans with type 2 diabetes, or asthma (25 million), or struggle with mental health illness (43 million), your preexisting condition could cost you more if your state elects to file a waiver and creates a high-risk pool. Since no state has yet promised not to file for a waiver, preexisting conditions are once again a concern. So, technically preexisting conditions would be protected under the AHCA but the plans could price higher-risk persons out of the insurance market.

The proposed funding of the high-risk program is also being criticized. The late Upton amendment added another $8 billion to help cover the higher costs incurred by people with preexisting conditions. That may seem more than adequate to cover this segment of the market, but initial estimates say this funding would fall considerably short — this is the same reason other state high-risk pools failed and underserved the uninsurable market.

Until we see the Senate’s version of the bill, and the amended score from the Congressional Budget Office, we simply don’t know what impact such changes would have. So until then, we can only react to the House version of the bill and what we know from past experience. 

Since the mid-1970s, 35 states have tried high-risk pools for citizens who could not qualify for individual coverage due to a preexisting condition. Prior to the ACA, insurance coverage was not guaranteed and an application for health insurance usually required a review of your past health conditions. Since most Americans are covered by guaranteed employer-based health insurance, they were not required to provide health history and might be surprised to learn they are not a standard risk in the individual market. An estimated 27 percent of non-elderly Americans have a preexisting condition that would leave them uninsurable under the pre-ACA rules; the percentage is slightly higher for women.

Today under the ACA, insurance carriers are not allowed to ask for medical history or decline a qualified applicant. Only age, zip code, family status and, in some states smoking status can be used to determine your rates. If the ACA was repealed, states could return to the practice of charging higher rates based on your past medical history. The Kaiser Family Foundation recently estimated 6.3 million people could face higher premiums under the AHCA because of preexisting conditions. 

Before the ACA, if an insurance carrier declined your application for health insurance, you might have had an option to apply for coverage in the state high-risk program. In California, the program was called the Major Risk Medical Insurance Program or “Mr. MIP.” Created in 1991 and partially funded by a state tobacco tax, about 22,000 Californians were enrolled at the program’s peak. The states “uninsurable” demand was so great and the program so underfunded that the state imposed a waiting list. If you were selected from the wait list, the premiums were up to 200 percent of the standard premiums for a policy that might also not cover the preexisting condition for six months. Also, to mitigate higher premiums, the annual benefit amount was limited to only $75,000 and a $750,000 lifetime cap, which is less comprehensive than commercial plans. Those who ran the program are especially wary of revisiting this model because they are still haunted by the reality that some people literally died while on the waiting list. House Speaker Ryan insists there would be rate caps and no waiting lists for the high-risk pools created under the AHCA. 

High-risk pools varied from state to state but most had similar outcomes. Maryland’s program, called the Maryland Health Insurance Plan, had a better experience in large part because it was well-funded. The Maryland budget was three times greater than California’s budget, a state six times larger. There’s a common thread here. Other state programs like Minnesota (the oldest program), Texas and Wisconsin each enrolled more than 20,000 residents and had better success because they were better funded.

Another fundamental question is health equity. Is it fair or even effective to segregate our populations based on health status or medical history? We all want lower premiums but the healthiest 50 percent of the population accounts for less than 3 percent of total health care spending. These healthier residents are effectively subsidizing the sickest 10 percent, who account for nearly two-thirds of our health care spending. But that’s how insurance works. The spread of risk is shared across the total population and we all use more or less at various times of our lives — and it’s not always planned or controllable. As a former underwriter and insurance carrier executive, I can understand the logic behind risk pools. And that’s where the debate is currently stalled. Legislators, patient advocates, providers, insurers, policy wonks, actuaries, economists and even late night talk show hosts all have valid perspectives. Health care yet again resembles a Rubik’s Cube: not impossible to solve but not easy.

As a 30-year veteran of the insurance industry and a volunteer advocate for the uninsured, I see a great opportunity to imagine new solutions rather than repeat another underfunded mistake from the past. Many who worked closely with this uninsurable population and celebrated the insurance guarantees ushered in by the ACA are wary. On the surface, the AHCA does not guarantee these protections with the same certainty the ACA does. Until the Senate bill details are made available, we’ll recall and share the painful lessons of our past and point to the sad irony of offering people who need more health services unaffordable premiums for substandard coverage.

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[Photo by Leo Hidalgo via Flickr.]