High risk pools in health reform: the law and the numbers

Now that health reform is law, one good news is that specific policy reforms and initiatives in the bill are gaining more attention rather than overarching, negative narratives that distract from actual policy debate. We seem to be taking a turn away from sound-bites and towards details, and I think that's a good thing. One of the items of the new law to come under substantive scrutiny lately are the high risk pools. Much of the concern about high risk pools and their effectiveness is warranted; nonetheless, they are a good enough idea to merit an objective analysis.

Today's analysis will involve two parts: a factual summary of the what's actually in the bill with respect to these high risk pools, and how the math works out in terms of the funding given both the current high-risk pools in existence in some states as well as other parts of the new law.

What's in the law?

Congress appropriated $5 billion for high-risk pools in this bill for citizens and legal residents who have not had creditable coverage (for the purpose of waving pre-existing condition clauses in insurance contracts) in the past six months and have a pre-existing condition that prevents them from getting coverage. An important note to make here is that the Secretary of Health and Human Services is not required to make payments to state high-risk pools. If she deems appropriate, she can set up a national high-risk pool directly administered by HHS. Section 1101 specifies
IN GENERAL.—The Secretary may carry out the program under this section directly or through contracts to eligible entities.
States could be eligible entities under this program, but the Secretary clearly has the power to cut the states out and establish a program herself - or she can do a combination of both. The incentive to run it through some states is that once states take those contracts, they cannot reduce their own state expenditures for their high risk pools, thus leveraging state dollars with federal dollars.

A high risk pool must have the following qualities: no pre-existing condition exclusion, no more than a 4:1 rating based on age, and establish a standard rate for a standard market. Subsection D under 'Qualified High Risk Pool' in that section of the bill also grants broad power to the Secretary of Health and Human Services to establish any additional criteria in addition the ones specified in law.

Now, let's look at the math a little bit.

The math - how much is $5 billion, really? What else might keep people from having to fall into a high-risk pool?

Currently, 34 states have some form of high-risk pools. However, of these, only 15 offer any form of premium subsidies. Most of these subsidies result in less than a 40% discount on prohibitively expensive plans. Three provide cost-sharing subsidies. Only 11 of these states actually use state funds to provide those subsidies or run the pools.

The Kaiser Family Foundation also provides us with the dollar amounts of how much subsidies would be required if every state that currently offers a pool had all of its costs covered by premiums (subsidized and unsubsidized). The total cost for all the 33 states that had high risk pools at the end of 2008 (NC pool was added in January of 2009) would be about $875 million in subsidies. Let's do a rough expansion of it, and assume these 33 states represent about two-thirds of the total population, thus also representing about two-thirds of the cost of high-risk pools, were they to be extended nationwide. That would bring the nationwide yearly cost of subsidies to $1.3 billion per year. The new law authorizes $5 billion over three and a half years (from start to when the exchanges open) - which is almost four times the $1.3 billion yearly cost.

But remember that the states that do provide premium subsidies in their own pools are not allowed to stop their own expenditures as a result of the new law (that condition is specified under Section 1101 of the underlying Senate bill). Taking those into account, we are likely to come out ahead in terms of pure costs high-risk pools, compared to if only the federal funds were available. That is not all, however. As the new law goes into effect, these costs are further mitigated by the following factors:

  • While full Medicaid expansion starts in 2014, states can begin expanding Medicaid eligibility on April 1 of 2010. That's in a few days!
  • The above statistics are provided by Kaiser at the end of 2008, before the massive expansion of SCHIP signed into law by President Obama last year went into effect. That means a lot of children would be able to get coverage through SCHIP, who would otherwise have to fall into the high risk pool.
  • This year, health plans can no longer drop people when they get sick - keeping people on their insurance plans and preventing them from having to go into the high-risk pool.
  • Subsidies will be available for employers this year to provide early retirees with health insurance - giving them good, affordable coverage and preventing more entries into the high-risk pool, since it is this group that is the most likely to be affected with pre-existing condition exclusions.
  • Currently, the 65% federal subsidy for COBRA is helping a lot of people keep their group insurance at a discounted rate, and preventing them from having to fall through the cracks into a high risk pool.
  • The small business tax credits of up to 35% of premiums - that is effective now - will help small businesses buy coverage for their employees (whether new coverage or helping maintain coverage an employer already provides), also preventing sicker or older employees from having to seek access to a high risk pool.
  • This year, children cannot be denied coverage based on pre-existing condition, also preventing some people from falling back into the high risk pool.
  • Beginning this year, young adults up to age 26 will be able to stay on their parents' insurance, potentially bringing down the number of potential enrollees to the high risk pool even further.
  • For the people who still cannot obtain coverage that way, Community Health Center funding expansion begins this year as well, and by 2014, most of that expansion will be completed, providing primary care services to an increasing number of people, keeping them from developing conditions that could force them into high-risk pools.
As you can see, multiple parts of the new law work together rather than on a stand-alone basis. This is why it's important to keep the totality of the law in mind and not just bits and pieces of it.

Now, are high risk pools a long term solution to our nation's health care woes? Of course not. That is why the law sunsets them at the federal level when the exchanges start. Until then, it isn't the best insurance coverage, nor will it necessarily meet the need of every single person who needs help. It is a bridge, a patch-work to the exchanges for people who fall through the cracks of the system. There is no doubt that for a great number will continue to fall through the cracks until 2014. However, while the high risk pools established by the new law and the money appropriated for them aren't a cure for our health care system, they will at least provide a band-aid for a good number of people. For those of us who care about good policy should use the federal investment as a foundation and expand these pools with state as well as additional federal funds when and where we can muster them.