A State Checklist for Creating High-Risk Pools

The Trade Act legislation passed by the 107th Congress and signed by President Bush on August 6, 2002 provides up to $100 million in federal funding for states to create high-risk pools or fund existing ones. The legislation is a good first step toward offering uninsured people with preexisting conditions access to affordable coverage.

But the states have only two years to acquire these funds, and state legislators as well as the general public are largely unaware of how high-risk pools work, what the legislation, provides and what states must do to implement the programs. This article furnishes basic information and a checklist to help states get started.

How Do High-Risk Pools Work?

Currently, 30 states have enacted legislation establishing high-risk pools (HRPs) that provide comprehensive health coverage to individuals who cannot otherwise obtain medical insurance due to pre-existing medical conditions. State-based high-risk pools appeared 25 years ago and now cover about 153,000 people.

In most states with HRPs, applicants have a choice among PPOs or indemnity plans offering a range of deductibles and copayments. In other words, applicants can choose what best fits their needs and budget. States with well-functioning high-risk pools have largely solved the problem of access for their medically uninsurable residents.

What Does the Legislation Provide?

H.R. 3009 provides federal money for states that did not have a qualified high-risk pool as of August 6, 2002. Up to $1 million per state may be available. Additionally, the law provides some federal funding for the maintenance of HRPs, whether currently existing, newly created, or modified.

How Does a State Get Started?

The National Association of Insurance Commissioners (NAIC) has created model legislation that establishes the framework for a well-functioning pool. Here are the steps states should follow to get their pool up and running:

1. Obtain model language from the NAIC.

2. Work closely with state insurance department staff and local health insurers to prepare the legislation.

3. Keep changes to the NAIC model to a minimum, since they may alter the plan in ways that undermine it.

Appointing a Board of Directors

A competent, dedicated and knowledgeable board of directors is essential. The board can make or break (or at least damage) the HRP.

• Determine early who will be on the board and get them involved in the process.

• Make sure board members know up front that they will be responsible for all of the hard work of developing the pool program in a timely fashion.

• Establish the board as a voluntary body reimbursed only for expenses.

• If the board has been appointed prior to passage of legislation, involve board members in the legislative development of the HRP.

• Require that the board hire all contractors and that contractors have a history of high integrity and quality service.

• Set up a lengthy initial board meeting, perhaps one lasting several days, to familiarize members with their duties and resolve key issues.

• Make the commissioner of insurance or a representative an ex-officio member of the board, charged with providing ongoing assistance at the meetings.

It is critical that the board membership, although not necessarily each person, be knowledgeable about both group and individual insurance issues. Without a strong and savvy board, getting a pool up and running quickly is very difficult.

Legal Expertise

Even board members with considerable expertise in insurance and actuarial matters are unlikely to have the requisite legal skills.

• Legal counsel will need to develop the Plan of Operation for the program; some of the states with successful HRPs will readily share their plans.

• Legal counsel also will need to develop contracts with entities the board hires; again, other states have current versions available as models.

• Since the board is ultimately responsible for plan compliance with federal regulations, counsel will need to be familiar with the federal Health Insurance Portability and Accountability Act (HIPAA) and with Gramm, Leach, Bliley (GLB) privacy requirements, even if the administrator is an expert on them.

Who’s on Top?

An executive director (ED) is invaluable in the startup of a program. The ED should understand health insurance and have good political instincts, since he or she will be dealing with state officials, their aides, and, to some degree, the public.

• The ED handles all the day-to-day issues that result from board decisions. Unless someone moves the issues forward, the board’s wishes cannot be carried out.

• When the board is considering entering into a contract, the ED researches the contracting party and arranges formal due diligence as needed.

• The ED also is responsible for interacting with consumers, legislators, and regulatory bodies.

• Finally, the ED is responsible for updating advertising and/or marketing materials unless the administrator is specifically charged with this task.

Who’s Next to the Top?

The administrator works under the ED and is responsible for the day-to-day activities of the plan. An experienced person is critical to achieving a fast startup.

• The administrator handles premium collection, claims payments, the application and issue process, commission processing, customer service, and all other associated functions.

• The administrator may also engage in compliance activities, advertising, and the development of marketing material.

• The administrator may develop the Web site for the program.

• Working with the sales distribution channels in the state is very important for the administrator, who should be allowed to license agents and manage reporting functions as well as distribute sales materials.

• The administrator creates relationships with PPOs and/or other discount networks in order to keep program costs as low as possible.

• The administrator develops relationships with centers of excellence that can provide the types of care the high-risk population often requires.

• The administrator identifies a pharmaceutical benefit manager to assure cost-effective administration of outpatient pharmaceuticals.

• In most states, grievance procedure handling is necessary, and that job too usually falls to the administrator.

Numbers You Can Count On

Risk pools lose money because they accept people with preexisting medical conditions who cost more in care than they pay in premiums. It is crucial that the pool leadership contract with actuarial support to establish the right premiums for the program and to perform other required actuarial functions.

• The actuaries project individual participation and work with the accountants and the board to establish proper funding levels and assessments adequate to cover losses.

• The actuaries compare benefits and assist with initial benefit development for HIPAA compliance purposes.

• The actuaries also compare rates and benefits to those of other state HRPs and to the individual health insurance markets of their own and other states.

• The actuaries calculate reserves to assure the accuracy of financial analysis and reporting.

The Role of Accounting and Auditing

The level of accounting assistance needed depends upon the services the ED and administrator are able to provide.

• The board must have accurate, detailed, and frequent financial reports in order to assure good program management.

• Board members, the state insurance department, and the insured must receive annual reports.

• Certified public accountants and auditors must verify all reports.

• An outside auditing firm should perform annual audits of all contracted parties.

Conclusion

A state seeking to establish a program in the minimum amount of time should follow as much as possible the previous work of other HRPs. The National Association of State Comprehensive Health Insurance Plans (NASCHIP) (phone 952/851-7245), which is the trade association for risk pools, will provide the necessary information, including contact information for existing HRPs. Communicating for Agriculture (phone 800/432-3276), which regularly publishes the book detailing all existing HRPs, and the Council for Affordable Health Insurance (phone 703/836-6200) are other reliable resources.

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Rod Turner FSA, MAAA is vice president of American Republic Insurance Company and a board member of the New Hampshire and Iowa high-risk pools. This essay, first published by the Council for Affordable Health Insurance, is reprinted here with permission. For additional information, contact Tom Gardner, CAHI director of communications, at 703/836-6200 or by email at tgardner@cahi.org, or visit CAHI’s Web site at http://www.cahi.org.