As High Risk Pool Program Fails, Federal Government Slashes Rates

Published September 27, 2011

A lack of interest in the federal government’s temporary high risk pool program has surprised supporters of President Obama’s health care overhaul, leading the government to cut rates in an attempt to entice more people to sign up. Yet while these cuts may make the program more appealing, the subsidies could be a precursor to even greater government control over the health care marketplace.

The temporary high risk pool program was created under Obama’s law to help provide affordable health insurance coverage to people who are unable to obtain insurance because of preexisting conditions. States are allowed to choose whether and how they participate in the program, which is funded by the federal government with a $5 billion appropriation for July 1, 2011 through January 1, 2014.

The temporary high risk pool program, branded as “GettingUSCovered” by the U.S. Department of Health and Human Services, was expected to insure 200,000 or more across the United States. As of August, it had only enrolled about 18,000, causing the federal government to slash rates 40 percent in the 23 states and the District of Columbia where they run such plans.

The federal government is able to operate in this manner only because it’s using taxpayers’ money to create subsidies for those that can’t afford to pay for their premiums, notes Devon Herrick, a senior fellow with the National Center for Policy Analysis.

“If this were a private business, I think it would have already gone bankrupt,” Herrick says. “Some states already have high-risk pools, and we like for them to have them because it is a way to avoid costly insurance regulations. For example, Massachusetts, New York, and New Jersey all have onerous regulations regarding high risk patients, and as a result, those states have dysfunctional insurance markets.”

Risks for Private Insurers

According to Herrick, by offering health insurance plans with rates well below what the market charges, it’s possible the government will destabilize private insurance markets even further.

“The federal plans could affect state-run high risk pools by offering more generous benefits and charging cheaper rates. For instance, if you have a high risk pool, you subsidize it; states can generally charge slightly higher premiums for high risk pools because of the greater risk in insuring high risk patients,” Herrick says.

Herrick notes Obama allocated $5 billion to cover the cost of the plans, but since hardly anyone signed up, he believes they are lowering rates to try to spend that money before 2014.

“With the federal plans, if they don’t get enough people to enroll in high risk health plans they can lower premiums enough so that people in the state plans notice and join the federal plans. With the federal plans they expected 200,000 or more would qualify and enroll across the United States, but only 18,000 enrolled, causing the feds to adjust their plans,” Herrick says.

Refusal to Admit Failure

The Obama administration refuses to admit its program was unnecessary and is a failure in helping people with preexisting conditions get affordable health insurance, says Grace-Marie Turner, president of the Galen Institute.

“Only 18,000 people have signed up of the millions we were told needed the coverage. But instead of admitting the truth and going back to Congress to redesign the program to give states more control, the feds are planning to pump more taxpayer dollars into the program,” explains Turner.

Turner notes that as one of the few elements of Obama’s law already in effect—unlike other major elements, which aren’t to be rolled out until after the 2012 election—the failure of the high risk pools is a major rebuke for the administration.

“This is one more example that top-down programs run by Washington bureaucrats don’t work. This is just another of what will surely be a cascade of ObamaCare’s failures,” Turner says.

Need to Force Participation

Linda Gorman, health care policy center director at the Independence Institute, says the government can set rates for the federal high risk pool lower than market rates because they don’t have any responsibility to be self-supporting.

“Since enrollment has been far below predictions, this suggests that the problem was incorrectly analyzed. Rather than admit a mistake that throws the whole ObamaCare premise into question, it is easier to just lower prices to the point where people would be crazy not to sign up, and then use taxpayer money to make up the difference,” explains Gorman.

Obama’s plan called for temporary high risk pools to phase out in 2014, shifting consumers to the federal or state-run health exchanges. In the exchange markets, where guaranteed issue and community rating will be mandatory, the only way Obama’s plan can work is by forcing young, healthy people to overpay in order to subsidize older, unhealthy consumers, Herrick says.

“Inevitably this sort of approach will cause premiums to rise and young, healthy people to drop out. That’s where the federal mandate which forces everyone to buy government-approved insurance comes in—to keep people from dropping their health insurance plans and renewing them only when they become sick,” Herrick explains.

Gorman agrees.

“Since the GettingUSCovered pools are spending other people’s money, lowering prices is far easier than admitting to an analytical mistake,” Gorman says.