High-risk pools play an important role in the health care system. They are state-created, nonprofit associations that offer comprehensive health insurance benefits to individuals with pre-existing health problems.
People who typically seek coverage in a high-risk pool are those who have been turned down for coverage in the private market due to a chronic illness or condition; those who have found they can access only restricted coverage due to their health; or those who have coverage that costs more than what is available from the pool.
Insuring the Uninsurable
Risk-pool insurance typically costs more than standard coverage. Premiums are capped by law and range from 125 percent to 200 percent of the premiums charged for standard coverage.
It is inherent in the design of a risk pool that it will lose money. It simply isn’t feasible to pool a group of individuals known to have major health problems and expect their premium contributions to cover the entire cost. For this reason, risk pools need some form of subsidy, often an assessment charged to insurance carriers in the state.
Risk pools are overseen by an appointed board of directors, usually including representatives from the insurance industry, consumers, and medical professionals. The pools are often supervised by the state’s insurance department. A private third-party administrator typically handles day-to-day claims and administrative operations.
Overall enrollment in risk pools is rising. Today, approximately 127,406 people are enrolled in 30 state pools. Some of the enrollment increase can be attributed to federal HIPAA implementation passed in 1996, which allowed states to choose their risk pools as a mechanism to provide portability guarantees for people leaving qualified group coverage for the individual health insurance market.
People who enroll in high-risk pools are more likely to enroll due to access issues rather than financial considerations. They tend to be the self-employed, employees of small businesses that don’t offer insurance, or workers who are not eligible for employer-sponsored coverage. For many, the risk pool functions as an interim solution until they become eligible for coverage elsewhere. On average, an individual spends 30 months in a state risk pool.
Stabilizing the Free Market
Risk pools are an important mechanism for providing stability in the individual health insurance market.
A pool provides a place where high-risk individuals can gain comprehensive coverage along with protection against premiums climbing too high. Pools give the insurance industry and the general public a way to share and spread out the costs of insuring medically risky people on a broad and predictable basis.
Recent studies of the individual insurance market, including studies by the Urban Institute in Washington, DC, have found that states with risk pools have had more success in keeping their individual health insurance markets competitive, keeping insurance rates affordable, reducing Medicaid enrollments, and increasing private coverage.
The development of a high-risk pool is the best way a state can ensure that individuals suffering from catastrophic medical conditions have access to high-quality, affordable private health insurance coverage, while still preserving the viability and competitiveness of the state’s traditional individual health insurance market.
Best Practices for a Successful Pool
- Losses in excess of premiums should be funded equitably by all insurance carriers in the state, including re-insurers. This can be done through a proportionate assessment or through a per-policy (or per-employee in the case of group insurance or re-insurance) charge to all policyholders in the state.
- Pools should not rely on state appropriations, including those required due to premium tax offsets for carrier assessments, or the use of tobacco-designated funds. A reliance on such resources has been problematic in some states, since pool funding is then contingent on state revenues and the whims of the legislature. Several states funded in this manner have had to close pool enrollment for a time due to funding shortfalls.
- High-risk pool premiums should average between 100 and 150 percent of the average market rate, and should be capped at no more than 200 percent. While it is fair for the uninsurable population to pay slightly more for private coverage, premiums should not be so high as to limit access for low- and middle-income families.
- Plan premiums should include an insurance agent referral fee, which is typically between $25 and $100 per case.
- The risk pool board should have industry representation, including insurance agents, as well as consumers and provider groups. A private third-party administrator should handle the pool’s day-to-day operations, and it should be subject to oversight by the state Department of Insurance.
- The pool, like other traditional insurance options, should have an adequate lifetime maximum benefit limit (e.g., $1 million), and offer several plan options for participants (e.g., $500, $1,000, and $2,500 deductibles).
- For non-HIPAA-eligibles, the pool should have a pre-existing condition waiting period of at least six months to prevent adverse selection.
Pool eligibility for non-HIPAA-eligibles should be limited to individuals who have lived in the state for at least 30 days and can prove they meet at least one of the following conditions:
(1) they have been rejected for individual coverage by at least one insurer (some states require proof of two rejections)
(2) they have a catastrophic medical condition that allows for automatic pool acceptance without a prior carrier rejection (e.g., cancer, transplant cases)
(3) they are presently insured but paying a premium higher than the premium available through the high-risk pool
(4) they are the dependent of an eligible individual
(5) they are HIPAA-eligible.
Janet Stokes Trautwein is director of federal policy analysis and state government affairs for the National Association of Health Underwriters. Trautwein monitors all health care bills and helps develop NAHU policy. She is the association’s chief spokesperson. For 17 years, she ran an insurance agency in Austin, Texas, giving her a perspective on health insurance that few others on Capitol Hill have. Her email address is [email protected].
For more information . . .
see Heartland Policy Study #91, “Extending Affordable Health Insurance to the Uninsurable,” by Conrad F. Meier.