High-Risk Pools Insure the Uninsurable

Published March 1, 2002

Approximately 2.5 million people in the U.S.—about 1 percent of the population—suffer from pre-existing medical conditions that make it likely their future medical expenses will be extremely high.

While private insurers are ill-equipped to serve this population, 31 state governments play a positive role by chartering nonprofit high-risk health insurance plans, or HIPs. In order to keep premiums affordable, HIPs are often authorized to impose a small assessment on the premiums earned by private insurers.

HIPs accomplish the social goal of assuring access to quality medical care for those who need it, without the disruptions and negative side effects caused by regulation of the insurance industry.

A Right Way and a Wrong Way

Some states are attempting to ensure access to medical care for the medically uninsurable simply by forcing companies that sell individual health insurance to write policies for them. By doing so, those states are creating serious problems for the vast majority of their residents who do not suffer from medically uninsurable conditions. Studies show such regulations increase premiums, increase the number of uninsureds in a state, and do serious damage to the insurance marketplace.

The Council for Affordable Health Insurance (CAHI) uses the image of an inverted pyramid to illustrate the problem. “The people in the individual market comprise a very small area at the bottom of this inverted pyramid. To force that small group of people to fund the burden of all of the uninsurable people coming from the rest of the pyramid [large groups, small groups, self-funded programs, government programs, etc.] simply cannot work because it requires a price that is far too high for this market to bear.”

When financed by small assessments on the premiums paid to private group insurers, HIPs spread the cost of covering uninsurables across a much larger base of insureds. The result: accomplishing the social goal of assuring access to quality medical care for those who need it, without the disruptions and negative side effects caused by heavy-handed regulation of the insurance industry.

Private-Sector Solutions

Many insurance companies, including Golden Rule, Mutual of Omaha, and Fortis Health, support the concept of high-risk pools as an effective safety net for individuals with chronic health conditions. Risk pools provide private insurance coverage alternatives to those who would otherwise need to depend on public assistance programs or simply go uninsured.

Ben Cutler, president and CEO of Fortis Health, said in a company press release, “Fortis Health is committed to working for change in states where regulation has created an unfavorable insurance climate for consumers and insurers alike.” Cutler also says his company has never abandoned a state due to competition, but has been regulated out of business where health care reform legislation has made it impossible to co-exist with over-regulation.

Success in Kentucky . . .

The combination of community rating, price controls, standardized benefit packages, guaranteed issue, and patient access laws created chaos in the Kentucky’s health care system. In response, most health insurance companies were eventually forced out of doing business in the state.

In turn, thousands of people were left without competitive buying choices. This resulted in dramatically higher insurance premiums, which created historically high uninsured statistics. (See “How Kentucky Destroyed Its Health Insurance Industry (and a Plan to Rescue It),” a Heartland Perspective by Conrad F. Meier, January 13, 1998.)

To address the problem, the state launched Kentucky Access, a new high-risk pool that started enrolling eligible residents on January 1, 2001. Within five months, the plan had insured 351 qualified residents. By enrolling Kentuckians with known, high-risk medical conditions in a separate insurance pool, the state hopes to encourage private insurance companies to return to the state marketplace.

. . . and New Hampshire

New Hampshire Senator Arthur P. Klemm (R-District 22) announced “the New Hampshire Senate passed legislation to restore a healthy market for individual insurance. It involves the creation of a high-risk pool, funded through industry assessments, to subsidize coverage for people who are priced out of the regular market.”

Klemm points out insurance carriers left the state after it passed regulations controlling the types of insurance policies insurers could offer. Since the new legislation was signed by Governor Jeanne Shaheen (D), many insurance companies have indicated they are favorably inclined to return to the state insurance market.

The new risk pool is currently in the organizational stage and a director has yet to be named. The state Department of Insurance estimates the pool will begin accepting applications as early as July 1, 2002.

More High Risk Pools Coming

Thirty-one states have implemented risk pools (only Florida’s remains closed to new applicants), and several others are considering legislation to create them.

In October 2001, Golden Rule and Fortis Health addressed attendees at the annual meeting of the National Association of State Comprehensive Health Insurance Plans (NASCHIP)—the sole organization providing resources, advocacy, and educational programs for states with individual market high-risk pools.

In addition to their leadership on high-risk pools and other state reform initiatives, Golden Rule, Fortis Health, and Mutual of Omaha have been prominent at the federal level on a number of issues. Golden Rule is frequently mentioned as the originator and leading expert on Medical Savings Accounts; Fortis is spearheading defined-contribution plans; and Mutual of Omaha gets credit for creating and developing the high-risk pool concept over 25 years ago.