The new, temporary high-risk insurance pools, designed to cover an estimated seven million Americans with preexisting medical conditions until 2014, are insufficiently funded and could warp the incentives of people and states, according to experts at Stanford University and the Cascade Policy Institute. Many individuals would be forced to drop their existing insurance coverage to qualify for the pools, and the cost of providing this coverage may cause states to try to lower the number of applicants, the analysts note.
An individual cannot be accepted into the high-risk program until having been uninsured for six months, which will induce many to drop their coverage, hoping not to experience further deterioration in their high risk condition for the six month period until they can qualify, the analysts say.
Professor Alain Enthoven of Stanford University’s Center for Health Policy, who has worked in various economic and other policy positions for the U.S. government since 1956, says the national high risk pool program will not work as promised by President Obama.
“The concept of high risk insurance pools comes from what some states have done previously. For their residents who have significant preexisting conditions, who then could not buy health insurance, they created high risk pools for this population,” Enthoven said. “However, a key part of the program is that the state, with its own money, has to subsidize the pool to bring down the premiums and make them affordable—otherwise these programs become unaffordable.”
‘Funding Is Inadequate’
Twenty-one states have decided to join the ObamaCare high risk insurance pools so far, and 29 states and the District of Columbia have decided to opt out—essentially ceding responsibility for running their respective pools to the federal government.
“The pools did not grow very widely across the United States [even before ObamaCare] because the states did not have enough money to subsidize them to make them affordable,” Enthoven said. “For example, in some cases, some of these pools in the states just ran out of money and they had to stop taking new people into the pool until the money became available again. The Obama administration is only providing $5 billion for the federal program, which puts us on the same path—since the funding is inadequate, it will be just one more promise that goes unfulfilled.”
The Obama administration has put into escrow approximately $5 billion for the program, but some estimates indicate the cost for the pools could be as much as $40 billion, according to calculations by Hedgeye, a Connecticut-based research firm.
Costs Passed Along
Enthoven points out many of the new pool premiums will be costly, hovering at nearly $900 a month. Eric Fruits of Economics International in Portland and a health care analyst for the Cascade Policy Institute, says there are several reasons why government high risk insurance pools are so expensive.
“Part of the reason that high risk insurance pools are so expensive is because they are high-risk, and so you have higher rates because you are attracting by definition people who are relatively expensive to care for. That’s the whole point of a high risk pool. But additionally, a lot of government mandated programs and state-sponsored programs must grant ‘Cadillac’ levels of services—very generous deductions and coverage,” Fruits said.
Fruits maintains government mandates will only raise premium costs in the foreseeable future.
“High risk pools . . . are so generous that they price you out of the market. It is the nature of the political system and politicians that they can never take away benefits, they only add, and every benefit has a cost,” Fruits said. “Another reason for the high [consumer] cost of these high risk pool programs is that you are paying that out-of-pocket; you do not have an employer backing the system up.”
Turning People Away
As a result of such factors, high risk insurance pools end up costing so much money the government actively tries to stop people from signing up.
“Oregon has had a high risk insurance pool for quite some time since the early 1990s, and the premiums are pretty high. It is relatively expensive, not only to the person but to the state,” Fruits said. “The state started getting this kind of perverse incentive not to publicize the plan. There was a period of time in Oregon when what they really wanted to do was cut down on the outreach: ‘We don’t want to publicize to enroll people on this plan, so let’s cut down on advertising so fewer people know about it.'”
Catastrophic Alternative Suggested
Fruits believes a more cost-effective way to cover high risk Americans with preexisting medical conditions is the establishment of a federal catastrophic insurance plan.
“A catastrophic insurance plan for people with preexisting conditions could be a solution,” Fruits said.
“If I am walking around and I have high blood pressure or high cholesterol, I could go for years without needing any health care—but then when I do, I am going to need a lot of money,” he explained. “If I pay into the high risk pool, that’s money that’s gone, but if I could have a catastrophic plan with relatively low premiums, I could be squirreling away cash for the Big Event, and the state would be better off financially in having to pay for some of the care.”
Thomas Cheplick ([email protected]) writes from Cambridge, Massachusetts.