What are high-risk pools and how do they work?
You should care about high-risk pools, because they're the latest attempt at health care overhaul by Speaker of the House Paul Ryan (R-Wis.). Already famed for his magic asterisks and out-there tax proposals, Ryan has spearheaded a new health care proposal as part of House Republicans' major policy rollout A Better Way.
Although he buried it in a bullet point on page 21, Ryan would like to use high-risk pools as his get out of jail free card for repealing the most popular provisions of the Affordable Care Act, also known as Obamacare. In his proposal, as part of repealing the ACA, Ryan would eliminate the law's ban on denying coverage due to pre-existing conditions. It would be replaced with a continuous coverage guarantee, which does ensure coverage… but in a move very fitting of the Speaker's philosophy, only for people who already have insurance.
This will leave the question of how to cover the sick and uninsurable, people who fall through the many cracks of Ryan's new system. He'd like to answer this question with high-risk pools, which is a fine answer.
Except, of course, that they aren't a new invention, and they definitely don't work.
One of the critical issues of health insurance is balancing the risk and participation rates in the marketplace. The entire model of insurance is that healthy consumers will pay for more coverage than they consume, which allows sick ones to pay for less. Ideally premiums will reflect the average costs across an entire pool, which requires insurers to keep a high ratio of healthy to sick enrollees at any one time.
If that ratio gets out of whack the plan becomes too expensive, healthy people begin to drop out and premiums spiral. As a result health insurance companies have always been incentivized to reject the sick people who drive up costs.
High-risk pools are a way of mitigating that participation dilemma. These are private plans designed for individuals who can't get insurance anywhere else due to a pre-existing condition. High premiums and government subsidies offset the costs of insuring each member of the plan, allowing (in theory) the risk pool to function despite significant per-person spending. (Indeed, with few healthy people to offset costs, the relationship between premiums and spending approaches 1.0.)
This is a fine idea in theory, if the government is willing to pay for a large percentage of people's health care. But that costs a lot of money, which the proponents of these risk pools generally aren't willing to spend.
As Linda Blumberg, a senior fellow with the Urban Institute pointed out, one of the key flaws with the high-risk pool model is that it's a specifically bad way to cut spending on health care.
"The problem with the high risk pools is that when you separate out the high cost people from the lower cost people, what you find is that the distribution of health expenditures in this country is very skewed," she said. "A relatively small percentage of individuals accounts for a very large percentage of health care spending. So when you take a small percentage of high risk individuals and you separate them out from everybody else you get the bulk of health care spending in this country."
Carving the sick and most uninsurable people out into specific, dedicated pools "is going to cost a lot of money," she said. "It's where the dollars are, and that's why the designers of the Affordable Care Act wanted the high cost and the low cost insureds together."
And this is not a small population.
Although Ryan's plan would dedicate $25 billion over ten years to creating these pools, his plan also promises to rip open a potentially enormous coverage gap. More than a third of Americans are uninsured, on Medicaid or subscribe to an individual policy. Any of them could lose their insurance at any time, falling into the cracks of Ryan's continuous coverage guarantee.
Helping to directly subsidize their health care would be expensive, and Ryan already rails against the expense of helping people buy health insurance under the ACA.
There's no reason to believe that his high-risk pools would be sufficiently well funded, but there's also no need for speculation. In 2010, before the ACA obsolesced them, 34 states ran one of these programs. A study conducted by the Kaiser Family Foundation found that premiums in these pools were 125 to 200% of the national average and out of pocket costs "substantial."
In addition to finding that enrollment was rock bottom the report noted that "high risk pools are also extremely expensive for states to operate" and that most "[did] not have sufficient funding to cover everyone who needs coverage."
The upshot? Enrollment caps, strict eligibility requirements and lengthy waiting periods (months) before benefits could kick in.
"It's all money," Blumberg said.
"It's not rocket science," she added. "You and I can sit down with a piece of paper and a pen, and I could design a high risk pool for you that would be very effective at providing adequate coverage at income-related premiums. It can be done. It's just that it would cost you an enormous amount of money to subsidize it."
And there's the rub.
Segmenting risk skyrockets the costs of coverage for people who are sick, while making things moderately cheaper for everyone else.
Consider, for example, the following thought experiment. In a 100-person plan, one person spends $100 per year while the rest spend only a dollar. The resulting premiums will be just under $2 per person, per year (if we assume for only costs).
Now kick the sick person out of the plan. The remaining insureds will only save $1 per person, but the sick member of the group will suddenly have to spend $100.
Now send him to a high-risk pool, where 90 of the participants have to spend $100 per year and you begin to see the problem. All that money has to come from somewhere.
It's probably not coming from Ryan.
There's much to be said about the Republicans' health care proposal, the latest version of the Right Wing promises someday to write a bill that will replace Obamacare. It is a mendacious document designed to look like policy while unwinding many of the protections that allow sick people to participate in the joint risk project we call "health insurance."
High-risk pools are just one element of this game of three-card monte.