Implementation Of Health Reform Begins With Program To Insure The Uninsurables

sebeliushrpOne of the first provisions to take effect from the new health care reform law is a temporary insurance program that will provide coverage to Americans who can’t find affordable insurance in the individual health care market because they suffer from a pre-existing condition. On Friday, Health and Human Services Secretary Kathleen Sebelius kicked off the implementation process by officially asking states to decide whether they will participate in a new high-risk health-insurance pool, build on an existing program (if they have one), establish a separate state-based high risk pool with federal funding or do nothing at all, in which case the federal government would come in and administer the program.

At least 35 states are already operating their own high-risk pools but beginning in June, states that choose to build off their existing programs will have to meet new federal requirements. High-risk insurance pools will not be able to impose preexisting condition exclusions, will have to keep their premiums at “standard rates” (or no higher than the average person of that age would pay for insurance in the private market), limit on out-of-pocket medical costs to $5,950 a year for an individual, and insurers will have to maintain an actuarial value of at least 65%. Issuers will also be prohibited from varying premiums on the basis of age by a factor greater than 4 to 1.

Eligible individuals will be be able to enroll in the new high-risk insurance pools until 2014, at which point they will transition to a new insurance policy within the exchange. Here are the eligibility requirements:

— Have to be a citizen or national of the United States or lawfully present in the United States;

Not have been covered under creditable coverage for the previous 6 months before applying for coverage; and

Have a pre-existing condition, as determined in a manner consistent with guidance issued by the Secretary.

HHS has yet to issue its guidelines, but several health care wonks I spoke to are already raising concerns about the feasibility of providing coverage to the millions of Americans with pre-existing conditions on a budget of $5 billion. Some worry the program will be underfunded, others contend that the department will not be able to implement the new initiative in just 90 days and many question the wisdom of relying on a concept that has not had much success on the state level. That last criticism may be less than timely, but it’s not without merit.

Because of the higher health care costs typically incurred by the sicker individuals who enroll in high-risk insurance pools, all existing programs operate at a loss and have to “supplement their revenues through various funding mechanisms, such as assessments on health insurance carriers and state general revenues.” A Government Accountability survey of the existing 35 risk pools found that in 2008, the combined enrollment in all state high-risk pools was approximately 200,000 people, or only about two percent of total individual market enrollment in those states. All states require their high-risk pool to be a coverage-of-last-resort and typically impose waiting periods for coverage of preexisting conditions to discourage medically uninsurable individuals from foregoing health insurance until they require care.”

High-risk insurance pools charge premiums that are “higher than for plans offered to healthy individuals in the private health insurance market,” and impose deductibles that are “almost three times as high as the average annual deductible of $560 among employer-sponsored health insurance plans.” Today in most state pools, it would cost a 50-year-old more than $7,000 per year to enroll in single coverage with a $1,000 deductible.

The new health reform law was designed to lower the cost of coverage and eliminate the price-out effect of the existing programs. (One study estimated only eight percent of the target uninsurable population is able to enroll in state high-risk pools, due primarily to high premiums.) But as this brief from Kaiser Family Foundation points out, attempts to expand the program to include more individuals may be stymied by the relatively low funding levels:

Congressional health reform bills would establish a National High-Risk Pool Trust Fund and appropriate $5 billion to support the program over the duration of the reform implementation period. Over the reform implementation period, this would mean an average of $1.25 to $1.67 billion in program funding would be available per year. By contrast, in 2008, states with high-risk pools collectively spent roughly $900 million to subsidize excess losses for some 200,000 enrollees. Taking into account health care inflation and the cost of other changes state pools would need to adopt to meet federal standards, it is doubtful that federal funding provided under health reform bills would support substantial pool enrollment growth.

The brief has some suggestions for how policymakers can stretch the existing dollars — the law does say that if funding is not sufficient to support a national pool throughout the transition period, HHS can make adjustments, including suspension of new enrollment, premium increases, or reductions in covered benefits — but I suspect that if the administration hopes to make high-risk insurance pools a case study in health care reform success, it may have to find a way to increase funding and possibly subsidize coverage for lower-income Americans.