Wednesday, January 12, 2011

A Few Thoughts on High-Risk Pools

Last night the online publication Slate released a column on how the high-risk pools in the health care law “were a dumb idea” – but were Republicans’ “dumb idea” to begin with.  Rhetoric aside, it’s worth examining the flaws in the new pools created by the health care law, and how Republicans – had they actually been granted input into the law’s drafting process – could have created a more effective pooling mechanism for covering those with pre-existing conditions.

Many Republicans would argue the new federal program created in the health care law contains two related flaws – applicants must be uninsured for six months, and participants in the pool are charged standard insurance rates, which are lower than those in the existing state risk pools that pre-dated the law.  The latter provision necessitated the former – because the existing state pools generally charge applicants an additional premium of between 25-100% above standard actuarial rates, if the federal pool didn’t require applicants to be uninsured for six months, those in the existing state pools could drop their current coverage and enroll in the new federal program.  Those individuals would save on their premiums, but they would also raise federal spending on the program, without covering any new individuals.

So while the Slate piece lampoons Republicans for arguing that the risk pools haven’t covered enough people yet are expected to run out of money early (it “sounds a lot like the old joke about the restaurant where the food is terrible – and such small portions!”), the reality is that the flaws in the health care law could lead to exactly that dilemma.  It’s little wonder that the program hasn’t enrolled many individuals – in most states the risk pool program hasn’t been operating for six months, so people who lost their coverage when the program began aren’t even eligible for coverage yet.  And yet, because the federal program subsidizes participants’ premiums at a much richer rate than most state programs, the funding will be drawn down at a quicker rate once individuals begin joining the federal initiative.

These flaws are the reasons why many Republicans support the existing state-based programs that allow for immediate enrollment, but at slightly higher premiums, rather than the federal program created in the health care law.  Critics argue (as did the Slate piece) that requiring higher premiums for risk pool participants amounts to “segregation” or “discrimination.”  However, it really amounts to nothing more than a late enrollment penalty for those who choose to wait until they get sick until they buy insurance coverage – the same type of late enrollment penalties that Medicare imposes (with little outrage from liberals) on those who do not enroll in Part B or Part D immediately after turning 65.  It’s also worth noting that some states like Maryland further subsidize risk pool premiums for those with low incomes, an idea which conservative commentators have endorsed as one element of a comprehensive risk pool reform package.

(Some would also argue that effective pools should be coupled with improved portability provisions for those who DO have coverage now, which would help those who “do the right thing” and obtain health coverage before getting sick.  For instance, an individual who had employer-based coverage before developing a pre-existing condition would be able to buy individual market coverage if he loses or changes his job without needing to apply for risk pool coverage, and the higher premiums associated with it.)

A final note:  Any debates on the funding of high-risk pools would have been moot had Democrats chose to fund coverage of individuals with pre-existing conditions above other priorities.  During the 2008 presidential campaign, one member of the current Administration claimed that a national high risk pool “may cost $7-10 billion a week.”  Yet the health care law provided only $5 billion to fund risk pools between now and 2014 – so the majority could spend more of taxpayers’ money on backroom deals and a $15 billion “slush fund” to finance pet projects.  The Congressional Budget Office found that this funding level was not enough to meet demand, and could result in up to 500,000 people with pre-existing conditions being denied access.  So in response to Slate’s charges that risk pools themselves are a “dumb idea,” many Republicans would argue that both the mechanics of the Democrat-passed legislation, coupled with its questionable funding priorities, are, if not “dumb,” then certainly ill-advised.