Health Insurance: Understanding High Risk Pools

Understanding Your State's High Risk Pool

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Health Risk Pools - Does your state have a high-risk health insurance pool?. Wikimedia Commons

Prior to the Affordable Care Act, high-risk pools operated in many states, providing coverage to people who were unable to obtain health insurance due to their medical history. Under the ACA, individual market insurers are no longer allowed to use medical underwriting, so people cannot be rejected due to their pre-existing conditions. As a result, the need for high-risk pools much less pressing than it once was, although there are several states where high-risk pools still provide important supplemental coverage for some Medicare beneficiaries.

Pre-existing conditions: A Look Back

Most Americans—more than four out of five, according to a Kaiser Family Foundation analysis—get their health insurance through their employer or a government program such as Medicaid, Medicare, CHIP.

But as of 2018, nearly 16 million people purchased their own health insurance in the individual insurance market, including plans purchased in the health insurance exchanges as well as plans that people bought directly from insurance companies. The individual market offers plans for people who need to buy their own coverage for a variety of reasons. Some are self-employed, some have retired prior to Medicare eligibility, some are employed by a small business that doesn't offer employer-sponsored health insurance.

Prior to the Affordable Care Act, people who bought their own health insurance didn't get the same guaranteed-issue provisions enjoyed by people who obtained their coverage from an employer or a government-run program. HIPAA rules, implemented in the 1980s, ensured that a person could switch from one employer-sponsored plan to another, regardless of medical history. But those rules did not extend to the individual market. When people purchased coverage on their own, insurers in all but five states could use medical underwriting to determine whether the applicant was eligible for coverage—and if so, at what price.

So if an applicant was healthy, obtaining individual market coverage was a straight-forward process. But for applicants with significant pre-existing conditions, it was much more complicated. Some conditions, such as MS, invasive cancers, Hemophilia, Chron's Disease, and even significant obesity, would invariably result in the application being rejected by every individual market insurer. So people with pre-existing conditions often found themselves tied to a job that offered health insurance, and unable to take an entrepreneurial path or even work for a small employer that didn't offer health insurance.

High-Risk Pools

States created high-risk pools, mostly in the 80s and 90s, as a solution to this problem. They were far from perfect, but definitely better than nothing. By the time the ACA was being debated, 35 states had created special programs for residents who were denied coverage (or offered a plan at a higher price or with specific pre-existing condition exclusion riders) by private insurers because of health-related issues. These high-risk pools were created to ensure that individuals would be able to enroll in a health plan regardless of their health status.

But the specifics varied considerably from one state to another in terms of pricing and plan availability. This analysis from the Kaiser Family Foundation provides an excellent overview of how the high-risk pools worked in each state.

High-risk health plans were very expensive for a state to operate. Because of that, high-risk pools generally charged premiums that were well above the average cost of a comparable policy sold in the private individual market (generally 125 to 200 percent of the cost of a private plan). The state would also have to cover a significant portion of the costs via state revenue and assessments on insurers offering private plans within the state.

Typically, high-risk pools offered two to eight health plans through a contract between the state and one or more private health insurance companies. So the member ID cards and plan networks might have included the name of a well-known private insurance company, even though the plan was being run by the state and had rules that weren't the same as the private insurance market.

In addition to the monthly premium, high-risk pools were also designed to include out-of-pocket expenses, such as annual deductibles, copayments, and co-insurance. In some states, the deductibles and out-of-pocket expenses under the high-risk pool were particularly high.

High-Risk Pools and the ACA

The ACA largely eliminated the need for high-risk pools, by requiring individual market health insurers to accept all applicants (during open enrollment or a special enrollment period), regardless of medical history.

The ACA was enacted in 2010, but the provisions requiring insurers to stop using medical underwriting didn't take effect until 2014. So for the interim, the ACA created its own high-risk pools, known as the Pre-existing Condition Insurance Plan (PCIP), which allowed people with pre-existing conditions to obtain coverage prior to 2014. PCIP coverage ended in early 2014, once guaranteed-issue individual coverage was available via private health plans in every state.

The majority of the state-run high-risk pools that operated prior to the Affordable Care Act have ceased operations now that residents can obtain coverage under private plans instead. But some high-risk pools have remained operational.

One important reason for this? Medigap plans (Medicare Supplement plans) are not guaranteed-issue in most states after a person's initial six-month enrollment window closes. So if a person enrolls in Medicare but not Medigap, and then wants to obtain a Medigap plan a few years later, insurers in most states can use medical underwriting to determine eligibility and pricing.

In addition, federal law does not require Medigap insurers to offer any sort of guaranteed-issue coverage to Medicare beneficiaries who are under age 65 and eligible for Medicare due to a disability (this accounts for about 16 percent of the more than 60 million people with Medicare). Most states have implemented rules requiring Medigap insurers to offer at least some plans on a guaranteed-issue basis to Medicare beneficiaries who are under-65. But several states rely on their pre-ACA high-risk pools to offer Medicare Supplement coverage to people who are unable to qualify for a Medigap plan in the private market, due to pre-existing conditions. They include Alaska, Iowa, Nebraska, New Mexico, North Dakota, South Carolina, Washington, and Wyoming.

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