High Risk Pools Deja Vu – Lessons from States, Questions for Policymakers

twitterCongress has begun its Affordable Care Act (ACA) repeal effort and evolving replacement options are receiving considerable attention. NASHP is tracking issues that appear in multiple proposals and will provide state perspectives, including: How might they impact states? What might they cost? Have they been tried before in states and what did we learn from past initiatives?

Last week we provided a baseline – a chart outlining the key provisions of the ACA and the potential impacts on states. It’s a work in progress and we invite states to provide more “meat to the bones.”

Today we tackle one of the possible elements of an ACA replacement proposal: high risk pools, which are designed to mitigate the impact of high need, high cost enrollees on the non-group market. Here’s what a recent op-ed in The New York Times concluded about states’ previous experiences with high risk pools:

“Before the ACA, two-thirds of states had such pools, which offered health plans with high premiums and deductibles and annual and lifetime caps. The pools never received enough support from the states (italics added) to respond to the needs of high-cost individuals, and still covered only a tiny fraction of people with pre-existing conditions.”[1]

If high risk pools become a part of the replacement strategy, states will have new operational responsibilities and budgetary obligations. What would be the state role in assuring that high risk pools would be effectively supported and adequately financed and at the same time provide appropriate coverage to individuals in these pools?

The history of high risk pools is marked by underfunding, limited choice of plans, benefit restrictions and high costs.

Prior to the ACA, 35 states operated high risk pools, serving at their peak a total of slightly more than 200,000 people. Thirty-three states included annual or lifetime limits on benefits; many required six to 12 month waiting periods for individuals with pre-existing conditions, and eligibility was generally limited to certain specified conditions. Costs were also high—premiums charged to enrollees often were 125-200 percent of standard market rates and covered only about half the cost of care,[2] and many of the pools had plans with high deductibles. States financed high risk pools primarily through assessments on health insurers, allocations from state general revenue, tobacco taxes, and some through hospital taxes. From 2003-2010, the federal government provided grants to some states that operated high risk pools. In the early years that funding reached $80 million but each year appropriations were lower, until by 2011 the funding was $55 million. Importantly, these federal funds only covered between two to 12 percent of program expenses in states. Additionally in 2011, across all of the high risk pools, combined net losses per enrollee were $5,510 on average because expenses exceeded revenues.[3]

The ACA, through guaranteed issue requirements, effectively eliminated the need for high risk pools by assuring that those with pre-existing conditions could be covered in plans offered in the non-group market. It added an individual mandate designed to incentivize the young and healthy to enroll to expand and improve the risk pool, and provided federal funding to help plans manage unexpected risks and high costs. Two of those risk mitigation programs were temporary; one—risk corridors—was underfunded. In 2014, for example, it paid out $362 million rather than the anticipated $2.87 billion to assist plans limit losses from more high cost enrollees than expected.[4] The ACA also included a temporary, transitional high risk pool program, the Pre-Existing Condition Insurance Plan, (PCIP). The program was funded at $5 billion from 2010 -2014 but still experienced net losses of $2 billion, and enrollment only reached approximately 100,000.[5] Underfunding remains a theme in programs designed to address high cost enrollees.

One state proves particularly instructive. Although Minnesota no longer has a high risk pool, in 2011 its enrollment comprised about 15 percent of all high risk pool enrollees nationwide.[6] The state capped premiums at 125 percent of standard market rates and, unlike most other high risk pools, provided dependent coverage. It was viewed as relatively successful due to four factors: 1) having broader eligibility criteria than in other states; 2) sufficient funding primarily from insurer assessments and enrollee premiums; 3) lower premiums than other state pools as well as split deductibles for medical services and prescription drugs and higher premiums for tobacco users(both strategies that lowered costs for certain individuals); and 4) efficient governance through a nonprofit board model that incorporated input from a wide range of stakeholders.[7]

But even as the nation’s largest high risk pool, Minnesota enrolled only 29,000 people in 2011 at a cost of approximately $238 million. Premiums covered 48 percent of costs (less than in most states’ pools) and assessments on insurers covered 49 percent of costs. Those assessments resulted in a two percent increase in commercial health insurance premiums and, until 1987, insurers could fully deduct their costs from state income taxes. But the program often required additional support to cover losses—including funds from provider taxes, funds transferred from a surplus in the workers compensation program, and tobacco settlement dollars.[8]

Could a new policy promoting high risk pools overcome the lessons of history? What questions do state health policymakers need to consider as they contemplate a possible return of high risk pools?

1. How will states administer the program? While most states closed their high risk pools with the implementation of the ACA, 12 states continue to operate high risk pools today. States that do not have high risk pools currently would need to invest resources to build the administrative capacity to either relaunch or newly launch and operate them. In the 11 states and the District of Columbia that operate State-based Marketplaces (SBM), those entities could be well positioned to take on that role (although just four of those SBM states currently operate high risk pools).

2. What will the program cost? High risk pools often experienced losses since they are designed to cover the sickest and most costly populations who would no longer be eligible for coverage in the non-group market. States will need to carefully consider the costs of high risk pools. Data from all payer claims databases (APCDs) show the high cost of covering individuals with complex health needs and could prove useful for estimating potential expenditure trends in high risk pools. When examining the cost of commercially insured individuals under age 65, with at least nine months of continuous eligibility,claims data reflect very significant differences in the cost of care for the top 2 percent of claims as compared to all others covered:

• In New Hampshire, in 2015 the cost of the top two percent of claims was $6,659 per member per month (PMPM) compared to $214 for the remainder of the market.

• Colorado determined the cost in 2015 for 98 percent of commercial claims was $158 PMPM, in contrast to $6,488 PMPM for the top 2 percent of claims.

• Virginia’s APCD found similar cost patterns, with the 2015 PMPM cost for the top two percent of commercial claims at $5,273, as compared to $179. PMPM for the other 98 percent of claims. Note that these numbers do not include prescription drugs. When drug costs are added to Virgina’s numbers, the top two percent cost $7,959 compared to $265 in the remainder of the market[9]

3. What will consumers expect from high risk pools? Today consumers cannot be denied coverage and that coverage provides essential health benefits, including mental health and substance abuse treatment, pharmacy benefits and preventive care with no co-pays. And, consumers with pre-existing conditions do not wait longer than 90 days to receive coverage. Subsidies and cost sharing reductions, funded fully by the federal government, reduce costs to those who qualify and price increases on older consumers are limited.If an ACA repeal eliminates those protections, state policymakers would need to consider what, if any, of them would and could be continued through state regulation and what extending those protections might cost. If those protections are not continued, consumers could be subject to significant disruptions as they transition to traditional high risk pools and face lifetime, annual and other benefit limits, exorbitant premiums, and long waiting periods. Consumers would likely raise concerns about high costs and other enrollment barriers to state policymakers, who would need to weigh the demands for more robust and reliable coverage against the expenses.

Finally, unless high risk pools are adequately subsidized, high premium costs will mean all high need consumers will not be able to afford coverage. State policymakers will need to address those implications as more consumers may face personal bankruptcies and unmet needs, and as states witness an increase in the number of uninsured and more demand for uncompensated care.

4. Will high risk pools stabilize the non-group market and lower premiums ? The promise of high risk pools is that, by taking high need, high cost enrollees out of the non-group insurance pool, that market will be stabilized and rates more affordable. States may want to determine a baseline from which to measure the impact of a high risk pool. What are rates today and how much competition exists? What are the benefit plans today and what do they include after the establishment of a high risk pool? Any comparisons would need to accommodate for changes in the design, benefits and actuarial values of plans on the market pre-and post high risk pool.

5. How will states finance high risk pools? Without more information about how a new wave of high risk pools might operate and whether and how the federal government would provide financial support, states need to consider their potential new responsibilities and carefully analyze the adequacy of any proposed federal funds, given the financial challenges high risk pools have historically experienced. States have several options:

• Premiums: In most high risk pools, premiums made up over half of total revenue and could be as much as 125-200 percent of the standard plan in the market. States would need to weigh coverage decisions and program design against the cost of premiums.

• Assessments on insurers: The ACA includes a number of fees on insurers. It is unclear which, if any, of these existing fees will be retained to cover the costs of what emerges as the ACA replacement option, and whether these fees could be used to support state high risk pools or if states would need to impose additional fees on those insurers. Nor is it clear if and how much the creation of a high risk pool would result in insurers lowering costs in the non-group market and arguably offset the increased cost of fees. If states add new insurance fees, which are always controversial because their costs are passed on as higher premiums, they would need to consider state tax policy as well. If these fees are deductible, the revenue to the state would be offset by the tax exemption.

• Provider taxes: Historically high risk pools did not assess ees on issuers of health plans that were self-funded and governed by the federal Employee Retirement Income Security Act of 1974 (ERISA) not state regulation. As such they were viewed as exempt from state assessmentsToday, 61 percent of covered workers have coverage through either partially or fully self-funded plans.[10] However, last year in Self Insured institute of America v. Snyder et al. the 6th circuit upheld a Michigan law that assessed all claims of all carriers including self- funded. Still ,the potential for ERISA challenges weighs heavily on state policymakers who may turn instead to provider taxes.Taxes on providers based on paid claims can be assessed on all claims—including those that are self-funded—and have been used in some states to support high risk pools. Providers may increase charges to purchasers to accommodate the tax.

• General or other state revenues: The costs of high risk pools are difficult to predict due to the nature of those they serve—people with complex health needs commonly requiring expensive care. Additionally, with rising medical and pharmaceutical costs, greater demand for care as complex conditions worsen, and the growing needs of an aging population—costs will increase and challenge annual budget appropriations processes.

As federal discussions continue about whether and how to create and finance high risk pools, states have lessons from past experience to inform the debate. State officials should review high risk pool proposals with a careful eye to assure that they are adequately financed and that they will appropriately serve the needs of the vulnerable populations they are designed to address.

Support for this work was provided by the Robert Wood Johnson Foundation. The views expressed here do not necessarily reflect the views of the Foundation.

 

[1] Harold Pollack and Timothy Jost, “Seven Questions About Health Reform,” The New York Times, January 10, 2017.

[2] Trish Riley and Barbara Yondorf, “Access for the Uninsured: Lessons from 25 Years of State Initiatives,” National Academy for State Health Policy, January 2000.

[3] Karen Pollitz, “High-Risk Pools for Uninsurable Individuals,” Kaiser Family Foundation, July 2016.

[4] Centers for Medicare and Medicaid Services fact sheet, “The Three Rs: An Overview,” October 2015.

[5] Karen Pollitz, “High-Risk Pools for Uninsurable Individuals,” Kaiser Family Foundation, July 2016.

[6] Lynn Blewett, Donna Spencer, and Courtney Burke, “State High Risk Pools: An Update on the Minnesota Comprehensive Health Association,” American Journal of Public Health 101(2), February 2011.

[7] Courtney Burke and Lynn Blewett, “All High-Risk Pools Are Not Equal: Examining the Minnesota Model,” Health Affairs Blog, March 19, 2010.

[8] Lynn Blewett, Donna Spencer, and Courtney Burke, “State High Risk Pools: An Update on the Minnesota Comprehensive Health Association,” American Journal of Public Health 101(2), February 2011.

[9] Data provided through The APCD Council; Va. Methodology reflects proxy allowed dollars

[10] Kaiser Family Foundation and Health Research and Educational Trust, “Employer Health Benefits Survey: 2016 Summary of Findings,” September 2016.