Recently, House Republican Leadership announced a new “State Innovation Grants” program as part of its plan and draft legislation to replace the Affordable Care Act (ACA). These funds could be used for high-risk pools among other purposes. Historically, high-risk pools served as an alternative to guaranteed access to broad-based private insurance for people with pre-existing conditions. Theoretically, insuring such individuals in their own pool prevents their high costs from raising average premiums for others.
Putting prior experience aside, the ACA itself offers insight into this type of program and, as our report for the Century Foundation suggests, high-risk pools’ flaws may be more fatal than previously thought. The ACA created a temporary Pre-existing Condition Insurance Plan (PCIP) program to cover uninsured people with pre-existing conditions until broader market reforms took effect in 2014. PCIP addressed many of the previous shortcomings of high-risk pools: it had no waiting periods, no annual or lifetime limits on coverage, market average premiums, comprehensive benefits, and $5 billion in federal funding.
Lessons from the PCIP
Yet, even after addressing design concerns, three obstacles limited PCIP’s efficacy.
First, it was difficult for program managers to chart a steady course. Challenges in predicting costs led to frequent operational changes to accelerate or slow enrollment and spending in the high-risk pool. For example, in less than four years, the program dramatically shifted its eligibility rules and outreach plans from expansive to restrictive three times. Moreover, because of the lack of competition and incentives for providers to negotiate discounts, PCIP was forced to resort to regulations to lower the prices it paid for services — a tool few state high-risk pools would have at their disposal.
Second, it was almost impossible to budget for the program due to the unpredictability of costs. Our analysis examined PCIP claims costs per enrollee as well as total claims compared to both the program’s original state allotments and an alternative approach, similar to one that is being considered for Medicaid funding. It found:
Wide variation in claims per enrollee across as well as within states
The last quarter of 2012’s claims per enrollee ranged from a low of about $1,600 (North Carolina) to a high of $135,900 (Vermont) for this three-month period of time. Even removing the outliers, the highest claims per enrollee (Idaho: $12,800) was eight times higher than the lowest claims per enrollee (North Carolina: $1,600). This ratio is twice as big as the difference in state Health Insurance Marketplace premiums. PCIP’s claims per enrollee also changed dramatically and somewhat randomly within states over time. Comparing the last quarter of 2011 to that of 2012, thirteen states experienced a 20 percent or greater decrease in claims per enrollee, while eleven states experienced a 20 percent or greater increase.
Major differences between actual spending and the original allotments
PCIP’s $5 billion in federal funding was allocated to states based on their number of uninsured residents, costs, and related factors. Yet, actual claims were twice as high as New Hampshire’s allotment and half as much as allotments in seventeen other states. Thirty-seven states had claims that were more than 20 percent outside their funding allotments.
Major differences between actual spending and an alternative allotment structure
The Republican outline for its ACA replacement plan would create a Medicaid per-capita cap — a funding limit set on a per-enrollee basis which allows federal funding to fluctuate with enrollment. However, even if federal funding for PCIP had been allocated through a per-capita cap approach, thirteen states would have had spending that was more than 20 percent off from their funding allotment. And different states would have had funding shortfalls. For example, Arkansas, Ohio, Kentucky, and Wisconsin would have had spending in 2013 that exceeded their per-capita cap, whereas they had extra funding under the original PCIP allotment formula. This suggests that per-capita allotments would not have solved financial predictability problems in PCIP and states would continue to lack the certainty needed to effectively manage a high-risk pool.
Last but not least, PCIP enrollment was limited despite available funding — which meant a limited impact on individual market premiums. Even with comprehensive benefits, premiums set without medical underwriting, and an aggressive outreach campaign to eligible Americans, PCIP enrollment represented, only 0.8 to 1.6 percent of the 8.2 to 17.9 million uninsured people with pre-existing conditions in 2010, and an even smaller share of states’ uninsured residents. This meager enrollment would not have an appreciable effect on premiums in the individual insurance market.
From the PCIP to State Innovation Grants
The challenges associated with high-risk pool would likely be amplified now that millions of previously uninsured people with pre-existing conditions gained coverage in the individual market. If a state were to create a new high-risk pool, it would be forced to decide whether it would move such individuals out of the individual market and, if so, how. For example, would individuals who get a bad diagnosis or have costs that trip a certain threshold lose their Marketplace coverage and be shifted to a separate pool? Would they receive the same benefits, providers, and continuity of care in a high-risk pool? If the separate risk pool were only for new applicants who were previously uninsured, how would it be viable or accomplish the policy goals of the program given that its number of potentially eligible people is even smaller than that of traditional high-risk pools or PCIP? These are not minor questions for policymakers. They have major implications on the federal budget and the health care of millions of individuals across the country.
House Republicans suggest that State Innovation Grants may not necessarily be “tied to a separate risk pooling mechanism.” The American Academy of Actuaries recently outlined alternative high-risk pool reimbursement programs, such as keeping enrollees in the individual market while paying for a portion of claims above a specified dollar amount or for specified conditions. We believe such approaches could help alleviate the problems of low participation in high-risk pools, difficulty in securing price discounts, limited administrative efficiencies, and workable funding allocations. Having said that, as with any proposals, the details would affect such programs’ ability to efficiently and effectively cover people with pre-existing conditions.
Moreover, proposals to replace the ACA should be measured against the baseline of the ACA’s successes and not the dysfunctional market that preceded reform. Against this yardstick, high-risk pools, even with the type of funding suggested for State Innovation Grants, will likely fall far short of covering as many people with pre-existing conditions as affordably as the ACA’s set of policies does now. Insurance by definition is supposed to provide coverage for unexpected high-cost services, which is why protections for people with pre-existing conditions were included in the law’s reforms. Evidence shows that the law’s reforms are working. Access to health care along with health outcomes is improving and enrollment in the individual market is holding steady, even with recent premium adjustments. As such, while changes to expand affordability, accessibility, and quality of health care should be debated, evidence suggests Congress should keep the ACA’s set of protections for people with pre-existing conditions intact.