Ask an actuary: How might Republicans revive high-risk pools in an ACA replacement?

Though the spotlight is on the push to swiftly repeal the Affordable Care Act, soon Republicans will be faced with the far more daunting task of replacing it with a new version of healthcare reform.

While the party has not yet coalesced behind one definitive plan, it has proposed a number of ideas that shed light on some of the key elements GOP lawmakers are likely to include in their own version of healthcare reform. Among them: Reviving high-risk insurance pools.

In fact, in a Senate confirmation hearing Tuesday, Rep. Tom Price, R-Ga., the nominee for Department of Health and Human Services secretary, touted them as one way to restructure what he sees as a failing individual market.

“High-risk pools can be incredibly helpful in making certain that individuals with pre-existing conditions are able to be cared for in the highest-quality manner possible,” he said.

But the concept is not a new one. Thirty-five states had some version of a high-risk pool prior to the ACA, said Dave Dillon, a fellow at the Society of Actuaries. Their primary purpose was to give individuals with pre-existing conditions a coverage option, as they otherwise would be uninsurable under pre-ACA medical underwriting practices in the individual markets.

David Dillon
Dave Dillon

The ACA also established a temporary, national high-risk pool program that offered coverage for uninsured individuals with pre-existing conditions until 2014, when the rules barring insurance discrimination based on health status took effect in the individual markets. After that, states’ high-risk pools dwindled or dissolved, as they were no longer needed.

High-risk pools of the past

During Tuesday's hearing, Sen. Debbie Stabenow, D-Mich., was critical of reviving high-risk pools, telling Price that "frankly, they didn’t produce great results."

Indeed, each of the 35 states that had high-risk pools pre-ACA encountered challenges, Dillon noted. The primary reason is that in insurance markets, about 1% of the population was responsible for about 30% of claims.

“If you remove sickest 1%, those claims have to be funded somewhere,” he said. “This is a challenging endeavor to structure a high-risk pool, because such a small percentage of the population is such a large percentage of the costs.”

Indeed, by design, all state high-risk pools experienced expenses greater than premium revenue. Most states financed those net losses through an assessment on private non-group health insurance premiums, and a few states used other revenue sources such as tobacco taxes and hospital assessments to fund high-risk pool losses.

Before the ACA, high-risk pools also covered just a small fraction of the number of people with pre-existing conditions without insurance—with about 200,000 enrollees nationwide, Dillon said.

That’s partly because of design features that limited enrollment. State pools also usually excluded coverage of services associated with pre-existing conditions for a period of time and charged premiums much higher than what a typical person would pay in the non-group market.

Indeed, some California health officials and policy experts are wary of returning to a program that they said featured long waits for coverage, high prices, limited benefits and few health plan choices.

“People would literally pass away while they were on the waiting list,” said Richard Figueroa, who was one of the original staff members of California’s program when it started in the 1990s.

Republican proposals

Dillon pointed out that the high-risk pools Republicans design may not necessarily be the same as those that predated the healthcare reform law they are trying to repeal.

Whatever form they take, high-risk pools would help stabilize the individual market and possibly lead to lower premiums for the average consumer because those high claimants are taken out of the risk pool, he said.

“The flip side to that is, of course, even if that individual market is stabilized, there is still a substantial amount of claims that need to be funded somehow,” Dillon said.

In House Speaker Paul Ryan’s ACA replacement framework, he proposes boosting high-risk pools with $25 billion in federal funding over 10 years. Dillon, however, said it is “unknowable” how much funding is actually needed because the party hasn’t gone into detail about the percentage of people it would peel off and put into high-risk pools.

Ryan’s plan also said that premiums for those participating in high-risk pools would be capped, and wait lists for coverage would be prohibited.

In a previously introduced bill from Rep. Price, HHS would “provide a grant to each state for high-risk pools or reinsurance pools to subsidize health insurance for high-risk populations and individuals.”

The concept of combining reinsurance with high-risk pools would make them “dramatically different than what they were previously,” Dillon said. The reinsurance program, he noted, is commonly seen as one of the more successful provisions of the ACA, and could be a good route to go if policymakers “take a discerning eye.”

Given the fact that Republicans are pushing for the use of health savings accounts, Dillon could also see a modern iteration of high-risk pools featuring benefit plans that are more focused on HSAs. They also may have more high-deductible health plans and regional HMO products, rather than the statewide PPO products they previously featured, as plans available in high-risk pools tend to mirror the composition of the overall individual markets.

At this point though, it’s difficult to assess how high-risk pools would factor into the individual markets—or how successful they might be—because Republicans haven’t yet fleshed out their proposals, according to Dillon.

“There’s a lot more meat to be put on that bone,” he said.