High-risk pool contracts contain hidden risks

Health plans that elect to bid on state and federal administrative-services-only (ASO) contracts may face pros and cons, Health Plan Week reports.

On the plus side, health insurers and third-party administrators that administer the new, federally backed high-risk insurance pools known as Pre-existing Condition Insurance Plans (PCIPs) can expect administrative services fees based on the number of people they enroll each month. In return, PCIP administrators will handle enrollment, claims payment, premium collection, utilization management and customer service.

Although health insurers and TPAs shouldn't expect much money from this, James Drennan, a principal and consulting actuary at Ingenix Consulting, a subsidiary of UnitedHealth Group told Health Plan Week, there is an upside. Not only do government contracts, such as Medicare and TRICARE, give you the ability to spread fixed costs over a larger population, they also give plans better bargaining power when it’s time to negotiate rates with providers.

Just don't expect the new risk pools to translate into a lot of new enrollments. Only 2,400 people had applied for 22 pools administered by the federal government as of Aug. 13, although nationally an estimated 4 million people are eligible for coverage.

The slow enrollment may be due to limited promotion of the programs and a requirement that enrollees must have been uninsured for at least six months to quality for the high-risk pool. People who are already enrolled in a state high-risk pool aren't going to dump their coverage for half a year just to cut premium costs, Scott Bentley, an actuary with Milliman's health practice said. 

Expect public relations problems if the $5 billion in federal funding set aside for the program runs out and people lose coverage.

And perhaps the biggest risk health plans might face if they administer high-risk pools now is that they could end up with more high-risk members even after the state health insurance exchanges--which allow high-risk members to buy coverage without being charged more because of their condition--go live in 2014, because they're already familiar with your plan.

To learn more:

- read the Health Plan Week article

Related Stories:
Sick people can't count on access to high-risk pools
High-risk insurance pools could cost more than $5 billion, report says