High-Risk Pools Chapter 20

2 Insuring the Uninsurable: An Overview of State High-Risk Health Insurance Pools Restrictive eligibility Restrictive eligibility Typically low enrollment Typically low enrollment Premiums are relatively high Premiums are relatively high Often high deductibles and significant copays Often high deductibles and significant copays Lifetime maximums Lifetime maximums Waiting periods Waiting periods Always lose money Always lose money Losses typically paid by premium tax Losses typically paid by premium tax Often treated as a credit against state taxes Often treated as a credit against state taxes Source: Achman and Chollet (2001)

3 Definition and Prevalence “uninsured and who could not work, were limited in the type of work they could do, or received any disability or worker’s compensation”—Frakt Pizer, and Wrobel (2004) “uninsured and who could not work, were limited in the type of work they could do, or received any disability or worker’s compensation”—Frakt Pizer, and Wrobel (2004) CPS data 1995–2001 suggest this definition of the uninsurable constitutes: CPS data 1995–2001 suggest this definition of the uninsurable constitutes: 1 percent of the population 1 percent of the population 6 percent of the uninsured 6 percent of the uninsured

4 State High-Risk Pools 34 states had high-risk pools in states had high-risk pools in 2006 Categories of eligibility: Categories of eligibility: Medically uninsurable Medically uninsurable Turned down for coverage in the private market Turned down for coverage in the private market Quoted premiums sufficiently above standard rates Quoted premiums sufficiently above standard rates Have specific medical conditions—e.g., Hodgkin’s disease Have specific medical conditions—e.g., Hodgkin’s disease Eligible under HIPAA Eligible under HIPAA Coverage of last resort after losing ESHI Coverage of last resort after losing ESHI Medicare beneficiaries Medicare beneficiaries Allows them to buy supplementary coverage Allows them to buy supplementary coverage

5 Examples of Populations Eligible for High-Risk Pool Enrollment, 2001 Medically Uninsurable HIPAA Eligible Medicare Beneficiaries CaliforniaX FloridaXX MinnesotaXXX LouisianaXX WashingtonXX WyomingXXX (DISABLED) Source: Achman and Chollet (2001)

6 Requirements to Prove Uninsurability, 2001 Denied Insurance Quoted Relative to Pool Rate Restrictive Rider CaliforniaX>100% FloridaX(2)>100%X MinnesotaXX LouisianaX(2)>200% WashingtonX>100% WyomingX Source: Achman and Chollet (2001)

7 Source: Frakt, Pizer, and Wrobel (2004, Table 2) Table 20-1:

8 Duration of Coverage In one study of eight state programs, disenrollment ranged from 15 percent to 40 percent In one study of eight state programs, disenrollment ranged from 15 percent to 40 percent Nonpayment of premium was the most frequent reason for disenrollment Nonpayment of premium was the most frequent reason for disenrollment Disenrollment declines with age after age 20 Disenrollment declines with age after age 20 Disenrollment increases with the number of family members Disenrollment increases with the number of family members Source: Stearns and Mroz (1995/96)

9 Coverage Most states offer a variety of coverage options including indemnity and PPOs Most states offer a variety of coverage options including indemnity and PPOs Most have a number of deductible options ranging from $500 to $5,000 and even $10,000 Most have a number of deductible options ranging from $500 to $5,000 and even $10,000 Most have coinsurance features after the deductible is satisfied of 10 to 30 percent Most have coinsurance features after the deductible is satisfied of 10 to 30 percent Virtually all have lifetime maximums Virtually all have lifetime maximums Usually $1 million Usually $1 million Often lower Often lower Plans have 6- to 12-month waiting periods for preexisting conditions Plans have 6- to 12-month waiting periods for preexisting conditions

10 Premiums Are set by legislation Are set by legislation Typically 125 to 150 percent of the average premium for similar coverage of standard-risk individuals in the nongroup market Typically 125 to 150 percent of the average premium for similar coverage of standard-risk individuals in the nongroup market

11 $1,000 Annual Deductible $5,000 Annual Deductible Age 30 Colorado: Male/ Female$3,181/5,404$1,676/2,847 Minnesota2,3131,387 New Hampshire2,4721,596 Texas: Male/ Female4,848/6,5522,544/3,456 Age 50 Colorado: Male/Female12,728/12,5606,706/6,618 Minnesota4,5282,675 New Hampshire6,0963,924 Texas: Male/Female8,736/9,2404,620/4,860 Table 20-2: Selected Annual Premiums for High-Risk Coverage, 2006 Note: Be sure to look at the footnotes to this table in the text (p. 309)— coverage varies. Source: data from healthinsurance.org/riskpoolinfo.html

12 Premium Sensitivity Using the Current Population Survey, Frakt, Prizer, and Wrobel (2004) concluded that a 10 percent increase in the high-risk pool premium would reduce enrollment by 19 percent Using the Current Population Survey, Frakt, Prizer, and Wrobel (2004) concluded that a 10 percent increase in the high-risk pool premium would reduce enrollment by 19 percent If all states with risk pools set their markup at 125 percent of the state’s standard rate (rather than higher) enrollment would increase by roughly 17,500 people, increasing the percentage of the uninsurable with high- risk coverage from 8 percent to 11 percent If all states with risk pools set their markup at 125 percent of the state’s standard rate (rather than higher) enrollment would increase by roughly 17,500 people, increasing the percentage of the uninsurable with high- risk coverage from 8 percent to 11 percent

13 Medical Loss Ratios Even with: Even with: Limited eligibility Limited eligibility Limited coverage Limited coverage Waiting periods Waiting periods High deductibles and coinsurance rates High deductibles and coinsurance rates Relatively high premiums Relatively high premiums The plans still lose money The plans still lose money

14 Source: data from Achman and Chollet (2001) Figure 20-1

15 Paying for Losses Tax health insurers doing business in the state a pro rata share of the losses Tax health insurers doing business in the state a pro rata share of the losses Allow taxed insurers to claim a state income tax credit in the amount of their risk pool assessment Allow taxed insurers to claim a state income tax credit in the amount of their risk pool assessment Pay with general tax dollars Pay with general tax dollars

16 Discussion Questions Some states use gender and region of the state to set rates for their high-risk pool; others do not. What differences across states do you anticipate in the nature of premiums and enrollment based on underwriting rules? Some states use gender and region of the state to set rates for their high-risk pool; others do not. What differences across states do you anticipate in the nature of premiums and enrollment based on underwriting rules?

17 Discussion Questions Suppose a state were to enact a new high-risk pool for its uninsurables. What effects, if any, would you expect to see in the employer- sponsored group market and the individual insurance market in that state as a result of the new program? Suppose a state were to enact a new high-risk pool for its uninsurables. What effects, if any, would you expect to see in the employer- sponsored group market and the individual insurance market in that state as a result of the new program?

18 Discussion Questions All state high-risk pools lose money. Discuss the advantages and disadvantages of three alternative funding mechanisms. All state high-risk pools lose money. Discuss the advantages and disadvantages of three alternative funding mechanisms.