STATE HIGH RISK POOLS HOLD VALUE IN THE ERA OF HEALTH REFORM

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1 STATE HIGH RISK POOLS HOLD VALUE IN THE ERA OF HEALTH REFORM By Lynn R. Gruber President, Minnesota Comprehensive Health Association Chair, NASCHIP Communications Committee (Approved by the National Association of State Comprehensive Health Insurance Plans Board of Directors, November 15, 2007) HEALTH CARE REFORM TALK PERVADES THE LAND From the halls of Congress to nearly every state capitol in the United States, legislative committees and work groups, presidential candidates, universal coverage advocates, individual health insurance mandate promoters, employers, academicians, health policy specialists, free market believers, and state medical societies are debating the topic of the day health care reform. More to the point, the question being debated is How can all Americans have affordable, sufficient, health care coverage? The ambitious goal of assuring affordable health care coverage for all Americans will be hotly discussed, written about, and most likely, incrementally achieved not overnight but over time possibly in the next two to ten years. STATE HIGH RISK POOLS SERVE IMPORTANT SAFETY NET ROLE FOR INDIVIDUAL MARKET In the meantime, 34 state high risk pools for un-insurable persons in the non-group, individual, private market are serving to deliver essential health care benefits to some 200,000 Americans, who have been turned down for individual health insurance policies because of pre-exsiting chronic conditions like diabetes, hypertension, heart disease and even obesity. Essentially, state high risk pools support the existence of an individual market for persons who have no access to employer based group coverage. Insurers selling individual policies of health insurance use underwriting to determine which risks to assume and which risks to cede to the state high risk pools. Those persons rejected, due to high risk conditions, can seek health coverage through the state high risk pool, if they live in one of the 34 states with a pool. The existence of state high risk pools allows sellers of individual coverage to offer affordable rates, to most of their customers. Unfortunately, the flip side of that reality is high risk pools charge premiums that range between 110 percent and 250 percent of the average individual policy sold in the private market. 1

2 However, due to a unified voice before Congress, many of the existing risk pools have lobbied for and received funding to establish low- income premium subsidy programs to make risk pool premiums affordable for many risk pool members. It is the purpose of this article to defend the existing state high risk pools, while recognizing that all risk pools were not created equal, and acknowledging that the issue of affordable premiums must be addressed by those pools whose high premium rates stand as a barrier to health insurance for thousands of Americans. We posit, at the start, two realities. First, state high risk pools are valuable because they support the existence and viability of an individual health insurance market. Today, a competitive, individual health insurance market exists in most of the 50 states. Millions of Americans seek individual health insurance policies because they are: self-employed, college students not covered by parents policies, workers with no access to employer based group health coverage, and early retirees. As long as the individual health insurance market exists and health underwriting is allowed, applicants with high risk conditions will be turned down. Second, if state high risk pool premiums are set too high and there is no federal or state subsidy available to risk pool members, who otherwise cannot afford pool premiums, then state high risk pools are only helpful for all but a small percentage of those needing them. Affordability of health care coverage is the over-arching issue for all forms of private market health insurance, but is a particularly challenging issue for high risk pools. THE AMERICAN INDIVIDUAL HEALTH INSURANCE MARKET To understand where state high- risk pools fit into the continuum of American health coverage options, you need to have a basic understanding of the individual health insurance market. In a recent article in the Market Watch section of the May/June 2007 Health Affairs, Mark V. Pauly and Bradley Herring describe the individual health insurance market. The individual market is extraordinarily untidy, variegated, and malleable The individual market covers a small fraction of those who are privately insured, and it attracts only about a quarter of those without group coverage The individual market has assumed a more prominent place than its current 6 percent share of the privately insured population suggests. It is sometimes proposed as a target for tax credits. Both greater use of and reform in the individual market are at the center of recently passed Massachusetts plan to cover the uninsured. Just as there is much variation among the people who could use the individual market and actual use of it in reality, so there is much variation in policy analysts and policymakers perceptions about whether this market should be encouraged and improved or disparaged and discouraged. 2

3 In November, 2004, the consulting firm of Mercer Oliver Wyman (MOW) produced a high risk pool feasibility study for the state of Florida. (Florida s original risk pool was established in 1983, but due to significant increases in program costs the 1989 Legislature passed legislation to close the pool to new enrollees effective June, 1991.) The authors of the MOW study point out how high risk pools positively impact the premium rates for the commercial market. Additionally, they write: Studies show that maintaining insurance coverage improves both access to health care and health care status. For high-risk individuals access to health care and monitoring is even more important if they are to avoid costly complications associated with their conditions While implementing a high-risk pool will not resolve all the issues associated with access to affordable insurance, it can provide a safety net for those individuals that have the worst conditions. High risk pools are probably the most equitable means of spreading the costs for these individuals across a broad population. Authors Scott Harrington and Tom Miller wrote an intriguing article titled, Competitive Markets for Individual Health Insurance, published in the October 2002 issue of Health Affairs, Web Exclusives. The article begins: The small market share for individual health insurance reflects in part the long standing tax subsidy that favors employment-based group insurance. The existing safety net for the uninsured further reduces incentives to buy individual coverage. Many argue that the supply of individual coverage will remain thin in the face of high administrative-expense ratios and pervasive underwriting/risk selection. However, a closer look at evidence from other types of insurance suggests that sensible policy changes would enable individual coverage to expand efficiently and provide a viable alternative to group coverage for millions more Americans. Authors Harrington and Miller offer three actions to make the individual market more competitive : (1) change tax rules for individual coverage, (2) facilitate the formation of more stable purchasing arrangements to help achieve scale economies and reduce expense ratios, and (3) if necessary, provide targeted assistance to high-risk purchasers instead of attempting to impose cross-subsidies through counterproductive regulation. The authors perspective on assisting high-risk purchasers is particularly appropriate for this NASCHIP position paper. They write: Another necessary element in both deepening and stabilizing the risk pool for individual insurance involves spreading the cost burden of subsidizing high-risk consumers more widely through more generous general revenue support of high risk pools and carriers of last resort. Moving away from regulatory controls that try to limit risk segmentation through rate compression and limits on benefits will attract more low risk buyers and competing insurers to the 3

4 individual market and keep average premiums lower. When insurers are kept from pricing predicted risk appropriately and matching their policy configurations to market demands, they resort to higher uniform prices, risk avoidance, and ultimately, market exit. We should separate support for societal objectives of income redistribution and protection against prohibitively expensive, but predictable, health risks from the competitive operations of commercial insurance markets. Adequately funded high-risk pools can provide affordable coverage for persons with serious, chronic conditions or with more acute illnesses of shorter duration more effectively and at lower costs than do requirements for guaranteed issue and community rating. (Emphasis added by LRG) WHAT ARE STATE HIGH RISK POOLS? Generally, high- risk pools are small health plans created by state legislatures as nonprofit organizations or state/governmental agencies. The high risk pools are commonly called health insurance associations or comprehensive health insurance associations, charged with offering policies of individual health coverage for persons who have been turned down in the private market for individual health insurance due to high risk, chronic conditions. A state high- risk pool is an insurance program with its own benefit plans, premium rates, administration, and management. State law dictates eligibility rules, ranges for premium rates, and funding mechanisms to cover expenses not paid for by premium revenue, such as assessments on health insurers or state appropriations from a state s general fund. Typically, three groups of people are eligible for coverage: Persons rejected for individual health insurance in the commercial market, Persons eligible for individual market portability under HIPPA and, Persons who are qualified for the federal Health Care Tax Credit program due to job displacement related to foreign trade. The 34 operational state high risk pools are found in: Alabama, Alaska, Arkansas, California, Colorado, Connecticut, Florida, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Minnesota, Mississippi, Missouri, Montana, Nebraska, New Hampshire, New Mexico, North Dakota, Oklahoma, Oregon, South Carolina, South Dakoka, Tennessee, Texas, Utah, Washington, West Virginia, Wisconsin, and Wyoming. The North Carolina Legislature passed a high risk pool enabling act in A good source of information on all 34 operational risk pools is the National Association of State Comprehensive Health Insurance Plan s (NASCHIP) book, Comprehensive Health Insurance for High-Risk Individuals: A State by State Analysis, Twenty-First Edition, 2007/2008. (Readers can obtain the book by contacting Leif Associates, Inc. at or ) 4

5 MINNESOTA S HIGH RISK POOL IS MODEL FOR OTHER STATES In 1976, the Minnesota Legislature passed a bill, which authorized the Minnesota Comprehensive Health Association (MCHA). MCHA has served as a model for many other state high- risk pools across the country. Enrollment in MCHA peaked in 1993 at 35,296. As of August 31, 2007, MCHA s enrollment stood at 29,367. The characteristics of Minnesota s high risk pool, which are often cited as effective, are: Non-Profit Minnesota Corporation The MCHA was organized as a non-profit organization, governed by a board of directors that includes health insurance industry representatives, MCHA policyholders, insurance agents and small business. The health insurance industry members tend to be those companies responsible for paying the lion s share of MCHA s assessment for plan expenses not covered by member premium. Under state law, the Commissioner of the Minnesota Department of Commerce is granted broad regulatory authority over MCHA, but does not serve on the Board. Affordable Premium Rates--Rates range between 101% and 125% of average commercial, individual rates in Minnesota. Current rates are at 119% of market. The current premium for an MCHA member who has the $2,000 deductible plan and is in age cell is $ a month; same age member with $1,000 deductible plan pays $ a month. No rate difference exists for gender. Wide spread of deductible plans --(including a high deductible health plan for use with a health savings account) range from $500 deductible to $10,000 deductible which allow affordability shopping according to income, Comprehensive benefits typical plan is the $2,000 deductible plan where pool pays at 80% of an allowed amount, after $2,000 deductible has been paid, until member has paid a total of $3,000 out of pocket expenses in deductible and coinsurance payment. Plan then pays at 100% of allowed amount of charges. Type of benefits covered include: out-patient, in-hospital, prescription drugs, x-rays and laboratory services, organ transplants and after care, cancer screens, mental health and chemical dependency, chiropractic services, childrens preventive services, services for autism spectrum disorders, chemo-therapy, home health care, maternity, hospice (this is not an exhaustive list of benefits), High Lifetime Maximum Benefit recently increased from $2.8 million to $ 5 million. MCHA has numerous examples of people coming from self-insured employer groups who limit lifetime maximum benefits to under $2 million. Stable Non-Premium Funding Source When originally established, in 1976, the Minnesota Legislature created a broad, non-premium funding base by mandating that all health insurers, self-insured plans, and later HMOs and Blue Cross Blue Shield, pay an assessment, based upon market share, to cover 5

6 expenses not covered by plan premium revenue. The emergence of the ERISA law cut the funding base down considerably by exempting commercial selfinsured organizations from paying MCHA s assessment. Today, assessment of all health insurers, HMOs, Blue Cross Blue Shield, and preferred provider organizations produce the funds needed to cover what member premiums do not. While the whittled down assessment base still works, it is a well know fact that the assessment falls on the shoulders of medium sized and small employers and individuals who purchase insured health benefits, who make up about 50% of the health benefits market in Minnesota. MCHA s current assessment process works, but is not as broad-based and fair, as it should be. The MCHA Board has and will continue to work with the Minnesota Legislature to find a broader, more equitable, assessment base. Plan Committment to Care Management Resources All MCHA members are offered a series of care management services to help them be involved in managing their chronic diseases. This is accomplished with disease management services provided for over 30 common chronic diseases, such as diabetes, congested heart failure, and hypertension, and 14 more rare chronic diseases, like rheumatoid arthritis, multiple sclerosis, and Lupus. Case management is provided to members with complicated cases, requiring multiple resource coordination, that are potential for catastrophic expenses. A tobacco cessation program is offered, Health Advantage by Medica a personalized depression management program is available, as is the cost-effective 24/7 Nurse Call Line. Promotion of On-Line Health and Wellness Resources Through its administrator, Minnesota health plan, MEDICA, MCHA members were recently introduced to an Internet Website called My Health Manager from Medica. The resource offers on-line and off-line healthy living activities and information. MCHA members earn quarterly credits for gift cards by completing a series of health and wellness activity options described on the website. Offers Premium Subsidy Program for Low Income Members When federal funding has been available for risk pools to help offset operational expenses and to offer pool members added benefits, MCHA has offered a premium subsidy program for its members at 180% or lower of federal poverty guidelines (2005 and 2006) and at 200% of FPG s for its 2007 program. The MCHA Board supports federal funding to continue this important program. OTHER STATE HIGH RISK POOLS PROVIDE OPPORTUNITY FOR CHRONICALLY ILL TO HAVE HEALTH INSURANCE Not all state high-risk pools look like Minnesota s pool. State politics dictate wide differences in policy relating to funding the pools, which has a direct relation to premium rates, benefits offered, and limiting enrollment or not. And, bigger is not always better as small risk pools can offer more personal services and offer case management and elements of disease management on a much smaller manager to patient ratio. 6

7 Nevertheless, all state high- risk pools serve to ensure that people with chronic illnesses have health insurance. That means some 200,000 Americans insured through risk pools are not forced to file bankruptcy to cover the cost of the $1.6 billion worth of medical claims high risk pools paid in Could state high risk pools be improved? Absolutely. Every one could serve more people at more affordable rates, with more comprehensive benefits and resources to produce more personal responsibility and coaching to help manage chronic diseases. Changes to state high risk pools are discussed and determined through the legislative process. Typically, it always comes down to the money. Who will pay for change? CONCLUSION In this new era of health reform, state high risk pools need to be at the table to discuss whether or not state or federal subsidies can or should be used to benefit members of high risk pools, or to determine some larger role for the pools, or to determine how to achieve universal coverage, where no one is turned down for health coverage, and the need for high risk pools is moot. For now, state high risk pools need to ensure that some 200,000 Americans, with one or more chronic diseases, are safe, with a health insurance policy that will protect them until health policy reformers in each state agree on a better way. 7