At least 18 states - AL, DE, FL, GA, HI, ID, IN, LA, MN, MS, ND, NE, NV, SC, TN, TX, WY, and VA - have told Health and Human Services (HHS) Secretary Kathleen Sebelius they will not participate in ObamaCare's temporary high risk pool program. Friday, April 30, 2010, was the deadline for states to notify HHS if they would participate or turn to HHS to run it.
The cost to run the program and new bureaucracy are some of the reasons why several states chose not to participate in the program. As a result, Sec. Sebelius and HHS will have to run the program in at least 18 states. For example:
Texas: "...the state of Texas cannot today commit to operating the new high-risk pool due to the lack of program rules or reliable federal funding."
Virginia: "Virginia has estimated that the funding available...will not cover costs of the program beyond 22 months."
Wyoming: "...the state's involvement would be an unnecessary addition to the process that could result in redundant administrative costs and unnecessary delays in the implementation process."
Background on Existing High Risk Pools
Currently, 35 states have high risk pools that provide a health insurance option for some Americans. In 2008 (the last year data was available), about 200,000 people had coverage in one of the 35 high risk pools.
High Risk Pool Enrollees: Most of the people who get their health insurance through a high risk pool are people who can't qualify for health insurance in the individual market or have a preexisting condition that automatically qualifies them for coverage. The remaining enrollees are HIPAA eligibles-people who left their employer's plan and chose and exhausted COBRA-and Health Care Tax Credit (HCTC) recipients-those who lost their job due to a trade agreement with another country.
High Risk Pool Funding: People who get health insurance through a high risk pool pay a premium for their policy. Since this population spends more on health care and utilizes the system more than others, the premiums aren't enough to cover their medical bills. On average, the premiums fund approximately 54 percent of a high risk pool's costs, so the pools turn to a variety of other sources to fund the remaining costs. Most states assess the insurance companies operating in a state based on each company's market share in that state. Other states receive a general fund allocation from their state's budget or another funding source.
In addition, Congress has appropriated more than $300 million for state high risk pools since 2002.
ObamaCare's Temporary High Risk Pools
The federal government is providing $5 billion in funding for temporary high risk pools until January 1, 2014, before ObamaCare imposes an individual mandate, guaranteed issue, and price controls on health insurance buyers. HHS will distribute this $5 billion using a formula that is similar to the current formula to distribute money under Children's Health Insurance Plan (CHIP). The funds would be distributed based on the state's nonelderly population, its nonelderly uninsured population, and its geographic cost.
Eligibility: To qualify for health insurance in ObamaCare's temporary high risk pools, enrollees must be a U.S. citizen, be a national, or be here legally. In addition, they cannot have had creditable coverage during the previous six-months before applying for high risk pool coverage. Also, people with a preexisting condition, as defined by the Secretary Sebelius, will qualify for coverage automatically.
To fulfill this provision of the law, a state may use an existing high risk pool or allow HHS to run the program for their state. Under this scenario, HHS can create a temporary high risk pool in a state where one doesn't exist or contract directly with a nonprofit organization in the state.
Coverage: The health insurance plan offered under the temporary high risk pool provision must cover preexisting conditions immediately and with mandated $5,900 out-of-pocket maximums for individuals and $11,900 for families. In addition, premiums paid by enrollees in high risk pools must be standard rates and cannot vary by age by more than 4:1.
Issues of Concern
The temporary high risk pool may cause a number of problems for the states, including:
Will people be able to afford the coverage?: The enrollees in the temporary risk pool will face the same obstacles that the rest of the individual market, including customers in existing high risk pools, faces currently. For example, they do not get a tax break, they do not have an employer that pays a large portion of the cost, and they are forced to buy a policy with benefits they may or may not want or need. By comparison, someone who gets health insurance offered through an employer gets it completely tax-free, has an employer that pays a large part of the cost, and can probably escape some of the state mandated benefits. ObamaCare's temporary high risk pool does not remove any of these obstacles.
In addition, requiring full coverage of preexisting conditions immediately will cause health insurance premiums to increase. For instance, CBO has concluded that health insurance under ObamaCare will cost more than $2,100 a year more due, in part, to the requirement that insurance companies cover preexisting conditions.
Is $5 billon enough?: What happens if the $5 billion runs out? Several states that chose not to participate in ObamaCare's temporary high risk pool cited additional costs as the main reason. Even prior to passing this bill, the Centers for Medicare & Medicaid Services (CMS) said the high risk pool funding was insufficient. In a new analysis of ObamaCare, President Obama's chief actuary warned: "By 2011 and 2012, the initial $5 billion in Federal funding for this program would be exhausted, resulting in substantial premium increases to sustain the program; we anticipate that such increase would limit further participation."
If rates are better for new high risk pool enrollees, is it fair to those in existing high risk pools?: Most existing high risk pools customers are paying prices that are higher than the standard rates. (Currently, 12 states discount rates based on the enrollee's income.) Since ObamaCare's temporary high risk pool requires standard individual market prices, some new enrollees may pay less for their coverage than enrollees in an existing high risk pool.
Will people be covered on June 24, 2010?: ObamaCare says that the high risk pools have to be established no later than 90 days after the date of enactment. The bill was signed on March 23, 2010, so high risk pools must be "established" by June 23, 2010. "Establishing" a high risk pool is much different than being open for business. By June 24, 2010, the high risk pools will have to design a product, price it, market it, build a computer system to administer claims, and set up reimbursement rates, so potential customers can buy a health insurance product.
The Republican Alternative
The Republican alternative to ObamaCare provided $25 billion for existing high risk pools with the savings from other reforms to lower the cost of health care. Unlike ObamaCare's high risk pool plan, the Republican plan doesn't require the states to sign a contract with federal government before participating in the program. Since 2002, when the federal government provided funding initially, CMS has distributed more than $300 million under a grant program for high risk pools. The Republican plan would continue that business model and continue to work with the states through a successful grant program.
Contact: Brian McManus - 202-225-2045