Prepared by Bruce Abbe, Vice President of Public Affairs,
Communicating for Agriculture & the Self-Employed
Board Member, National Association of State Comprehensive Health Insurance Programs
Editor: “Comprehensive Health Insurance for High-Risk Individuals - a State-by-State Analysis”
Risk pools are -
* Special state health insurance programs, established by state legislatures, that serve as a safety net guarantee of access to health insurance for people with pre-existing, high-risk, health conditions.
- Risk pools serve people who -
* are denied coverage in private market due to a pre-existing condition,
* or who are eligible for portability under HIPAA (most states)
* or who can only access insurance at rates higher than pool (some states)
* other special cases
* Risk pools largely serve people who are self-employed, or who work for businesses that don’t offer insurance, unemployed, early retirees, young people leaving their parents’ family coverage.
* People in the individual market — who often have chronic illnesses. Cancer, diabetes, heart and lung diseases, AIDS, HIV, alzheimers, cerebral palsy, cystic fibrosis, parkinson’s, sickle cell anemia, MS. Any of the full range of chronic diseases. The disabled.
* Generally middle class, working Americans who want to buy insurance but can’t otherwise.
* People who were in employer group plans but hit maximum benefit levels of the plan and now come to the risk pool for continued coverage.
* People likely facing major health care expenses… who have an acute need for insurance… who, without it, could potentially be bankrupted by their illness.
States that have Risk Pools –
* First state risk pools established 26 years ago (Minnesota, Connecticut)
* 32 states now have established or are establishing high-risk health insurance pools
(* When Idaho’s High Risk Reinsurance Pool, close related to traditional risk pools, is included, the total is 33).
Alabama*
California
Florida*
Iowa
Kentucky
Mississippi
Nebraska
North Dakota
South Carolina
Utah
Wyoming
Alaska
Colorado
Illinois
Kansas
Maryland
Missouri
New Hampshire
Oklahoma
South Dakota*
Washington
Arkansas
Connecticut
Indiana
Louisiana
Minnesota
Montana
New Mexico
Oregon
Texas
West Virginia (July 2005 star-up)
Wisconsin
* 29 of the 32 currently operating pools are open year-around accepting all eligible new enrollees.
* 1 is closed for new enrollees - Florida - has been since 1991.
* Louisiana and Illinois have caps on new enrollees due to funding limitations. In Illinois and Louisiana this waiting list is on their regular pools (Louisiana and Illinois HIPAA pools are continuously open.)
* * Alabama - for HIPAA eligibles only. South Dakota is for portability only for anyone with 12 months of prior creditable coverage
* Idaho’s High Risk Reinsurance Pool has many of the same characteristics of a traditional pool with standard coverage and costs, but functions in a guarantee issue environment. All individual carriers in the state offer four plans that are part of the special reinsurance pool that serves high risk individuals. The coverage and cost is the same for all within those plans and the program is subsidized similar to a traditional pool.
- HIPAA portability and risk pools - 28 of the 33 states currently have chosen to use their risk pool as their alternative mechanism for portability.
Latest Statistics (reported by all risk pools for CA directory, June 2004) -
* Total enrollment in all (then 32) operating state risk pools reported - 181,441.
o Enrollment grew by 5 % from year earlier.
o Combined total claims for 2003 grew by 20.9 % to $1,258,789,054.
o Total premiums earned were up 24.3% to $793,545, 922.
o Total administration costs reported was $74,559,415, up 14.3 percent.
* All risk pools inherently lose money, must be subsidized.
* Premiums are somewhat higher than comparable private insurance, designed to not compete with the private market. But pools all have caps on premiums set by legislation to protect consumers.
o Most are 125% to 150% of average for comparable individual market coverage.
o NAIC model legislation- calls for 125% initial, not higher than 200% of average.
o Varies by state — lower premium cost =greater enrollment, more people served.
* Seven states have started low income premium subsidy programs - Wisconsin, Connecticut, New Mexico, Oregon, Colorado, Washington, Montana. More would like to but lack funding to do so.
* Rough average - premiums pay for 55 to 59% of operational costs (varies by state).
* Total deficit/subsidy requirements for all pools in 2003 (claims + admin - premiums earned) - $539,802,547 up 15.2 percent from a year earlier.
* Total subsidy requirements for pools in 2005 and future - likely will go up 10 to 15% per year.
Growth is due to several factors:
o New state pools going into operation
o More rapid growth of newer established pools, until they become mature in the market
o Health care cost inflation (same as for all insurance plans)
o Withdrawal of insurance companies from markets
o Termination of employer group plans
* Yet, overall, the cost of state high-risk pools is still very small in comparison to the size of overall health insurance system Æ’ and in comparison to the benefits risk pools provide by guaranteeing access for everyone in a state and spreading the risk of insuring high cost individuals on a more predictable, manageable basis for insurers. The are a bargain for the overall benefit they provide.
Funding is the Critical Issue for State Risk Pools-
Funding of risk pool subsidies is THE key issue faced by states considering establishing a new risk pool, for states with existing programs, and for any efforts to enhance coverage.
* Federal law — ERISA - complicates attaining equitable funding of subsidy/losses by entire insurance industry through carrier assessments. This is a major hindrance for states considering establishing a pool.
* Risk pools being looked upon to serve additional needs - portability option for individual market under HIPAA; option for new TAA coverage for states.
* Risk pools by design are special access guarantee programs that provide a means for the insurance industry to function better - to provide a means for the high risk high cost individuals to have insurance coverage - and to broadly spread the cost of doing so. But the federal government, (except for small funding grants in 2003-2004) does not contribute to the funding of pools, yet its rules limit the states’ ability to establish fair means for requiring the industry to fund the programs.
Current Risk Pool Funding Methods:
1. Assessment of insurance carriers, HMOs operating in the state based on the amount of business they do.
* 27 state risk pools use some kind of an assessment of carriers. (28 with Idaho, which combines state funding and assessments for losses).
2. Assessment of insurance carriers, HMOs coupled with a full or partial tax credit offset provided against premium taxes paid by the carriers (i.e. state pays)
* 11 of the 27 states allow a premium tax credit — Alabama, Arkansas, Indiana, Iowa, Kansas, Missouri, Montana, New Mexico, North Dakota, South Carolina, Wyoming
* 2 of those states - Wyoming - puts a cap on the total amount of premium tax credit that can be allowed ($2.5 million) to protect state budget. South Carolina — $10 million cap on credit.
* 3 of those states allow only a partial tax credit: Kansas - 80% tax credit, Wyoming - (80% tax credit on first $1.25 million, 50% on second $1.25 million, none thereafter), New Mexico - 30% tax credit.
3. Assessment of insurance carriers with no tax offset (i.e. insurance industry pays)
* 11 states - Alaska, Connecticut, Florida, Idaho, Illinois (only for its HIPAA pool), Kentucky (partial funding source), Louisiana (only for its HIPAA pool), Minnesota, Oklahoma, Texas, Washington.
4. Broader assessment of commercial insurance carriers, stop-loss, reinsurance carriers, TPA’s on a per person/per month basis - (possible indirect pass-on to self-insured plans that otherwise escape their share in funding, for lower assessment per carrier).
* 5 states - Oregon, Colorado, New Hampshire, Mississippi, South Dakota (partial, limited, combined with state funds), plus Indiana (also listed above, which provides partial tax credit) and Washington (which assesses per person but at different levels for fully insured and stop-loss carriers).
5. Broader assessment - using surcharge on hospital bills - (also possible indirect pass-on to self- insured plans).
* Currently two states - Maryland, West Virginia.
6. General revenue or other special dedication of state funds.
* Utah - general revenue appropriation.
* California - set appropriation, $40 million, from the state tobacco tax fund (has been inadequate to meet demand. Pool enrollment was forced to be capped. California now switching to plan similar to Iowa - initial access for uninsurables, with portability G.I. out later on.)
* Illinois, Louisiana - general revenue appropriation for regular risk pool. Assessment of carriers for sister HIPAA pool.
* Nebraska - losses paid direct from insurance premium tax revenues collected by D.O.I. Idaho also designates a portion of insurance premium revenues for its pool.
* Kentucky - combination - assessment of carriers for up to 1 percent of all health premiums, plus funds from the tobacco settlement funds to the state .
* Reality - state budget problems are so severe now, prospects of new state funding for risk pool deficits are slim. Some form of assessments are likely for new states.
* Federal shared funding -is needed and will be important for continued operation of state risk pools if they are to be open and providing affordable coverage for the uninsurable population. Especially important if the federal government adopts programs that send more people to high risk pools.
Risk pools are considered a stabilizing force for the individual market today.
* - Increasingly seen as the preferred approach to guaranteeing access to coverage by insurance industry (not always the case in the past).
* - Compared to guarantee issue…(seen as adding more unmanageable risk across an entire fragile market by many carriers)….
…The basic concept of a risk pool is to establish a small, confined program for the known, highest cost new business…..subsidize the program …and spread the risk broadly on a more even, predictable basis. Reduced risk = more competitive market, more manageable costs.
Risk pools’ role in addressing the Uninsured crisis –
1. Risk pools are not intended to solve the “uninsured” issue. (That is an issue of affordability compared to income. Social issue for government to address.)
2. Risk pools are intended to address the “access” issue. (Very important for the people who are in pools, have acute need for insurance.)
3. Risk pools play a role in making the individual market work better. And making the individual market work better will be important for addressing the uninsured.
Other Recent Developments –
1. First ever federal funding of risk pools was approved in 2002 (part of TAA legislation), implemented in 2003 and 2004 only -
* $20 million start-up grants up to $1 million for states establishing new pools.
* $40 million available for matching funding for operational costs of existing “qualified” risk pools in each of FY 2003, and 2004
o Total operational grants were less than 10 percent of combined losses those years.
2. Bipartisan legislation introduced in Congress in 2005 calling for extending and providing additional federal funding for more years.
* Extending the years from 2005 through 2009.
* Raises the amount of federal matching funding for losses from $40 million to $75 million per year.
* Changes distribution method to be based on number of enrollees in each qualified risk pool. Renews start-up funding grant assistance for new states.
3. TAA Legislation also included first targeted refundable tax credits for health insurance coverage - the federal Health Care Tax Credit (HCTC).
* 65% tax credit for insurance premiums for workers who lose jobs due to trade agreements, and pension benefit guarantee program individuals.
* Can be used for 10 different coverage options.
o Three options already exist
+ COBRA coverage
+ spousal coverage if employer pays less than 50% of premium
+ individual coverage, only if eligible individual already had the individual coverage for 30 days prior to losing job
* States have 7 other options they can choose to make available for eligible individuals. States can choose more than one option, or no option. Risk pools are one option.
* As of July, 2004, 37 states had approved insurance plans to accept the HCTC.
* More than 15 state risk pools were among those HCTC acceptance plans.
4. First Federal Funding of State Pool Low-Income Premium Subsidy Program
* Montana awarded special federal pilot grant for $1.25 million to subsidize premiums for people with incomes less than 150% of poverty in the Montana Comprehensive Health Association. Reduces premium by 50% during pre-ex waiting period, 40% afterward. Needs additional legislative funding for future years.
* Much interest by pools in expanding federal funding so that more low income, uninsurable people can be able to afford the higher cost of state risk pool coverage. However, not currently pending in legislation.
* Funding needs to provide for subsidizing the premiums for the individuals, and for the additional losses/deficits that would occur for each risk pool.
5. First Integrated Care/Disease Management Programs Established by Risk Pools
* CoverColorado launches integrated disease management/care management program for members (voluntary participation) with asthma, diabetes, congestive heart failure, coronary artery disease. Joint program with McKesson Health Solutions and CMS Health Integrated.
* Washington, Arkansas, Kansas, Oklahoma risk pools also have joined program.
* The five states have formed the Advanced Care Management Task Force to analyze data and outcomes from program. Other state risk pools are also moving to establish disease management programs for their members with certain chronic illnesses
* Project looked upon with much interest and promise for improved cost and care management for people with high-cost chronic illnesses. No current public funding for this pilot project.
* More than 15 state risk pools now report having some kind of comprehensive disease management program.
For more information:
Contact:
* Bruce Abbe, Communicating for Agriculture and the Self-Employed Ph. (952) 746-6612
* CA’s website - www.selfemployedcountry.org
* National Association of State Comprehensive Health Insurance Plans (NASCHIP) website- www.naschip.org