Exploring the deeper ends of the preexisting health risk pools

Whatever happens to the attempts to repeal and replace Obamacare, one issue will continue to dominate the discussion: How do you insure people with preexisting conditions? The Affordable Care Act required that those individuals be covered and not charged higher premiums. That aspect of the law is immensely popular, and making changes to that guarantee is fraught with financial and political danger.

Before the ACA was passed, health insurers charged people with prior medical issues differently from the rest of the insured population.  The argument was those individuals required more health services, making them more costly to cover. 

Indeed, there is a rule of thumb in health care that 20 percent of the population creates 80 percent of the costs.  Breaking it down further, the sickest 50 percent of the population account for 97 percent of the health-care expenses.  

Obviously, insurers prefer insuring the healthiest, low-cost half of the population. They have developed methods to identify members of that group and are able to offer them relatively low-cost insurance.

But what if you fell into the half of the population with health issues? Before Obamacare, insurance companies had the ability to categorize individuals according to their conditions. It allowed them to “price discriminate," or charge higher premiums and deductibles to different groups, according to their perceived expected costs.

Not surprisingly, the drive to find revenue created the incentive to define a risk or condition in the broadest manner possible. Insurers became imaginative.  Some companies even claimed being female was a “preexisting condition.” I guess the reasoning was that women of childbearing years could become pregnant, which would raise insurer payments. 

If you smoked, were overweight, or had one of a long list of other factors, you were charged more. If a preexisting condition was really costly, people often were denied coverage.

To try to cover those who couldn’t get coverage, high-risk pools were created.  These were a dumping ground, insurance of last resort for people who were essentially uninsurable because their expected health-care costs were so high that they could never be covered in a profitable manner.

If you wound up in the high-risk pool, you faced certain restrictions and expenses. There was typically a waiting period, six to 12 months, before coverage began.  There were frequently lifetime limits on coverage, between $1 million and $2 million. There were even maximums placed on annual insurance payments.  And the premiums and deductibles were usually extremely high, unless government subsidies and caps limited the amounts.

The concept behind high-risk pools is that the most costly individuals would be put in them and that the expenses would be distributed among the insured, the health-insurance industry (which really meant those who were paying for insurance), and the government.

However, high-risk pools only spread the costs of insuring those with expensive preexisting conditions. Those costs don’t disappear.

Before Obamacare, there were about 200,000 people in the 35 state high-risk pools that were created and about 100,000 more in a temporary federal preexisting-care insurance pool. It cost about $3 billion a year to subsidize those 300,000 people, or about $10,000 per person. 

In the past, high-risk pools required massive subsidization by government, to keep individual costs from getting out of control. Going forward, that also will be true if they are part of the Republicancare replacement of the ACA.

To offset the high-risk pools’ costs, the latest iteration of Republicancare proposed a subsidy of $8 billion over five years, or $1.6 billion per year.  If the expenses mirror those of the pre-ACA high-risk pools, that would cover about 200,000 people.  Unfortunately, millions could wind up in the pools.

The Kaiser Family Foundation has estimated that it could cost $25 billion per year, or 15 times what has been proposed, to match the ACA's coverage.  That could escalate if the ACA's prescription, hospitalization, and doctor-visit mandates were retained.

High-risk pools don’t ensure those with preexisting conditions will have coverage.  If the federal government doesn’t adequately subsidize the high-risk pools forever, not just for five years, premiums would soar, pricing many with preexisting conditions out of the market. 

And if that's not enough, everyone else could see their insurance costs rise because they would have to pay for those who have massive but now uninsured medical expenses.  

Does that really improve the health-care insurance system?

Apparently, some politicians in Washington believe it does. 

jnaroff@phillynews.com