GOP will fix health insurance with high-risk pools

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House Speaker Paul Ryan waves insurance-premium statistics while calling for a replacement of Obamacare this year.

By Sally C. Pipes

Congressional Republicans are counting the days until Donald Trump assumes the Oval Office - and they can finally give voters what they asked for on Nov. 8: a repeal and replacement of Obamacare.

Democrats claim that repeal will jeopardize the ability of those with preexisting conditions to access affordable health care. Senate Minority Leader Charles E. Schumer (D., N.Y.) and House Minority Leader Nancy Pelosi (D., Calif.) are even promoting a new catchphrase, claiming that Trump will "Make America Sick Again."

Hardly. The GOP's replacement plan will provide affordable coverage to those with preexisting conditions - without destroying the insurance market and driving up premiums for everyone else.

It will do so by seeding a robust network of state-based, high-risk insurance pools with billions in federal funding.

High-risk pools are insurance plans created to cover individuals who are otherwise uninsurable because of a costly health condition. Government subsidies help keep premiums affordable for eligible individuals.

Meanwhile, by separating out the costliest patients, high-risk pools drive down premiums in the rest of insurance market.

Under House Speaker Paul Ryan's replacement plan for Obamacare, the federal government would provide $25 billion in funding for high-risk pools over a decade.

There's evidence from the states that this approach works.

Prior to Obamacare, some 35 states had high-risk pools. Perhaps the most successful was Minnesota's, established in 1977. A 2008 study concluded that the pool - called the Minnesota Comprehensive Health Association - "helped stabilize the private individual insurance market in the state," provided "guaranteed coverage in the individual market," and could serve as a model for other states.

Minnesota's high-risk pool offered remarkably affordable coverage, especially by the standards of Obamacare. In 2008, a 30-year-old nonsmoker could buy a plan in the high-risk pool with a $5,000 deductible for a $130 monthly premium.

Premiums in the conventional market were just as low. As recently as 2013, the median price for a $5,000 deductible plan was just $128 a month. High-deductible plans were available for as little as $57 a month.

Fast forward to today.

Obamacare dismantled Minnesota's high-risk pool, flooding the individual market with some of the state's sickest patients. The new federal law required insurers to cover these high-risk individuals - and to charge them no more than three times what they charged anyone else. Obamacare also imposed a raft of new taxes, fees, and mandates on insurers, driving up insurance costs even further.

The result? Minnesota's individual market is now on the brink of collapse. Premiums for the state's exchange plans rose 59 percent this year. Amid massive financial losses, insurers - including the state's largest, Blue Cross Blue Shield - are abandoning the marketplace.

Today, the cheapest exchange policy available is an HMO plan with a $6,950 deductible and premiums of $268 a month.

In other words, insurance for a healthy Minnesotan under Obamacare costs more than twice as much as it once did for a patient with a preexisting condition in the state's high-risk pool.

If the goal is to expand access to affordable coverage to all who need it - regardless of health status - then high-risk pools have a far better track record of doing so than Obamacare.

Lawmakers in Alaska have already embraced high-risk pools as a cost-effective strategy for insuring sick patients. In June, the state passed a plan for covering about 500 of its sickest residents in a separate pool.

The reform has already delivered results. Before the high-risk pool came into being, the state was facing premium hikes of nearly 40 percent in the individual market this year. But thanks to the program, premiums in the general market increased by only 7.3 percent.

Obamacare's guarantee of coverage to all comers, regardless of health status, may have been politically popular. But as a policy for providing affordable coverage, it's been a disaster. By supporting state-based high-risk pools, the GOP would be replacing a failed policy with one that works.

Sally C. Pipes is president, CEO, and Thomas W. Smith fellow in health care policy at the Pacific Research Institute, and author of "The Way Out of Obamacare." @sallypipes