High risk pools are workable alternative to costly pre-existing condition mandate

Every Republican is campaigning on a theme of “repeal and replace” the Patient Protection and Affordable Care Act, known as ObamaCare; but, given recent comments from some Republicans, maybe it should be “repeal and embrace.”

Their newfound fondness for some ObamaCare mandates is reportedly based on the notion that they’re popular, not because they’re good policy—which is the very worst way to try and regulate the health insurance system. Or anything else, for that matter.

It’s a pattern we have seen before from Republicans with respect to health care legislation—e.g., the Health Insurance Portability and Accountability Act of 1996 and State Children’s Health Insurance Program of 1997, to name two. These Republicans adamantly denounce and oppose liberal Democratic reforms, but eventually embrace a Democratic-lite version and claim it’s the free market approach.

Most costly mandate

Republicans are considering retaining the most costly of the act’s mandates: The requirement that health insurers accept any applicant regardless of health status, known as “guaranteed issue.”

Polls show that most people think that if they’re uninsured and have a pre-existing medical condition they should be able to get health coverage. But that goal can be achieved without the pre-existing condition mandate, which only encourages people to game the system by waiting until they need coverage to get it. That’s one reason Democrats included the individual mandate requiring people to have coverage.

Under guaranteed issue, many people, especially the young and healthy, drop their coverage knowing they can return if they need expensive medical care, leaving the pool very small, very sick and very expensive.

How expensive? When President Bill Clinton and Hillary Clinton attempted to socialize the U.S. health care system in the early 1990s, Democrats in eight states—New Jersey, Massachusetts, Vermont, New York, Maine, New Hampshire, Washington and Kentucky—imposed guaranteed issue without a coverage mandate in their individual market, where individuals buy their own health insurance. That’s essentially what some Republicans are now suggesting. (Note: employer-based group health insurance, which covers 165 million Americans, has been guaranteed issue for years.)

New Jersey was the easiest to track since the state published health insurance premium costs for all of the available policies.

Between 1994, when guaranteed issue went into effect, and 2004 (when a book, “Destroying Health Insurance Markets,” comparing the changes was published), the monthly premium for a Plan D ($500 deductible) family policy sold by Aetna grew from $769 to $6,025 a month; Blue Cross Blue Shield of New Jersey’s family policy rose from $695 to $5,239 a month; and Fortis’s went from $847 to an unbelievable $17,356 a month.

In order to mitigate some of the gaming, some people are suggesting an annual “open season,” which allows people to obtain coverage or switch health insurers during a designated time. The Federal Employees Health Benefits Plan has such an annual open season.

However, the man who used to manage the traditional health plans in the Federal Employees Health Benefits Plan once told me people still gamed the system, even though he did his best to stop it.

What successful states do right

The better solution—and one that most Republicans and many Democrats support—is a state-based high-risk pool. Thirty-five states had already established such pools, covering about 222,000 uninsurable Americans, when the Affordable Care Act was passed.

Strangely, the act actually created a new, mostly redundant, system of high-risk pools until guaranteed issue takes effect in 2014. However, the Obamacare version never attracted the hundreds of thousands of enrollees it predicted—only about 62,000 people are currently enrolled.

The pools provide several health insurance options and usually operate through a state insurer, like the Blue Cross Plan. Premiums are higher than a standard policy, and yet all the pools still lose money. All the pools lose money because these are people with pre-existing medical conditions, some very expensive, and the premiums do not cover the costs. In most states the difference is made up by assessing health insurers, though some states use tax money or lottery income.

Wisconsin and Minnesota are considered two of the best high risk pools, in part because they have allowed premiums in the private sector to remain lower than they otherwise would have been; but pools in Louisiana, Oregon, Utah, Missouri and Montana also work well.

The successful states keep the premiums in the range of 125 percent to 150 percent of a standard premium. They make coverage available to people who have been denied coverage by an insurer, or to those whose premiums would be significantly higher than a standard premium. And successful states don’t put caps on how many people can participate in the pool or on how long they can participate.

By contrast, the high risk pools in Florida, California and Illinois are closed to new entrants because of funding problems. Addressing those issues could be part of the Republican “replace” proposal.

By working with the current state-based high risk pools, Republicans could abandon guaranteed issue while ensuring there is an adequate safety net for those with a pre-existing condition, which would help keep private health insurance pools large and more affordable.

If Republicans embrace guaranteed issue instead, they will also have to impose a coverage mandate, which every Republican denounces, or destroy the individual health insurance market, just as Democrats in those eight states did.