Invisible High-Risk Pools

Five people waiting in waiting roomThere has been some discussions about invisible high-risk pools. That is a condition where the state assumes responsibility for some subset of sick enrollees’ high claims cost. For instance, Alaska began subsidizing the cost for a few individuals so the remaining 25,000 Alaska Obamacare enrollees would not be priced out of the market.

The state is trying to stop the adverse selection death spiral where healthy folks drop coverage and flee the high premiums caused by the small number of very sick individuals. Maine also used a form of invisible risk pools when it began transitioning away from a strict community-rating / guaranteed issue requirements in 2011, that about destroyed its individual health insurance market.

The following excerpt is from Health Affairs Blog:

Maine’s Fix: An Invisible High-Risk Pool and Expanded Age Band Reforms

In 2011, Maine enacted major changes to address its struggling insurance market. Public Law 90 was designed to improve the market using free-market principles and the lessons learned are important for policymakers as they work to unwind the ACA and reshape insurance regulations.

The first thing Maine did was establish an invisible high-risk pool for individual insurance applicants with pre-existing conditions. In practice, it functioned like a hybrid of a reinsurance program and a high-risk pool. It operated like a reinsurance program in that it helped cover claim costs for individuals with high medical claims in the market. It operated like a high-risk pool in that it only targeted a subset of individuals based on specific conditions. However, unlike “traditional” high-risk pools Maine’s program did not remove individuals with pre-existing conditions out of the traditional market or charge them higher premiums.

Secondly, the state expanded rating bands from 1.5-to-1 to 3-to-1, the maximum allowed under the ACA. (Unfortunately, further changes were not possible within the framework of the ACA.)

It was the combination of these reforms—an invisible high-risk pool and expanded age rating bands—that produced positive results by lowering premiums and attracting younger and healthier people to purchase insurance.

It is important to note that lower premiums were not the result of changes to existing requirements that insurers offer coverage year-round to anyone regardless of health status, prohibitions of rating premiums based on health status or sex, or changes to any required benefit mandates.

This experiment illustrates that Republicans have numerous tools and states have many ways to experiment to make their insurance markets less dysfunctional. I have talked to numerous people who have dropped their coverage (withholding, say, $4,000, $5,000 or $6,000 from the risk pool) because they believe paying that much for a health plan that covers none of their medical bills is a sham.

The results in Maine were that young peoples’ premiums fell by about $5,000, while those much older saw their premiums fall even more.

Comments (25)

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  1. Paul Nelson says:

    AKA, stop-loss reinsurance of the future: 1)Patient (Based on disposable income) – $0 to $5,000; 2)Provider risk pool – $50,000; 3) Plan-$100,000; 4) state-$500,000; 5)Federal-$2 million. Use for all payers.

  2. Allan says:

    Devon, who paid for the reinsurance? It sounds like they are doing what I have suggested several times previously. Keep some of the high risk patients in the ordinary insurance pool and let subsidies (not paid by the insured) help them remain insured like everyone else.

    There are many ways of doing this and reinsurance is just one way. The trick is to keep the vast majority of people in a free market pool to keep premiums down and subsidize the rest with the least intervention in the free market. (Hayek)

    • Devon Herrick says:

      There have been discussions going back to the Nixon Administration about having the government cover all costs above, say, $50,000. My concern has always been that if the government covers all bills above $50,000, in the future there will be more and more medical bills above $50,000. There would have to be some parameters. These should include mandatory care coordination, utilization review and some other factors that would alleviate the problems with hospitals’ moral hazard.

      • Paul Nelson says:

        The notion of shared risk should apply: Citizen, primary healthcare, complex healthcare (specialists/hospital), plan, state, and Federal government. If you really want to focus this risk process, the Primary Healthcare should be capitated (but adequately funded). The main benefit might take 2-3 years to evolve as the stability of each citizen’s healthcare receives better attention. Thus, when a person’s health becomes severely unstable, it is not magnified by the person’s preceding marginal health. In effect, with a change to sequentially evolving severely unstable health, the rate of cost worsening could be controlled better. There currently is no incentive for Primary Healthcare to do this, since there is no possible revenue stream to fund it. Think “Power Law Distribution Curve” model.

      • Allan says:

        Devon, I fully agree. That is the problem when politics enters the coverage market and replaces the free market.

  3. Bob Hertz says:

    Devon is right. Let’s use the number $50,000 as the point where government covers all claims.

    Today the price for a knee replacement is $40,000, but the hospital and doctors rarely collect $40,000 — insurers balk, patients do not pay their deductible, etc.

    If the hospital raised its price to $70,000, it would collect $20,000 for sure from government, and some good portion of the last $50,000.

    I realize that this is a crude illustration, but I think that fee setting can work like this.

  4. Z Woof says:

    Ron Greiner used to write about the “Pain in Maine” here at the NCPA blog before Canadian Dr. John Graham had him banned for exercising his American FREEDOM of speech. Lucky that I am licensed to sell insurance in Maine too so I can only guess what tax-free HSA expert Ron Greiner would say about this post. Something like:

    A 30-year-old male in the Portland, Maine zip code of 04019 can get HSA Qualifying health insurance ($5,000 deductible then 100% coverage) for $230.51 a quarter or $922.04 per year. If his employer deposits $3,400 in his tax-free HSA he saves $999.60 in taxes! Because Ron is always closing he then would say, “Who is so broke they can’t afford to save $77.56? (Background: $30,000 MAGI and 15% Federal Income Tax, 6.75% Maine Income Tax + 7.65% Payroll Tax = 29.4% taxation)

    NCPA BLOG NEWSFLASH: President Trump and Secretary Tom Price have chosen our trusted and accomplished colleague, John R. Graham, to lead the Division of Planning and Evaluation at the U.S. Department of Health & Human Services.

    Ron Greiner emailed me and told me what his wife Pam said when she learned of Dr. John Graham’s appointment at HHS. RG said he told Pam, “John says that us insurance agents are interested in making high commissions.” Pam, who is really smart and DAR, just rolled her eyes and said, “John is a Canadian Central Planning Bean Counter who has no respect for the sales force.” Pam was the VOICE in all of the tax-free MSA radio commercials that played between 1996 and 2003 on Rush Limbaugh in IOWA, DETROIT, PITTSBURGH and TAMPA BAY and a few other selected markets:

    Pam’s VOICE is so clear when she screams, “Stop wasting our tax dollars!” OR – “PROPAGANDA says employer-based insurance is less than individual – NOT TRUE!” Steve Brown, “Don’t be lulled by Propaganda. – TAXING every dollar saved for retirement is wrong!” PAM – “Trickle-Down saved by citizens in tax-free MSAs is RIGHT! – President Bush wants MSAs for ALL. If you’re self-employed you can start TODAY, go tax free with an MSA at…..”

    Lee Benham is going to freak Devon. President Trump says hire American and then he hires a Canadian Bean Counter. It seems the only people you can trust anymore are the salesmen. I have a NEWSFLASH for John, Pam has done 1000% more in making HSAs available for all Americans than he did. I could have said 1,000,000% more.

    • Allan says:

      Z Woof, I note the harsh rhetoric against John Graham. I assume each and everyone of us might have some difference of opinion with him or anyone else, but I wouldn’t expect any of us to agree entirely. I look for logic and principled agreement.

      I noted that on the Daily Caller there was a video of Graham’s testimony. http://dailycaller.com/2017/04/05/trump-admin-appoints-healthcare-reform-expert-to-hhs-amidst-obamacare-negotiations/

      It’s very clear where he stands on those positions and others. Perhaps you would like to review that 2 minute video and let us know what you think about those statements. I so happen to mostly agree with the comments John Graham made.

      • Z Woof says:

        John inserts his magical continuous coverage which means nothing in the real world. I don’t say – OH! you have a low quality HMO with skinny provider networks that pays NOTHING if you go out-of-network and NOW you want that $800,000 liver transplant in 60 days so let me hurry and enroll you on my PPO which includes your transplant physician and hospital so you can start your pre-authorization calls. Would you like to pay your 1st month premium of $100 by check EFT or by credit card?

        In the real world!

        https://www.youtube.com/watch?v=3mKkTm38w3E

        • Allan says:

          In otherwords you agree with the points made by Graham in the video.

          I can’t figure out what you are talking about in your latest comment.

          • Lee Benham says:

            Its hard to follow the insanity sometimes. What I think he is saying is Graham has talked about continues coverage. Moving from one plan to another with out evidence of insurability as long as they had coverage in force without a lapse. that would allow people to switch from a HMO with a high deductible to a PPO with a lower deductible after they are diagnosed.

            Carriers will still use policy forms to drive up costs on the pools of people who become sick. I would look for a way to allow the people to move from the old policy form to the new policy form within the same company at the same coverage level.

            • Allan says:

              We all refer to continuous coverage. The question is, was Graham permitting a newly discovered high risk to switch insurers without paying a price? There are ways to manage that type of problem and you have mentioned one of them.

            • Z Woof says:

              Lee, what do you mean insanity? I didn’t say anything about deductibles. I was clear that an HMO pays NOTHING and the PPO, with the same deductible, would be on the hook for $800,000 with a single premium payment of $100. It makes no difference if the consumer had insurance so he qualifies for this phony CONTINUOUS COVERAGE scam job.

              PLEASE explain what was the INSANITY in my comment, good luck.

        • Allan says:

          Z Woof, continuous coverage is a desire we all want, but there are some roadblocks. John doesn’t have a perfect solution, but, neither do you.

  5. Lee Benham says:

    Congrats Dr. Graham,
    I would ask that your first task to be never let Emanuel anywhere near Washington ever ever ever again.

  6. Lee Benham says:

    All the media channels are Talking about high risk pools right now. They don’t have a clue what they mean but they are saying they will help lower health insurance premiums.

    How long will it take the left wing media to figure out high risk pools means underwriting of individual plans?

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