What You Need to Know About High-Risk Insurance Pools

Apr 25, 2017

High-risk health insurance pools are back in the news after it was reported House Republicans are considering making them a component of their plan to repeal and replace the Affordable Care Act.

The GOP is toying with the idea of allowing states to seek a waiver to the ACA's prohibition on charging sick people higher premiums if the states set up high-risk pools. Insurers would still be prohibited from denying people coverage outright, but they would be able to jack up premiums for people with a range of conditions and illnesses, effectively pricing them out of the individual market. Instead, people with pre-existing conditions—which ran the gamut, from cancer to high blood pressure, in the pre-ACA days—would be segregated into "high-risk pools."

Many states had these pools in place before the passage of the ACA, and research showed that they did not keep costs down. So what exactly are high-risk pools, and why didn't they work before? Here's what you need to know.

What Are High-Risk Pools?

Before the ACA, as much as 50% of the non-elderly population had a pre-existing medical condition that would have allowed insurers to deny them health insurance coverage or charge them significantly more (that percentage is much greater for people over 55).

As a result, 35 states created high-risk pools for the hundreds of thousands of "uninsurable" people, which are essentially separate health care markets for the sickest Americans. They were subsidized by fees assessed on insurance companies plus some state and federal taxes -- but the plans generally still had significantly higher premiums than plans offered on the individual market.

The ACA's individual mandate and community rating provision, which prohibits insurers from charging people more for coverage based on health status, age, and race, largely led to the dissolution of high-risk pools, which has benefitted people with pre-existing conditions enormously.

Who Benefits from High-Risk Pools?

The case for this coverage, as a 2011 study from the American Journal of Public Health contends, is that it stabilizes the individual market by decreasing costs for the general, healthier population. In other words, healthy (young) people pay less in one health insurance pool, while those who are sick or insurance companies deem are more likely to get sick pay more in a separate pool.

Another winner in these scenarios: the insurance companies, which will be able to charge higher prices to sick people.

Why They're Problematic

The obvious issue with pooling only the sickest people in a separate market is that there are no healthy people to offset costs, leading to exorbitantly high premiums and deductibles for people with pre-existing conditions.

In fact, high-risk pool premiums were 125% to 200% of average premiums in the individual market, while deductibles soared as high as $10,000 per year (the current cap is $7,500 for catastrophic plans on the marketplace).

The vast majority of states imposed lifetime limits on coverage, while others had yearly coverage limits of just $75,000 per year (both annual and lifetime caps are banned by the ACA), and the plans were also skimpier than those in the individual market. For those with chronic conditions, this is particularly burdensome.

It also turned out that, in practice, high-risk pools didn't really bring down costs for the so-called healthy people. According to the Commonwealth Fund, around 60% of people shopping in the individual market still couldn't find a plan they could afford, even with the sickest people in separate pools.

Finally, the ability for insurance companies to discriminate against people with pre-existing conditions led some people to apply for disability, thus shifting costs to taxpayers. And many other people were waitlisted because the pools were underfunded, or simply went without insurance altogether.

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