High-risk pools go live but funds will die out

June 1, 2010

Although the most revolutionary health reform provisions do not go into effect until 2014, insurers and payers are scurrying to implement a number of big changes required this year.

WASHINGTON-Although the most revolutionary health reform provisions do not go into effect until 2014, insurers and payers are scurrying to implement a number of big changes required this year.

Beginning September 23, for example, health insurance plans must offer first-dollar coverage for preventive services and drop lifetime limits, pre-existing condition exclusions for children, and end policy rescissions. The Department of Health and Human Services (HHS) is still in the process of defining new regulations for calculating plan-year 2010 medical loss ratios and for reviewing proposed rates and premiums.

At the same time, public pressure is prompting insurers to voluntarily adopt key reforms before their due dates. In a letter to Congressional leaders last month, HHS Secretary Kathleen Sebelius noted that 65 insurance companies had already agreed to offer coverage for dependents up to age 26 before they are required to do so. Insurers also have agreed to cover children with preexisting conditions and to limit rescissions.

One of the first new programs established by the Patient Protection and Affordable Care Act (PPACA) is temporary high-risk pools for uninsured individuals with preexisting conditions, who often cannot obtain insurance through the typical market channels. HHS is scheduled to have a national high-risk pool up and running by June 21 for those states that don't have their own programs, and to provide funds to states that agree to set up or expand existing pools.

As of the May 1 deadline for indicating their preferences, 30 states had confirmed with HHS that they would operate their own transitional high-risk pools, with the assistance of some of the $5 billion in federal funds provided for the program. Another 18 states opted out, preferring to have the feds provide fallback coverage. Two states remained undecided.

Many states rejected the federal program because of broader political opposition to PPACA itself; however, California Republican Governor Arnold Schwarzenegger declared his support for the program, which will bring his state more than $700 million. Texas and Florida-two large states-rejected the program, as did some states headed by Democrats.

One state sitting on the fence is Rhode Island, which is pressing for a more flexible approach from HHS. This tiny state has only one carrier serving its individual market and does not want a high-risk pool, according to the state health insurance commissioner, Christopher Koller, as he said at a meeting in April sponsored by the Alliance for Health Reform. Instead, the state wants the federal program to contract directly with the insurer, and to provide federal money to make coverage cheaper for its citizens.

REVISE EXISTING POOLS

In any case, the new pools will be difficult to establish. Some 35 states already have high-risk pools and will have to coordinate existing operations with the new program. In some situations, a state may end up operating two high-risk pools with different premiums, benefit levels and cost-sharing structures.

Pools supported by the new program have to meet tight limits on premiums and out-of-pocket expenses and cannot have any waiting period for new applicants, who have to be uninsured for six months to qualify. This raises the prospect that individuals with coverage from existing state risk pools will end up paying higher premiums than those joining the new programs.

Even though states will be able to tap into federal funding July 1, it may take longer for the new risk pools to offer coverage. HHS has to issue guidance on benefit design and premium setting, and some states will need to revise laws or regulations.

The biggest problem is that the $5 billion authorized for the two-and-a-half-year program won't be enough to cover these high-cost patients for more than a year. A report from the inspector general of the Centers for Medicare and Medicaid Services (CMS) estimates that roughly 375,000 people will gain coverage through new pools at a cost of about $4 billion in the first year. Thus the $5 billion funding for the program most likely will be exhausted in early 2011.

WHEN THE MONEY RUNS OUT

The risk pools are scheduled to expire in 2014 when individuals with preexisting conditions and others without insurance should be able to obtain affordable coverage through state insurance exchanges. However, states may have to shut down the programs earlier if they run out of money-and Congress refuses to ante up more.

Patients will learn about state high risk pools through a new HHS Web site that is supposed to provide information on health coverage options in every state by July 1. The postings are slated to include plans offered to individuals and small groups, as well as Medicaid and state children's health programs.

Because of the tight schedule, the program will start with limited information on insurers' products, such as contacts, enrollment procedures, availability, and coverage.

The data will expand by October 1 to include more benefit and pricing information, and next year will add rescission and medical loss ratio information plus data on insurer financial stability, enrollment trends and customer satisfaction ratings. By 2014, many of the functions of the portal will be taken over by state-based insurance exchanges.