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AIS's Health Business Daily
Featured Story, June 9, 2010 Insurers Are Wary of High-Risk Insurance Pools Despite Their Potential to Boost Membership Reprinted from AIS's HEALTH REFORM WEEK, a new newsletter designed to help savvy business leaders in health care understand what the enormous changes mean to them ... and what they can do about it. By Mike McCue, Contributing Editor (mmccue330@yahoo.com) It’s not every day that health plan executives are reluctant to add millions of new members to their rolls, but that’s exactly what’s happening as they consider uncertainties surrounding the new federal high-risk insurance pools. The number of people covered in the pools now run by 34 states could increase tenfold once the new pools go into effect in July, and concerns about severe underfunding are prompting most plans to take a wait-and-see approach toward potential opportunities to run the pools.
“The key issue is simple: Is there enough money to fund the pools until they expire in 2014?” says consultant Joe Paduda, principal of Health Strategy Associates in Madison, Conn. “The $5 billion [set aside under the reform law] may be depleted well before the expiration date, leaving states and health plans administering pools uncertain about where additional funds will come from. My sense is that uncertainty is one of the factors health plan executives are worrying about as they evaluate this ‘opportunity.’”
Funded by $5 billion in federal money that is supposed to be available by July 1, the pools will subsidize premiums for people with pre-existing conditions who had been without health coverage for at least six months, and are designed to serve as a stopgap measure until the major national reforms go into effect in 2014. To date, 18 states have opted not to run the plans, leaving their operation up to HHS.
The reform law says that people who enroll in the program shouldn’t have to pay more than healthy people do, so out-of-pocket costs are capped at $5,950 per year. The concern is that the average annual claims for the 200,000 members now enrolled in the state-run pools total $9,437 per person, and if the numbers swell to the 2 million that some experts predict will enroll when the federal plan goes into effect, the total cost of the plan could reach $40 billion.
Opportunities for Plans in Experienced States
What business opportunities there are for insurers will most likely be found in states already experienced with running risk pools, according to Henry Loubet, a former health plan executive who now is chief strategy officer at Keenan & Associates, a Torrance, Calif., insurance brokerage and consulting firm. “[Plans will be better off] if the state already has experience running a high-risk pool, and government at the state level is better than government at the federal level,” he tells HRW. “States understand the nuances [of their environment] better than someone sitting in Washington will, and plans and providers in states that have high-risk pools already know who they have to interact with, and have established relationships with those people.”
That experience working with existing state plans could indeed be an advantage, based on comments from HHS Sec. Kathleen Sebelius. While the final regulations haven’t been released yet, Sebelius has said that the new program will borrow heavily from “state programs that work” — a logical approach given the short time period the government has to work with.
“The business opportunities in states without high-risk pools are going to be pretty foggy for some time to come,” Paduda says. “The regulations haven’t been finalized, but more importantly, this represents a sea change in the way health plans analyze, assess, and price for potentially higher-risk members. There’s no question that plans with a significant share in individual states, such as Blue Cross Blue Shield of Michigan, are better prepared than national players to run pools. Their knowledge of providers, provider practice patterns, state demographics, health status and claiming patterns will be critical if they choose to participate.”
Some Doubt That Pools Will Be Running in July
Even with the ability to learn from states with experience in running high-risk pools, experts believe it’s unlikely that the pools could be up and running by July, especially in states that don’t already have a similar system in place. Richard Popper, executive director of the Maryland Health Insurance Plan, tells HRW the 34 states that already have high-risk pools could be enrolling new members in as little as 60 to 90 days, but the process of starting from scratch in the other states could take four or five months longer.
Although some contend that insurers will view the establishment of high-risk pools as an opportunity to move sick members off their books and into the federal program, eligibility is restricted to people who have been without health insurance for at least six months. As a result, those now enrolled in commercial plans — and even the existing state-run pools — will be unable to take advantage of the new program.
That’s a sore point for many, because premiums for the federal program are expected to be anywhere from 10% to 50% lower than what the states now charge.
“I don’t think the establishment of high-risk pools will matter much to health plans at all,” says consultant Jordan Battani, a San Francisco-based principal with Computer Sciences Corp. and former health plan chief operating officer. “People might think plans will try to offload some of their costliest members, but that’s absolutely prohibited,” she says. “There are various mechanisms in the health reform legislation to prevent what it refers to as ‘dumping.’”
That means the 200,000 or so people enrolled in the 34 existing state plans will have to stay where they are — or drop their current health coverage for six months so they can become eligible for the federal program and its lower costs.
Not only is such an approach inherently dangerous for people who already have an existing health condition, the out-of-pocket expenses in the federal program — while expected to be less costly than existing state-run plans — still won’t be cheap. “Here in Maryland, we have a couple of plan options in our high-risk pool, where premiums are 60% below the market,” Popper says. “We’ve seen enrollment growth, but nothing dramatic because members still have to pay $2,000 to $3,000 a year in premiums and an initial deductible of $200. Some people will definitely come into the plans, but it’s not like the government will be giving away free health coverage.”
Popper says, “Insurance companies get applications every day from people that they reject due to pre-existing conditions, so they will need to develop referral procedures that direct the people they deny to federal high-risk pools….The same concept applies to providers. Every day, people with chronic health conditions call specialists and show up in emergency rooms and community clinics without insurance, so those facilities need to develop procedures to refer those people to the federal risk pool — particularly in those states that don’t have a risk pool right now.”
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