High-risk pools: the life jacket U.S. health care needs

Obamacare guarantees all Americans health insurance. But it doesn’t guarantee that coverage will be affordable. That’s becoming a bit of a problem.

This year, premiums were up an average of 8 percent. In many states, double-digit premium hikes were the norm. Next year, they’re likely to be even bigger, according to Marilyn Tavenner, the former chief of the Centers for Medicare and Medicaid Services under President Obama and current head of the insurers’ main trade group — America’s Health Insurance Plans.

There are less costly ways to make sure that all Americans have access to coverage — and that they can afford it. They’re called “high-risk pools,” and they can protect those with pre-existing conditions without jacking up premiums for everyone else.

Obamacare was supposed to ensure affordable health coverage through two related provisions — “guaranteed issue” and “community rating.” The first forbids insurers from denying anyone a policy; the second prevents them from charging anyone any more than three times what they charge anyone else.

This scheme was doomed from the start. When anyone can get insurance at any time, older, sicker patients sign up for coverage in droves. These consumers cost more to cover, so insurers must increase premiums for everyone else in order to recoup their expenses.

Younger and healthier folks, unenthusiastic about paying for insurance they may never use, increasingly exit the market — or refuse to buy coverage in the first place.

That drives premiums even higher. Still more healthy people exit the market. And the process repeats.

Obamacare’s individual mandate, which fines those who don’t purchase health insurance, was supposed to prevent this “death spiral.” But the fee — the greater of $695 or 2.5 percent of one’s income — isn’t working. This year, only 28 percent of Obamacare enrollees were between 18 and 34 years old — well below the 40 percent needed to keep premiums stable.

Consequently, premiums are surging. Insurers just announced even larger increases for 2017 than this year’s. In Virginia, some insurers are requesting premium hikes of up to 37 percent. Oregon’s largest insurer is hoping to boost rates by 30 percent. United Healthcare is requesting nearly double its current rates in New York — one of only three states the insurer will serve next year.

State-level high-risk pools can sidestep the death spiral. Here’s how they work.

States set up special insurance plans for patients with expensive, chronic conditions who are unable to find affordable coverage absent guaranteed issue and community rating. Subsidies ensure that coverage within the pools is actually affordable.

Insurers no longer have to bear the risk of paying for these costly patients’ care. That allows them to reduce premiums. And that encourages younger and healthier Americans to purchase coverage — no mandate necessary.

High-risk pools aren’t new. Thirty-five states had them before Obamacare. Many were successful.

Consider Minnesota’s pool, which had broad eligibility rules that allowed all folks deemed medically qualified — along with their spouses and children — to join. The average premium for the 30,000 participants was only 19 percent more than the average premium in the individual market — an impressive feat given that enrollees suffered from costly diseases like cancer and HIV/AIDS.

Researchers at the New York State Health Policy Research Center and the University of Minnesota School of Public Health have called the state’s old system “a way to get high-risk pools done right.”

But Obamacare got rid of high-risk pools like Minnesota’s and raised premiums for just about everyone — all to solve an almost nonexistent problem. “Less than 10 percent of people under 65 are what we call people with pre-existing conditions, who are really kind of uninsurable,” said House Speaker Paul Ryan, R-Wisconsin, in a recent speech to students at Georgetown University.

Ryan went on to endorse high-risk pools as the solution for these folks. “You dramatically lower the price for everybody else. You make health insurance so much more affordable, so much more competitive and open up competition,” he said.

Ryan is right. It’s time to abandon the sinking ship that is Obamacare — and get on board with high-risk pools.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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