High risk pools are like the caps on your mobile data plan. Not every one sees this darker side, but those that do are relegated to higher fees, poorer service, and throttling in the face of need.

How do they work?

An insurance pool can be made profitable, thereby allowing for cheaper premiums, by two approaches: add healthy individuals to it (which is the ACA approach), or take out the sicker people (the AHCA approach). When there are fewer sick people in the pool, the costs for the insurer are lower, thereby increasing profitability and decreasing premiums. This second approach creates a perfect health insurance market for the healthy individuals, but leaves out sick people. The plan that accounts for insurance of the sick individuals in this approach is called the “High risk pool”. The problem with a high risk pool is that it is composed almost entirely of sicker individuals with high healthcare costs. The only way this risk pool can be viable is if premiums are extraordinarily high, or if money is brought in from outside the pool, usually in the form of Government subsidies.

The essential difference in the two approaches is where the money comes from. In the ACA approach, which adds healthy people to risk pools, healthy individuals pay the penalty for high healthcare costs. In the AHCA approach, with high risk pools, where the additional money comes from tax revenues, penalty comes from the population as a whole. This difference can be a rather personal choice; and some people may very well prefer the second approach to the first one. And this choice is a fair one, provided both approaches lead to similar health outcomes for the population. But history suggests that these approaches might not be equal, after all.

History

The American health insurance industry is no stranger to high risk pools. In the pre-ACA era, high risk pools were a stable in most states. In the pre-ACA era, because insurers could deny coverage to individuals with pre-existing conditions, many sicker individuals did not have coverage. To account for this un-insurable population, many states ran their own high risk pools with subsidies to let individuals buy coverage. At its peak , about 2.2% of Americans purchased health insurance through these plans. In fact, the ACA also implemented its own temporary high risk pool from 2010 to 2014, to help transition sick individuals until all the provisions in the law began to take effect.

But historically, high risk pools have been a rather disastrous part of the healthcare system. This is because state-run high risk pools often had crippling restrictions on the use of healthcare services. Most high risk pools charged premiums that were 1.5 to 2 times that of the regular premiums, despite state subsidies, included lifetime or annual expenditure limits, and had high deductibles. Most of them also denied coverage for pre-existing conditions for the first 6 to 12 months of coverage. So individuals who had pre-existing conditions often couldn’t get coverage for up to a year. Some states even limited how many individuals could buy these plans in order to control spending.

The future

The American Health Care Act (AHCA), the Republican replacement to the ACA, is set to bring back high risk pools. Despite the historical precedent, this might not be a bad idea. If high risk pools are well implemented, and the sicker population are offered coverage at the same rates and benefits as the rest of the population, they might still be successful. The poor historical implementation of high risk pools might not tarnish the potential of high risk pools, but it sure makes the details critical.

In fact, one of the ideas proposed as part of the AHCA is an “invisible high risk pool”. The invisible high risk pool is similar to a regular high risk pool, with the exception that the high risk pool is maintained completely behind the scenes. So when sicker individuals purchase health insurance, they are automatically classified as high risk and the insurer receives a subsidy for coverage of that individual. To the individual, the whole process is completely seamless. Invisible high risk pools essentially guarantee that the high risk population receive the same costs/benefits as everyone else.

Precautions

There are two important factors in the successful implementation of a high risk pool. The first of these factors is cost. Historical precedent tells us that they can be very expensive. The AHCA has allocated about $15 billion for 10 years for the implementation of high risk pools, and most estimates suggest that this amount not even be sufficient for 2 to 3 years. The second factor is benefits; and because the AHCA allows states to seek waivers from the pre-existing conditions clause of the ACA, there is real concern that we might see a return of the pre-ACA high risk pools where individuals can be relegated to second class status for having pre-existing conditions. The current version of the AHCA, failing on both the cost and the benefits factor, portends a rather bleak future for the healthcare system.

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