Health Coverage for the High-Risk Uninsured: Policy Options for Design of the Temporary High-Risk Pool

Originally published by the Center for Studying Health System Change (HSC). HSC was a nonpartisan policy research organization funded principally by the Robert Wood Johnson Foundation.

Health Coverage for the High-Risk Uninsured: Policy Options for Design of the Temporary High-Risk Pool

NIHCR Policy Analysis No. 2 — May 2010

Mark Merlis

The Patient Protection and Affordable Care Act, signed into law in March 2010, included a provision requiring the creation of a temporary national high-risk pool program. The program's purpose was to provide subsidized health coverage to Americans who were unable to obtain insurance in the individual market because of pre-existing medical conditions. While the ACA's broader insurance market reforms, including the prohibition on pre-existing condition exclusions and the creation of health insurance exchanges, were not scheduled to take effect until 2014, the high-risk pool was designed to serve as a bridge, offering coverage to the most medically vulnerable uninsured Americans during the intervening years.

The Scale of the Challenge

This policy analysis by Mark Merlis examined the difficult design choices facing policymakers as they stood up the new program. The scale of the challenge was formidable. Estimates suggested that between 5.6 million and 7 million Americans might meet the program's basic eligibility criteria: people who had been uninsured for at least six months and who had a pre-existing condition that made it difficult or impossible to purchase individual coverage. Yet Congress had allocated only $5 billion over four years for the entire program, a sum that would support coverage for only a small fraction of those who qualified — potentially as few as 200,000 people per year.

The gap between the eligible population and available funding meant that every aspect of the program's design involved trade-offs. More generous benefits or lower premiums would allow the program to serve fewer people. Tighter eligibility criteria would exclude some of those who needed coverage most. The analysis walked through the major design decisions and their implications.

Eligibility Rules

The law required applicants to have been uninsured for at least six months and to have a pre-existing condition, but it left considerable discretion to the administering agency on how to document and verify these requirements. Merlis noted that different approaches to defining a qualifying pre-existing condition would significantly affect the size and composition of the enrolled population. A broad definition that included any chronic health condition would produce a much larger eligible pool than a narrow definition requiring evidence of an insurance denial or a specific set of high-cost diagnoses.

The six-month uninsured requirement was intended to prevent people from dropping existing coverage to enroll in the subsidized pool. But this waiting period also had the effect of excluding people who had recently lost employer-sponsored coverage and might be depleting their savings or accumulating medical debt while waiting out the eligibility clock.

Benefits and Premiums

The law specified that premiums for the high-risk pool could not exceed the standard individual market rate in a given area, but this still left room for variation. Setting premiums lower would make coverage more affordable and attract more enrollees, but it would also drain the program's limited funding more quickly. Setting premiums higher would stretch the dollars further but could price out many of the people the program was designed to serve, since individuals with serious health conditions often faced reduced earning capacity.

Benefit design presented similar trade-offs. A comprehensive benefits package would better meet the medical needs of a population with serious chronic conditions, but it would cost more per enrollee. A leaner package with higher deductibles and more cost sharing would extend coverage to more people but might leave enrollees with significant out-of-pocket exposure for the very conditions that made them eligible for the pool in the first place.

Coordination with Existing State Programs

Thirty-five states already operated their own high-risk pools prior to the ACA, and the new federal program needed to fit alongside these existing efforts. Some states had well-established programs with significant enrollment, while others had small programs with limited benefits. The analysis considered whether states should be allowed to use federal funds to supplement their existing pools, whether enrollees in state pools should be transitioned to the federal program, and how to avoid disrupting coverage for people already receiving benefits through a state-level arrangement.

Managing the Transition to 2014

Perhaps the most consequential design consideration was how to manage the transition from the temporary high-risk pool to the permanent insurance exchanges scheduled to open in 2014. High-risk pool enrollees would be among the sickest individuals entering the new insurance market, and how they were integrated into the exchanges would affect the risk pool composition and premium levels for all exchange enrollees. If high-risk pool enrollees flooded into the exchanges at the outset, their high expected costs could drive up premiums and discourage healthier individuals from enrolling, triggering the adverse selection spiral that the ACA's individual mandate was designed to prevent.

Merlis recommended that policymakers consider strategies to smooth this transition, such as risk adjustment mechanisms that would compensate insurers for accepting high-cost enrollees, transitional reinsurance programs, and enrollment timing strategies that would spread the absorption of high-risk pool enrollees across the exchanges' first several years of operation. Getting the transition right would be critical not only for the high-risk pool enrollees themselves but for the long-term stability of the broader insurance market reforms.

Sources and Further Reading

AHRQ — Federal health care quality research agency.

Health Affairs — Peer-reviewed health policy research.

Robert Wood Johnson Foundation — Health policy research.

Commonwealth Fund — Research on health care quality.