Are High-Risk Pools Health Insurance Ghettos?

Robert Laszewski continues his campaign against elements of the House Republican health reform:

For Republicans to sell a high-risk pool scheme in 2014, they would have to convince voters:

  1. That we need to go backward to the days when insurance companies could deny anyone access to health insurance on account of their health.
  2. That insurers can make their profits covering only the healthy leaving the sick to go to a government supported pool.
  3. That the government supported pool will always have coverage and prices as good as a consumer would have otherwise been able to find in the mainstream market –– separate but equal coverage.

History is full of examples of states setting up high-risk pools. They all have one thing in common –– they were never adequately funded. The number of people who had access ended up being capped, premiums were higher, and coverage was restricted. Could high-risk pools theoretically work as well as putting everyone in the mainstream market? Yes. Have they ever? No.

I can’t believe Republicans are even considering this idea in 2014.

In a 2010 article James C. Capretta and Tom Miller estimated that full federal funding of high-risk pools would cost $15 billion to $20 billion a year. (Update here.)

Comments (17)

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  1. Jordan M says:

    We are entering a political season. This is the time in which people are going to start claiming anything in order to win votes for their party. The campaigns, as they normally do, will be characterized by half-truths, personal attacks, and political statements. I don’t think he is criticizing much the plan, he is criticizing the sole fact that the Republicans are thinking of different alternatives to Obamacare.

  2. Frank Y says:

    I don’t think we have a concrete republican plan yet. But what I know is that the democrats will oppose it even if it means postponing the solutions to the problems of ACA. Democrats want solutions, so does Republicans, sadly neither will accept a solution presented by the opposite party.

  3. Tom says:

    Yes, but the federal government is also not going to fully fund the health insurance subsidies. After 2018, they will grow more slowly than the rate of growth of heath care costs.

  4. Bart I. says:

    If you ignore the differences in various efficiencies between the two systems, there should be no difference in cost between financing risk pools via the general fund, and financing health care for high-cost individuals by means of a hidden exise tax on insurance premiums for low-risk individuals.

    There are valid reasons for considering community rating, but masking the true cost of providing coverage (by outlawing cost-accurate coverage) is not one of them.

    • John R. Graham says:

      This is why I have a lot of sympathy for Laszewski’s criticism. If it is the case that a plurality of our democracy decides that taxpayers should bear the cost of illness, rather than a functioning insurance market, then I don’t see how high-risk pools are better than a more unified system.

      High-risk pools (misnamed: They are low-risk and high-cost) increase fragmentation and reduce choice versus a system where sick patients are directly subsidized into private health insurance.

  5. Bob Hertz says:

    All the estimates I have seen from the insurance industry say that high risk persons cost at least $12,000 to $15,000 a year.

    If the number to join these pools is between 2 and 4 million persons, I do not know how Capretta and Miller could come up with $15-$20 billion a year in funding.

    I also have never read a detailed analysis of why the short lived ACA risk pools had an average cost of $31,000 a person.

    Is this because they paid claims at private insurer rates rather than Medicare rates?
    Is this because all the transplant cases signed up early?

    I honestly do not know. But we should know before we establish more pools!

    • Bart I. says:

      2-4 million persons at $12,000-$15,000 each yields a range of $24-60 billion. I think much of the $200 billion cost of the employer exclusion is actually going toward the equivalent, so $60 billion shouln’t be too shocking.

  6. Bob Hertz says:

    It is not shocking to me either, but no Congress has ever openly voted such funds for high risk pools. Nor has any state been willing to spend pro-rata like that when states had their own pools.
    It just feels like too much $ for too few recipients –evem though Medicare spends similar amounts and more for its 4 millkon least healthy enrollees.

    • Bart I. says:

      I think of the system of employer-sponsored insurance as a sort of risk pool. One where a large number of healthy people are induced to participate. It sounds as though everyone is getting a great deal because state and federal tax advantages can offset more than half the cost of the premium, but in reality the net after-tax cost to young, healthy individuals is about what they would pay if they purchased their own underwritten coverage.

      So in reality only the higher-cost participants are actually being subsidized. Which means the entire ESI system is effectively a giant risk pool with a $200bn federal subsidy (not counting state contributions).

      I guess the differences that make this palatable are that the $200bn is somewhat hidden, those who are aware of it think they are benefiting from it even if they are not, and the fact that we “backed into” the scheme with no one able to take responsibility or blame.

      • John R. Graham says:

        Yes, that is the dogma behind the employer-based system. But it is false because the employer does not have a comparative advantage in pooling the risk of medical costs. It has a competitive advantage in the making of widgets.

        The insurer has comparative advantage in pooling these risks. That is why car insurance and homeowner’s insurance are bought by individuals.

        I think the real reason the health-insurance industry supports the employer-based system is that it reduces the credit risk of premiums being paid. That is also why tax credits in the Obamacare exchanges go directly to insurers, not individuals. Insurers would never have bought into the exchanges otherwise.

  7. Jimbino says:

    Article is full of false dichotomies. It doesn’t begin to consider encouraging health care abroad where it’s much cheaper. Here in Rio de Janeiro, I just had cataract surgery at HALF the price quoted in Austin, TX.

    In Monterrey, MX, it would cost a THIRD of the Austin price. Why are tools now so much cheaper in the USSA than they were just a couple decades ago? Hint: they are made in China. Why are computers so damn cheap? Hint: they are made and assembled in Asia.

    Our medical care prices, just like law-school tuition, will never go down, as long as our gummint insists the we keep throwing money at the same old calcified providers. There is no way in hell, but many in the USSA apparently=, that law school class of 100 students can be worth the 100 x $30,000 = $3,000,000 to teash for 20 hours a week for 30 weeks = 600 hours. That’s $5000/per hour of instruction!!! And who the hell needs an expensive library nowadays?

    We don’t need to pay ever rising healthcare or tuition costs; what we need is total reform of the system that would come from letting Walmart or the Chinese run our medical and educational systems.

  8. Bob Hertz says:

    Jimbino has a point here. How many of the high paying jobs in health care, education and government are created by rent-seeking and credentialism and local monopolies?

    Our economy seems to face two unpleasant choices:

    a. protect the professionals and see costs go up for everyone

    b. let offshoring decimate the professionals, see costs go down, but see a lot of medical and educational and government employees with low salaries or no jobs at all.