An Uneasy Conservative Case for Risk Pools

One of the new health law’s first major programs was scheduled to start on July 1: $5 billion to bail out states’ so-called “high-risk pools” until January 1, 2014.  22 states have decided not to get involved directly, and let the federal government set up its own high-risk pools.  It’s a tough choice for states suffering exploding health costs.  Nevertheless, it’s the right choice.

2014 is when ObamaCare really gets going. As of that date, it will be illegal for health plans to use factors other than age (and that only in a limited fashion) to calculate premiums for their policies; and will conscript Americans into health plans with benefits chosen by the federal government.

In the interim, the law tries to solve the pre-existing condition problem “on the cheap” by throwing a relatively small amount of money at so-called “high-risk pools” for four years.  But it’s not enough: The CBO does not believe that the funding will last longer than three years, and estimates that the plan would need $10 to $15 billion through 2013.

“High-risk pools” is actually a misleading term for these programs, because the patients who need them are not “high risk”, but high cost, which explains why the programs are so difficult to manage.  Patients, insurers, and governments all know that the costs of high-risk pools are extremely high, which is why the 35 states that already have high-risk pools have had trouble managing them.

In the latest National Affairs journal, James Capretta of the Ethics and Public Policy Center and Tom Miller of the American Enterprise Institute figure that two to four million uninsured Americans with pre-existing conditions cannot get health insurance at reasonable premiums, but that only about 200,000 are currently enrolled in high-risk pools.  They note that the Chief Actuary for the Centers for Medicare & Medicaid Services estimates that only 375,000 more will obtain coverage through ObamaCare’s $5 billion. Outbidding even the CBO, Capretta and Miller call for $15 to $20 billion per year, as well as further restrictions on insurers’ increasing premiums for people who leave the employer-based market and seek individual coverage.  The latter would reduce the demand for high-risk pools, they assert.

However, socializing the costs of patients with expensive conditions, as Capretta and Miller advocate, surely invites a mechanism whereby insurers, employers, and individuals would crawl out of the woodwork to lobby continuously and perpetually for more federal money and expanded eligibility for high-risk pools — just as happened to Medicaid over the last four and a half decades.

A far simpler and more effective reform would be to eliminate employers’ monopoly control of Americans’ health dollars, so that individuals and families could buy their own health insurance that is portable from job to job and state to state.  ObamaCare’s $5 billion bailout for high-risk pools is not the first step in solving America’s health crisis, but merely the “gateway drug” to a federal take-over of our access to medical services.  There are also other market-based reforms that would involve less government regulation and lower taxpayer burdens.

Comments (8)

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  1. Devon Herrick says:

    States are loath to give away control over a program. If nearly half the states are letting the federal government set up and run their risk pools that is an indicator of how strongly states feel that the funding to inadequate.

  2. Bruce says:

    By “uneasy” I assume you mean “weak.” I agree.

  3. Ken says:

    Portable insurance is a much better solution.

  4. steve says:

    I would prefer insurance be portable as a general principle. It does not address the issue of high cost/risk patients. Working through a broker, I have been able to get quotes for severely sick people who have lost their insurance once unemployed.


  5. John Goodman says:

    Miller and Capretta have an additional explanation of their proposal at the Health Affairs Blog here:

  6. Neil H. says:

    I think risk pools are a wimpy solution to a dysfunctional health care system. Individually owned, personal and portable insurance is more macho. And more workable.

  7. John R. Graham says:

    In their previous National Affairs article, Mr. Miller & Mr. Capretta estimated that fully funded high-risk pools would cost $15 to $20 billion annually, a figure which they reduce in their Health Affairs article to $10 to $15 billion annually. Nevertheless, over three and a half years (July 1, 2010 through December 31, 2013), this adds up to $35 to $52.5 billion – seven to ten times greater than the $5 billion currently scored by the CBO!

    They recommend taking this money from the post-2014 ObamaCare budget. However, they do not propose an alternative to post-2014 ObamaCare, other than (accurately) traducing it as a “massive transformation” of American health care with significant negative consequences. Mr. Miller has previously proposed alternative reforms (in a February publication co-written with Joseph Antos), and Mr. Capretta is second-to-none in his analyses of ObamaCare’s disastrous fiscal consequences, which he has communicated in other fora. Their current focus on high-risk pools appears to set aside their previous lines of inquiry, at least for the time being.

    It is difficult to understand how the outcome they desire for high-risk pools corresponds with their larger vision of alternative reform, expressed elsewhere. If the high-risk pools remain poorly funded, and fail, they will become yet another mark against ObamaCare. If Congress raids the post-2014 budget to fund the high-risk pools, as Miller and Capretta advise, high-risk pools might “succeed.” ObamaCare will become even more solidly locked in, and the chances for “reforming the reform” even dimmer.

    Furthermore, as the clock ticks towards 2014, Congress will have to find new sources of revenue to replace the money that is currently earmarked for ObamaCare’s exchanges, but already spent on high-risk pools, per Miller & Capretta.

  8. Linda Gorman says:

    If patients with expensive conditions have “socialized costs” then they will also have socialized care.

    Government has proven so adept at managing health care that it really makes sense to force the sickest among us into the tender mercies of government.