States are Better Off Not Setting Up ObamaCare Risk Pools

Why? Because if the state does nothing, the federal government will set up its own risk pool — all paid for with federal dollars.

The law requires that state opting into the federal plan have the new federally mandated high risk pools operating by July 1^st. The states are expected to go to all of the brain damage and expense of setting up the new federally mandated pools even though they will cease to exist in 2014. In 2014, the people in them will be forcibly enrolled in Medicaid.

States had until April 30^th to decide whether to participate. Georgia has already said no because the costs of the pools is unknown, the federal government has allocated only $5 billion for subsidies, and the federal government is required to insure Georgians if the state opts not to.

Although the Obama Administration is presenting the federal pools as mechanisms for helping people “blocked out of insurance coverage” to get coverage, federal law has required states to provide coverage for the uninsurable for over a decade.

The states that already have high risk pools to insure the uninsurable will have to set up new ones under ObamaCare. The reason is that the people writing the law covering ObamaCare high-risk pool requirements included stipulations ensuring that people already enrolled in existing state high risk pools do not meet the requirements for temporary federal coverage.

The existing state pools charge people higher rates than standard group policies. They do this to reserve subsidized coverage for those who need it, and to discourage people from dropping their current coverage in favor of state sponsored coverage with subsidized premium rates. Some state pools offer lower rates to people with lower incomes. Funding sources for state pools include taxes on health insurance policies and general tax revenues.

Unlike the states, ObamaCare requires that its pools have premiums no higher than 100 percent of the “standard non-group rate.” In states with relatively good health insurance markets, state “non-group policies,” otherwise known as the individual policies, are medically underwritten. This means that the risk pool premiums dictated by ObamaCare are generally lower than those currently paid by people in existing high risk pools, lower than those currently paid by people in small group plans, and lower than those paid by people in employer plans.

To make matters worse, the pricing limits for these risk pools will likely do most to harm families with sick children. Qualifying ObamaCare high risk pools cannot charge their oldest members more than 4 times the premium they charge their youngest members. At present, the premium for an HSA qualified policy with a $2,000 deductible in Colorado’s high risk pool is $133 for an 11-year-old and $657 for a 60-year-old. To meet the ObamaCare requirements, any new Colorado high risk pool would have to increase its premiums on uninsurable children relative to those charged older adults.

The architects of this new program apparently did understand that offering very low premiums would lure people from other, more expensive, plans. They solved that problem the way government health care systems always do, by making people wait. To be eligible for an ObamaCare high risk pool, a person must have been uninsured for 6 months.

This waiting requirement substantially increases individual risk. In Colorado, for example, the state high risk pool accepts people with pre-existing conditions who are uninsured. Although they are denied coverage for their pre-existing condition for 6 months, they do have immediate coverage for unexpected events like accidents and new illnesses.

Since they are priced at medically underwritten prices, that the ObamaCare premiums are likely to be very attractive. For people with stable pre-existing conditions, the price difference between the ObamaCare pools and standard insurance might make dropping existing coverage worthwhile. Fraud is also a possibility; it is not clear how the government proposes to make someone prove a negative and demonstrate that he was not insured for 6 months before applying.

In any case, it is noteworthy that one of the first ObamaCare programs to be implemented is one that solves a problem that is already solved with an alternative that has poorly aligned incentives that at least one state thinks will end up costing more than the federal subsidies available to implement it.

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