KY eyes high-risk pool as a cure for market ills
KY High - Risk Pool
October 31, 1997
The Kentucky legislature appeared ready at presstime to replace many of the insurance reforms enacted three years ago with a high-risk pool to cover individuals who have medical conditions and histories that make them expensive to cover.
The proposal is seen as one way to reduce premiums for many individual policy holders and lure back to the state many of the more than 40 carriers that left Kentucky after it instituted guaranteed issue and modified community rating.
High-risk pools are now used in 26 states to provide coverage to some 100,000 individuals who are unable to get insurance elsewhere.
Risk pools also have been in the spotlight recently because 19 states have enacted legislation selecting the pools as the "alternative mechanism" to guarantee coverage to eligible individuals covered by the Health Insurance Portability and Accountability Act.
Financing
Perhaps the biggest question facing states that operate high-risk pools is how to finance them to keep premiums as affordable as possible and to minimize the direct and indirect costs to those outside the pool who must support it. In most states, only about 50% of a pool’s cost is covered by premiums from those insured by it, with the remainder covered by assessments on insurers, state general funds, or a combination of several sources.
The Kentucky Senate early this month approved a high-risk pool that calls for $5 million a year in funding from the state over the next three years Some critics of risk pools worry that they can become permanent dumping grounds for people who carriers do not want to cover. Other critics in Kentucky worry that the state could end up paying a growing share of the costs.
The $100 million cost of the 20-year-old Minnesota Comprehensive Health Association has been funded in the past, half by premiums and half through assessments on insurers. For the first time this year, the legislature has appropriated $15 million for the program in 1998 and $15 million in 1999.
Charles Ferguson, health and life analyst for Minnesota’s insurance division, said the change was intended to spread the burden of paying for the pool more evenly, noting that the state has "received quite a few letters from small employers" complaining that assessments on insurers were passed on to them in the form of higher premiums. Minnesota, like all states, is strictly limited in its ability to tax self-funded plans covered by ERISA (Employee Retirement Income Security Act).
Wisconsin, which covers about 6,000 high-risk individuals through its Health Insurance Risk Sharing Plan, will now be allocating new cigarette tax money to the fund. This new source of funds will help reduce total premium costs to about 150% of the mainstream market cost, from a level of 180% or more, said Peter Farrow, insurance administrator in the commissioner’s office.
The move was applauded by Bill Smith, director of the Wisconsin chapter for the National Federal Independent Business, who said small businesses in the state have been seeing substantial increases in their premiums due in part to the pool.
The state of Louisiana, which has a tiny, five-year-old high-risk pool, sought unsuccessfully to require self-funded pools to help pay for the costs of the pool. The state assessed a service charge for many inpatient hospital admissions and outpatient procedures, but the courts have ruled that ERISA plans are exempt from the charge. Even some strong supporters of risk pools note that overreliance on state funds can make the pools more susceptible to the ups and downs of state finances.
Critics of risk pools worry that they can become permanent dumping grounds for people whom carriers to not want to cover. Enrollment in the pools averages 30 months, according to Comprehensive Health Insurance for High-risk Individuals, an annual report on the pools published by Communicating for Agriculture, Fergus Falls, MN. Risk pools have traditionally been an important source of coverage for agricultural workers.
According to the annual report, "the population that utilizes risk pools is not the indigent or the poor per se, who can often access health care via America’s social safety net, but rather the self-employed: the small businessman and farmer who are not part of a big-group health plan."
Except for Minnesota’s risk pool, the pools have generally played a relatively small role in reducing a state’s medically uninsured population.
In Minnesota, the pool covers about 26,000 uninsured, more than 70% of those who are denied insurance for medical reasons. Its success is due in large part to unusually low premiums—about 118% of a standard benefit—and strong marketing, said Mr. Ferguson. Mr. Ferguson said the size of the program has actually dropped by about 10,000 from its peak about four years ago in part because the state now has guaranteed issue for small employer plans.
Keeping premiums within the pools at an affordable level continues to be a challenge in many states. Mr. Farrow, the Wisconsin insurance administrator, said a recent survey showed that enrollment decreased significantly when premiums hit 160% and above of market levels. Even in risk pools, consumers almost inevitably face waiting periods for pre-existing conditions, ranging from 90 days to a year. Many of the pools offer choices of deductibles and some offer choices between indemnity, a PPO, or managed care plan.
Overall, said Mr. Ferguson of Minnesota, "my opinion is that the pool works well. "It spreads the risk to the players in the market, but, to a large degree, allows insurance companies to have their underwriting standards without standardized underwriting, allowing for a more competitive market."
Copies of the new 11th edition of "Comprehensive Health Insurance for High-risk Individuals" are available for $29.95 from Communicating for Agriculture by writing 112 E. Lincoln Ave., P.O. Box 677, Fergus Falls, MN 56538-0677 or calling 1-800-432-3276.
KY eyes high-risk pool as a cure for market ills
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