This week, the Obama administration finally launches a poorly designed, hastily constructed, and severely underfunded high-risk pool program across the 50 states. It's a shallow attempt to appear to be doing “something” soon to help Americans without health insurance due to pre-existing health conditions. But apart from its stumbling start, it's also the initial poster child for the core flaws of ObamaCare. It misrepresents the real problem, promises more than it can deliver, tries to hide the real costs, and gives sensible reforms a bad name — all because the administration is more committed to its long-term vision of central government control than to actually building a sustainable solution.
High-risk pools can address pre-existing conditions without the costs and burdens of the heavy-handed federal regulation of insurance planned for 2014. In short, we can do more by doing less, in a transparent, targeted, and adequately funded manner.
The Patient Protection and Affordable Care Act (PaPACA) enacted into law last March included $5 billion in federal taxpayer funds to finance a new version of state-based high-risk pools (HRPs). This provision was inserted into the broader healthcare legislation late last year to address two political needs. It provided a superficial bow toward bipartisanship (Republican presidential candidate John McCain had proposed a more robust version of HRPs in the 2008 campaign, which was promptly derided by Barack Obama's supporters). It also would offer modest transitional relief in the form of subsidized insurance to at least some Americans with pre-existing health conditions who find individual market health coverage either unavailable or unaffordable (or both).
ObamaCare advocates hoped that this might distract voters from the unpleasant fact that all but a tiny portion of the new law's provisions to expand health insurance coverage do not go into effect until 2014, even though the higher private insurance premiums, taxes, and regulatory burdens triggered by the new health law kick in much earlier.
Ironically, the Obama team has both overstated the problem and underfunded the solution. For the past year, ObamaCare advocates have led the public to believe that private insurers regularly scheme to refuse coverage to most people with higher-cost conditions. Last summer, the propaganda arm of the administration's Department of Health and Human Services (HHS) recycled a dubious Commonwealth Fund survey claiming that 36 percent of all people who tried to buy their own insurance plans (12.6 million non-elderly adults!) were discriminated against because of a pre-existing condition. The real dimensions of the problem of the “medically uninsurable” are a good bit smaller (because most insurers need to sell more, not fewer, policies), but it's nevertheless serious and costly to solve. Most credible estimates, by the Government Accountability Office, the Congressional Budget Office (CBO), and the Agency for Healthcare Research and Quality, place the figure closer to 2 to 4 million Americans, depending on various definitions and assumptions.
CBO's assessment is that the new law's funding for HRPs will only cover, on average, 200,000 enrollees a year — or no more than one in ten of the 2 to 4 million people who are likely in need of assistance. CBO acknowledged that the actual number of people who would be eligible for the program if adequately funded could be much greater — and in the millions — and conceded that if more people were allowed to sign up initially, the available funds will probably be exhausted prior to 2013.
Of course, the estimated cost of dealing with this problem is subject to political mood swings. For example, when Senator McCain proposed a somewhat broader high-risk pool program in 2008 and budgeted it at $7 billion to $10 billion a year, then-Georgetown University professor and HRP critic Karen Pollitz guesstimated to the New York Times that “it may cost 7 to 10 billion dollars a week” and criticized state HRPs that “leave the illusion that there's a safety net without there really being much of one.” By the fall of 2009, an administration-backed HRP proposal pegged at the ultimate $5 billion total was included in a pending Senate health reform bill. Pollitz had revised her estimates, telling the PBS NewsHour that although it probably cannot cover everybody, it's a good start and can cover “a lot more than you're covering now.” She was recently appointed director of the office of consumer support at HHS in the Obama administration.
In any case, the actual cost of a more extensive and robust HRP program would depend on where policy makers set such insurance benefits parameters as cost-sharing and supplemental income-based subsidies, as well as the level at which beneficiary premiums are charged. Although the risk characteristics of the population in broader HRPs could be somewhat healthier and less expensive to cover, the average cost of government subsidies (after premiums) in current state HRPs was about $4,341 per enrollee in 2008.
But the ObamaCare/PaPACA version of HRPs is about to operate very differently from those already established in 35 states that are designed to match more limited resources. Under federal rules, the new state pools cannot allow any exclusions or waiting periods for coverage of pre-existing conditions, age-based premium differences must be compressed, enrollees can only be charged standard rates, and cost-sharing is restricted.
Not surprisingly, estimated costs for these more generous and seemingly less restricted health benefits are much higher, and as many as 20 states have balked at participating directly in the new program when it formally commences this week. Many governors and state legislators fear being left holding the bag when federal funds run out ahead of schedule but political expectations of continued coverage remain. They will leave it to Washington to run new HRPs in their states, in some case redundantly parallel to existing state-run ones operating under older rules.
The flawed design of ObamaCare's shallow and leaky HRPs reflects the overreaching delusion that the HRPs could somehow fast-forward future assumptions of mandated coverage, standardized benefits, and risk-insensitive insurance premiums (envisioned under PaPACA for new health insurance exchanges and eventually the rest of the “private” insurance market) more than three and a half years ahead of schedule. Over-promising the deliverable benefits of HRPs was aimed at briefly allowing the Obama administration to cover itself politically while building its preferred long-term architecture of federal-directed health insurance regulation.
Drafters of the law authorizing the new HRPs tried to leave some budgetary wiggle room, by limiting their enrollment only to those already uninsured for at least six months and authorizing the HHS secretary to close enrollment to comply with funding limitations and make other unspecified “adjustments” as needed to eliminate any annual deficits. Enrollees already “insured” in older versions of state-based HRPs must remain in their higher-priced, less-comprehensive coverage. Other individuals already suffering from high-cost health conditions (but not yet uninsured for a full six months) must simply wait their turn. In other words, the administration would first encourage a new wave of enrollment in HRPs and boost coverage expectations through over-generous promises, but then renege on them when budget funds run short. If private insurers did this, they would be accused of illegal bait-and-switch practices. However, applying the healthcare spending accelerator and brake at the same time, which inevitably leads to violent collisions, looks like it will become standard policy for the Obama administration's broader vision of healthcare reform.
The lessons to be learned do not include abandoning
the concept of HRPs but rather restructuring them more effectively, sustainably, and transparently. Adequately funded HRPs need to be augmented with broader remedies: supplemental income-based subsidies, stronger protection for those maintaining continuous insurance coverage against the risk of new insurance underwriting based on future changes in health status, and more effective incentives and tools for both patients and providers to make higher-value healthcare decisions.
High-risk pools that deliver what they can promise will be more expensive. But compared to the sweeping burdens of ObamaCare, they will cost much less and do less damage to the rest of the private healthcare market that many Americans prefer and from which they still benefit greatly. They can represent the foundation for what it means to “replace,” and not just “repeal,” its flawed prescription for health policy change.
Tom Miller is a resident fellow at the American Enterprise Institute and James C. Capretta is a fellow at the Ethics and Public Policy Center. They recently wrote about “How to Cover Pre-Existing Conditions” in the Summer 2010 issue of National Affairs.