What is the Republicans’ repeal and replace plan? Part 3 of 4: high risk pools

This is part 3 in a series of posts analyzing the American Health Care Act, the House Republican plan to repeal and replace the Affordable Care Act (ACA). One of the major provisions of the bill is to establish a Patient and State Stability Fund to finance state efforts to lower and stabilize premiums in the health insurance exchanges. States may use these funds to: 1) establish or maintain high-risk pools – separate individual insurance markets for people with at least one high-cost chronic condition who do not have access to insurance through an employer; 2) provide incentives, e.g. to insurers to employers, to stabilize premiums; 3) provide cost subsidies for high-cost enrollees; 4) promote insurer participation in the exchanges; 5) increase access to preventive and dental services; 6) increase payments to providers for services; or 7) assist with cost-sharing for enrollees.

The Patient and State Stability Fund, therefore, does more than fund high-risk pools, but its primary strategy is to separate high-cost enrollees in order to bring down premiums for healthy individuals. In contrast, the ACA sought to pool the sick with the healthy, in order to lower premiums for the sick – even if it meant higher premiums for the healthy.

The recent Congressional Budget Office (CBO) score reflects the Republican strategy to move away from risk pooling. The CBO is an independent federal agency that estimates the costs an benefits of a bill over a ten-year time horizon so that Congress can vote on it with as much information as possible. The majority leadership in Congress is responsible for appointing the CBO director. In its score of the American Health Care Act, the CBO noted that the Patient and State Stability Fund mitigates the risk to insurers of attracting high cost enrollees, which would encourage participation by more insurers and put “downward pressure” on premiums in the individual market.

But these benefits would accrue to young, healthy individuals whose premiums have risen since the ACA, not older, sicker individuals who could not obtain insurance before the ACA. Rather, while average premiums are estimated to fall, premiums for this latter, sicker group are estimated to rise, quite steeply (the CBO score also noted this heterogeneous effect of the law). Older, low-income individuals would be particularly affected because, as I have discussed in a previous two post, premium subsidies would no longer be based on age.

Separating the sick from the healthy is not a new idea. States have had high-risk pools since the mid-1970s. Before the ACA, over half the states had high-risk pools, which were available to individuals who could not obtain insurance because of a pre-existing condition. This insurance, however, was expensive for both the individual and the states, and was not particularly generous (e.g., most states imposed high cost-sharing, low lifetime limits on coverage, and waiting times for pre-existing conditions to be covered for some individuals) and only a handful of states provided premium subsidies for low-income enrollees. As a result, enrollment was very low. After the ACA was passed in 2010, the federal government set up its own temporary high-risk pool – the Pre-existing Condition Insurance Program (PCIP) – to cover the remainder of the states (and gaps in the other state programs) until insurers were required to cover pre-existing conditions in 2014.

Whether policymakers wish to separate the sick from the healthy involves tradeoffs. True health insurance, by definition, transfers income from the healthy to the sick, and the ACA upheld this spirit by ending high-risk pools, requiring individuals to purchase insurance, and strictly limiting the additional amount that insurers could charge older people in the exchanges for their premiums. On the other hand, strictly speaking, true insurance does not insure against the “risk” of an event that has already occurred, such as chronic illness. In this sense, the American Health Care Act upholds the spirit of true insurance by separating those who have already become sick from those who could become sick. The American Health Care Act would fund high-risk pools, repeal the individual mandate, and allow insurers to charge more to older individuals in the exchanges. Before evaluating the bill, one must understand these tradeoffs.

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