Remembering the Bad Old Days of High-Risk Pools

There seems to be a lot of nostalgia among lawmakers for “high-risk pools” these days. In the past, high-risk pools offered high-cost health insurance to people with pre-existing conditions who would have been denied standard coverage by insurers.

First, the latest amendment to the federal health care repeal bill would let states gut coverage guarantees for people with pre-existing conditions, if the state sets up a high-risk pool or participates in a federal risk pooling system. Second, at the state level, Texas Senate and House bills are moving this session that would allow Texas to re-establish a high-risk pool or a reinsurance system, if federal funds become available.

I find the renewed interest in high-risk pools perplexing and disheartening. I followed the Texas high-risk pool closely. Not only as a policy analyst, but also on a personal level. My mom was in Texas’ high-risk pool for two years at a time in her life when I was providing frequent help with her health care navigation and decision making. From both of those vantage points I can tell you that Texas’ old, segregated high-risk pool was a failed experiment.

I was grateful my mom could get pool coverage because, before the Affordable Care Act (ACA), she had literally no other coverage options. But the high-risk pool was terrible, as were high risk pools in other states. The Texas pool had remarkably high premiums and out-of-pocket costs. Premiums were set by state law at twice the market rate. Sky-high costs effectively locked most people out. At its peak, the pool covered around 30,000 Texans, a tiny fraction of the 6 million uninsured residents Texas had at that point. The pool also had a pre-existing condition waiting period for people without prior continuous coverage – which seems incongruous given that by definition, everyone in the pool had a pre-existing condition.

The old Texas high-risk pool was simply not set up or funded in a way to make it a meaningful coverage option for many. The ACA’s combination of coverage and cost guarantees for people with pre-existing conditions and sliding scale subsidies for premiums and out-of-pocket costs stands in stark contrast to old high risk pools and has resulted in the largest coverage gains in Texas in decades.

Even before the ACA passed in 2010 and Texas closed its old high-risk pool in 2014, people were dropping out of the pool. Many Texans would migrate over the years from the $2,500 deductible plan, to the $5,000 plan, to the $7,500 deductible plan in search of more affordable premiums, before dropping coverage all together because it was unaffordable. CPPP and the National MS Society worked with legislative champions to create a low-income subsidy in the pool, which was effective from 2011 through 2013. The subsidy reduced premiums for people under twice the poverty level to average market rates, which was still unaffordable to most people at such low incomes, and was far less financial help than is now available with the ACA. Advocates who worked to improve the high-risk pool were constantly in the position of being grateful for its coverage and incremental improvements for the few who could benefit, while being frustrated by its fundamental failure to provide meaningful coverage to the much larger number of Texans in need.

The State of Texas showed next-to-no financial commitment to the high-risk pool. The Legislature provided $500,000 in start-up funding to create the pool in 1998 and nothing more. The majority of expenses over the 16-year history of the pool, 63 percent, were financed by the sky-high premiums of pool enrollees. Assessments on insurance companies funded one-third. Sporadic federal grants funded less than 2 percent. The low-income subsidy that started in 2011, essentially funded by an assessment on Texas hospitals, was a drop in the bucket, but still funded more care than the state budget, which provided just 0.01 percent of pool revenues over the life of the pool. This lack of state financial commitment is worth noting because the federal health care repeal bill would require a sizable state match to draw down funds available for state high risk pools, starting at 7 percent match in 2020 and growing to 50 percent in 2027.

Here’s the fundamental problem with segregated high-risk pools – money. Insurance spreads the risk of the fewer sick people across a larger pool of relatively healthy people. High-risk pools do not. They combine sick people with sicker people making coverage prohibitively expensive. It would take a huge and unprecedented public investment in risk pools to make premiums and out-of-pocket costs affordable. Nothing in the pending federal or state legislation provides a guarantee of affordability for risk pool coverage.

There is a better option. If there is any good news in the wave of high-risk pool nostalgia, it is that they aren’t a foregone conclusion. Neither the federal health care repeal bill nor the state risk pool authorizing bills, if passed, would require Texas to set up a segregated pool like Texas’ old one. Both would allow for other risk-spreading tools like reinsurance, which experts estimate would cost about one-third of what high-risk pools would. Should Texas be in the unfortunate position to have to consider state risk spreading mechanisms in the future, the choice should be clear: we should not return to the bad old days of high-risk pools.

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