Health Insurance: State High Risk Pools
Released: 2011-01-26T00:00:00

Introduction

In an effort to expand the options for health coverage, 35 states have established high risk health insurance pools. These programs target individuals who cannot obtain or afford health insurance in the private market, primarily due to preexisting health conditions. High risk pools (HRPs) generally cover people who have sought health coverage in the individual (nongroup) market, but have been denied coverage, received quotes from insurers that are higher than the premiums offered by the high risk pools, or received offers from insurers that permanently exclude coverage of preexisting health conditions.

Many states also use their high risk pools to comply with the portability and guaranteed availability provisions of the Health Insurance Portability and Accountability Act of 1996 (HIPAA, P.L. 104-191 ). For eligible individuals moving from the group to nongroup market, HIPAA requires state-licensed health insurers to make coverage available to such individuals, and prohibits exclusion of coverage for preexisting conditions. To enforce these rules, states are given a choice. They may either enforce the HIPAA individual market guarantees ("federal fallback"), or establish an "acceptable alternative state mechanism," such as a high risk health insurance pool.

In general, state high risk pools tend to enroll a small percentage of the uninsured. For example, approximately 200,000 individuals were enrolled in the 34 high risk pools in operation in 2008. In contrast, the Government Accountability Office (GAO) estimated that nearly 4 million additional persons were potentially eligible for enrollment. However, such limited enrollment reflects, in part, the narrow focus of these pools: individuals with preexisting health conditions, who do not have access to public or group health insurance, and seek coverage in the private, non-group market.

In addition to state-established high risk pools, the 111 th Congress passed the Patient Protection and Affordable Care Act (PPACA), which President Obama signed into law ( P.L. 111-148 ) on March 23, 2010. PPACA, as amended, requires the Secretary of Health and Human Services to establish a temporary high risk pool program, prior to 2014, to provide health insurance coverage to certain individuals with preexisting health conditions who have been uninsured for six or more months. This report will focus on the original, state-established high risk pools.

Health Insurance Context

High risk pools fill a niche in the health insurance system—a patchwork system of private markets and public programs designed to meet the needs of different types of health care consumers. In the private health insurance market, most people get health coverage through the group market. This market provides health benefits to groups of people that are drawn together by an employer or other organization, such as a trade union. Such groups are generally formed for some purpose other than obtaining insurance, like employment.

While most Americans receive their health coverage through the workplace—as a current employee, a dependent of an employee, or a retiree—some individuals do not have access to employer-sponsored insurance (ESI). They may be workers who do not qualify for an offer of health benefits from their employer (e.g., because the workers have part-time or seasonal employment status), or they may work for a company that does not provide health insurance at all, or they may be unemployed. Public programs also are a source of health coverage, but individuals and families must meet eligibility requirements in order to qualify for benefits. Individuals who cannot access ESI and are not eligible for public programs may seek health insurance in the nongroup (individual) market.

Applicants to the individual insurance market must go through robust medical underwriting—the process by which an insurer considers information about an applicant and determines (1) whether to offer an insurance policy in the first place, and (2) the terms of that policy (e.g., the monthly premium). The information that a health insurer considers may include personal characteristics, such as an individual's health conditions, family medical history, and other relevant factors. Though uncommon, the insurance carrier may ask an applicant to undergo a physical exam, or provide medical specimens. In the group market, insurers forgo underwriting in the traditional sense, that is, reviewing each person's demographics and medical history. Instead, an insurer would consider the overall characteristics of the group, and calculate a premium for a set of benefits that would be charged to each person in the group, regardless of their individual health status. (For very small groups, insurers may individually underwrite policies, if permitted by law.)

Federal and state laws restrict somewhat insurers' ability to reject applications or design coverage based on health factors in the nongroup market. Nonetheless, some applicants are rejected from the individual market altogether, others may receive insurance offers with riders that exclude coverage for a specific health condition or body part, or others may be charged premiums that are higher than those in the group market for similar coverage. Rigorous underwriting results in an enrollee population in the individual market that is fairly healthy (three out of four enrollees report that their health is excellent or very good ), thereby excluding persons with moderate to severe health conditions from this private market. High risk pools were designed to assist such individuals who—because of their health conditions—have very few options for private health coverage.

Health Policy Context

High risk pools appeal to policymakers who prefer an incremental approach to coverage expansion and reliance on current state oversight of health insurance. Supporters of HRPs contend that states can use their existing regulatory infrastructure, as well as their knowledge of health care markets, to efficiently insure previously uninsurable individuals. Supporters also contend that the private, nongroup market will benefit. They reason that by removing high risk persons from the individual market and placing them in publicly subsidized insurance pools, coverage in the individual market will become more affordable. They argue that better risk spreading helps to stabilize the market, promote competition, and retain insurance carriers—earning the support of such organizations. Moreover, HRPs function as a safety net for the nongroup market by assuring that individuals have access to health insurance as long as they are able and willing to pay for it.

Others contend that high risk pools are generally too small and underfunded to meet the needs of the majority of persons who cannot access health insurance in the private market. By design, HRPs experience losses, but federal attempts to subsidize these losses have been limited. Premiums combined with other cost-sharing requirements can often make the coverage offered by these pools unaffordable. Moreover, most state HRPs exclude coverage for preexisting conditions for six months or more. As a result, some researchers remain skeptical that high risk pools will be able to substantially reduce the number of uninsured, particularly among those with serious medical conditions. With respect to reducing the number of people without health coverage, consumer groups generally advocate for expansion of the federal role in providing coverage, whether through existing public programs or broader health care reform, not unlike some of the private market reforms included under PPACA.

While state high risk pools have existed since the mid-1970s, congressional support of state pools began in the 1990s. The enactment of HIPAA during the 104 th Congress specified state HRPs as acceptable mechanisms for complying with the group-to-individual market requirements. The 107 th Congress passed the Trade Act of 2002 ( P.L. 107-210 ), which authorized a new federal program to provide grants to state high risk pools and made appropriations for FY2003 and FY2004. With expiration of the authorizing legislation for the grant program to states, the 109 th Congress reauthorized the program through FY2010 and made appropriations for FY2006. The 110 th Congress passed legislation in December 2007 and the 111 th Congress passed legislation in March and December 2009 to provide additional appropriations to state high risk pools. (See detailed discussion under " Federal Grants to State High Risk Pools " section.)

State High Risk Pools

Currently, 35 states have high risk health insurance pools. States have a great deal of discretion regarding the establishment and operation of these pools, including covered benefits, eligibility requirements, pre-existing condition exclusion periods, and funding sources.

General Characteristics of State High Risk Pools

Administration

State high risk pools usually are operated through state-established nonprofit organizations. While private insurance companies typically are responsible for daily administrative duties (along with pool administrative staff), traditional high risk pools bear the insurance risk. Boards oversee the governance of HRPs and usually consist of representatives from insurance companies, consumer groups, health care providers, and state agencies.

Premiums and Funding

In order to limit health insurance premiums for persons with costly medical conditions, all states cap high risk pool premiums (most are specified in statute). Almost all states have caps between 150% and 200% of standard risk rates. High risk pools generally operate at a loss, "because it isn't feasible to pool a group of individuals known to have major health problems and expect their premium contributions to cover the entire cost." Thus, many state pools tap other sources of funding to cover their operating expenses.

States may augment premium collection with one or more of the following sources: assessments on insurers, in some instances combined with offsetting tax credits; general revenue; and other state sources. Almost all states with HRPs assess a fee on insurance carriers and health maintenance organizations; two states place an assessment on hospitals. Many state HRPs also receive grants from the federal government (see discussion under " Federal Grants to State High Risk Pools ").

Benefits

Although health benefits provided through high risk pools vary across plans and states, they generally reflect coverage that is available in the private nongroup market. State pools usually offer more than one plan from which enrollees may choose. Deductibles and other cost-sharing requirements vary from state to state. Nearly all state HRPs have at least one plan with lifetime maximums on benefits (based on a dollar limit), except for Indiana and New Mexico. In contrast, most pools do not apply annual maximums on benefits, except for California, Louisiana, Tennessee, Utah, and West Virginia. In addition, most state HRPs exclude coverage for preexisting health conditions for 6-12 months.

Eligibility

States establish the eligibility criteria for high risk pools. As noted, many states allow HIPAA-eligible persons to enroll in their HRPs. HIPAA eligibles are persons who did not have or are losing coverage and seeking it in the individual market. They must meet the following requirements: (1) have at least 18 months of "creditable coverage" (specified in statute) without a significant break in that coverage (63 or more days); (2) most recent coverage must have been through a group health plan; (3) exhausted federal or state continuation coverage; (4) not eligible for Medicaid or Medicare; and (5) not have any other health insurance. For HIPAA eligibles, high risk pools guarantee the availability of health insurance and prohibit exclusion of coverage for preexisting conditions. High risk pools also are designed to address the insurance needs of non-HIPAA-eligible persons with costly medical conditions. A number of states provide for presumptive eligibility, allowing individuals to become automatically eligible for HRPs if they have a certain medical condition specified under state law. In addition to HIPAA eligibles and persons with specific conditions, many states allow individuals who have experienced coverage denials, coverage restrictions, or premium increases to enroll in high risk pools. Lastly, some states allow persons who receive the Health Coverage Tax Credit to enroll in their high risk pools.

Enrollment

High risk pool participation varies significantly across states, with average enrollment ranging from a high of 27,187 participants in Minnesota to a low of 265 enrollees in Florida in December 2009. Among state HRPs, the enrollment distribution clusters toward the low end. To illustrate, two-thirds of state pools had participation below 4,000 individuals (23 states). In contrast, only seven states had more than 10,000 participants.

Federal Grants to State High Risk Pools

Given that state high risk pools typically operate at a loss (see discussion above), the federal government has provided financial assistance to states during the past several years. Congress established a grant program, administered by the Centers for Medicare and Medicaid Services (CMS), to provide seed grants to states that did not already have high risk pools but wanted to establish them, and operational and bonus grants to existing state pools. Once Congress appropriates funding for these grants, CMS announces the funding opportunity and collects and reviews applications. A state may receive up to $1 million in seed grant funding; operational grant amounts are determined by formula. (Not all states with existing HRPs receive grants.)

107th Congress

With enactment of the Trade Act of 2002 ( P.L. 107-210 ), the federal government provided funding to state high risk pools for the first time. The Trade Act authorized and appropriated $20 million in the form of seed grants. Each qualifying state could receive up to $1 million to support the creation and implementation of a high risk pool. In 2003, CMS awarded seed grants to six states: Maryland ($1 million), New Hampshire ($1 million), Ohio ($150,000), South Dakota ($1 million), Utah ($52,618), and West Virginia ($1 million).

The Trade Act also authorized and appropriated $80 million to be split evenly over FY2003 and FY2004 to defray some of the operating losses experienced by states with existing high risk pools. Each operational grant could cover up to 50% of a pool's operating losses for the year. To qualify, each state must have established a high risk pool that restricts premiums to no more than 150% of the premium for standard risk rates in the state, offers a choice of two or more coverage options, and has in effect a mechanism designed to ensure continued funding of losses incurred after the end of FY2004. However, states may still be able to determine, within federal standards, how much to charge enrollees in out-of-pocket costs, what benefits to include under the plans, how long coverage for preexisting conditions may be excluded, and whom among otherwise uninsurable individuals will be eligible.

Table 1 shows which states received operational grants for FY2003 and FY2004, and the funding levels. Nineteen states were awarded operational grants in FY2003; 22 states in FY2004.

109th Congress

With expiration of authorizing legislation for the grant program, the House passed H.R. 4519 , the State High Risk Pool Funding Extension Act of 2006, on December 17, 2005. H.R. 4519 reauthorized federal grants to state high risk pools through FY2010, and changed the funding formula used for such grants. The formula for operational grants was changed to the following: 40% to all qualifying states in equal amounts, 30% based on state proportion of uninsured population among all qualifying states, and 30% based on state proportion of the high risk pool population. H.R. 4519 also allowed operational grants to cover up to 100% of pool losses and authorized the following amounts for FY2006: $15 million for seed grants and $75 million for operational and bonus grants. The Senate passed H.R. 4519 without amendment on February 1, 2006, and President Bush signed it into law ( P.L. 109-172 ) on February 10, 2006.

As part of the budget reconciliation process, the Senate passed S. 1932 , the Deficit Reduction Act of 2005 (DRA) conference agreement. DRA included provisions that would provide specific appropriations for the grants authorized under H.R. 4519 . Section 6202 of the Senate measure amended the Public Health Service Act to provide $90 million in appropriations for grants to states for FY2006. DRA provided $75 million for operational grants and $15 million for seed grants. The grants are distributed according to existing statutory requirements. This measure also included conforming language on enactment of H.R. 4519 . Pursuant to H.Res. 653 , the House agreed to the Senate-amended bill on February 1, 2006. On February 8, 2006, President Bush signed DRA into law ( P.L. 109-171 ).

The appropriations provided under DRA were used to extend federal funding for this program. On September 30, 2006, CMS awarded seed grants to five states that wanted either to establish high risk pools or conduct feasibility studies: California ($150,000), New York ($150,000), North Carolina ($150,000), Tennessee ($1 million), and Vermont ($1 million). That same year, CMS awarded grants to 31 states that experienced operational losses in 2005. Of those 31 states, 25 also received bonus grants, exhausting the entire appropriations for operational and bonus grants. Table 2 shows which states received operational and bonus grants.

Because the funding for seed grants was not exhausted with the 2006 awards, CMS awarded five seed grants in 2007. The states that received these grants were the District of Columbia ($150,000), Florida ($150,000), Georgia ($150,000), North Carolina ($850,000), and Rhode Island ($150,000).

110th Congress

Pursuant to the Consolidated Appropriations Act of 2008 ( P.L. 110-161 ), Congress made additional funding available for grants to state high risk pools. CMS issued a grant notification letter to states on May 1, 2008. It stated that a total of $49,127,000 would be split to fund operational grants (two-thirds of the appropriated amount) and bonus grants (remaining one-third). Applications were due by June 9, 2008.

On July 21, 2008, CMS announced that 30 states received grants totaling $49, 126,500. Table 3 shows which states received grants and the combined grant amounts.

111th Congress

The Omnibus Appropriations Act of 2009 ( P.L. 111-8 ) provided $75,000,000 for grants to state high risk pools. CMS announced the availability of these grants in May 2009. On September 30, 2009, CMS awarded operational grants to 31 states and bonus grants to 28 states (see Table 4 ). Furthermore, the Consolidated Appropriations Act of 2010 ( P.L. 111-117 ) provided $55,000,000 in additional appropriations for high risk pools.

Health Reform

The 111 th Congress passed the Patient Protection and Affordable Care Act (PPACA), which President Obama signed into law ( P.L. 111-148 ) on March 23, 2010. PPACA, as amended, requires the Secretary of Health and Human Services to establish a temporary high risk pool program, prior to 2014, to provide health insurance coverage to certain individuals with preexisting health conditions who have been uninsured for six or more months. States can run the program or elect to have the Department of Health and Human Services (HHS) operate the program in their states. The majority of states (29 states and DC) contracted to operate their own HRPs. HHS administers the HRPs in 21 states, under the Pre-Existing Condition Insurance Plan (PCIP) name.