PPACA required HHS to establish the PCIP program within 90 days of enactment and set forth requirements for eligibility, coverage, and premiums. For example, PPACA limited PCIP enrollment to those who have a pre-existing condition and have been without creditable coverage for at least 6 months prior to application. This requirement effectively prevents enrollment by those who were already insured, thus limiting the program to those who have likely been unable to access insurance because of their pre-existing health condition. PCIP programs may not impose waiting periods for coverage based on the enrollee’s pre- existing condition, and plan benefits must cover at least 65 percent of the cost of coverage without exceeding a statutory out-of-pocket spending limit, which was $5,950 for an individual in 2010 and 2011. PPACA required PCIP premiums to be set at 100 percent of the standard rate for a standard population in each state or market, and the premiums may vary only on the basis of age—by no more than a 4 to 1 ratio— geography, and smoking status. The PCIP program was generally modeled after existing HRPs, but with some important distinctions. For example, unlike PCIPs, state HRPs do not require that individuals be without coverage for 6 months to be eligible. Once enrolled, however, many HRPs impose waiting periods of 6 to 12 months for coverage of the pre-existing condition, while PCIPs have no waiting periods. Also, there is no federal limit on out-of-pocket expenses in existing HRPs. Finally, whereas PCIP premiums are limited to the standard rate in each state, existing HRPs typically offer premiums ranging from 125 to 200 percent of the standard rates available in their states. To begin implementing the PCIP program, CCIIO determined states’ funding allocations and issued regulations. In April 2010, CCIIO determined a state-by-state allocation of the total $5 billion PCIP appropriation, and asked states to indicate their interest in administering their own PCIP by April 30. The initial allocations were based on a formula similar to that used for the Children’s Health Insurance Program with factors that reflected each state’s population, number of uninsured individuals under age 65, and a geographic health care cost factor. CCIIO issued an interim final rule on July 30, 2010 to provide further guidance on PCIP program requirements, although it allowed state-run PCIPs some flexibility in how they operated their programs. For example, CCIIO identified options PCIPs may allow for applicants to demonstrate their pre-existing conditions, such as documentation of coverage denial by another carrier, an offer of coverage with a rider excluding a pre-existing condition, or a diagnosed medical condition or health condition approved by the state. The rule also prescribed that eligible individuals who submitted their complete applications before the fifteenth day of the month must be covered on the first day of the following month. All PCIPs were required to cover certain categories of services, such as physician and hospital services, mental health and substance abuse services, skilled nursing and home health care, preventive and maternity care, and prescription drugs. For the 27 states that chose to administer their own PCIPs, HHS directly contracted with states or their designated nonprofit entities, and obligated funds for calendar years 2010 and 2011. The contracts established that HHS would reimburse states or their designated entities for claims and administrative costs incurred in excess of the premiums they collected. HHS also established a limit on administrative costs of no more than 10 percent of each state’s total spending over the lifetime of the program. The contracting process for states could also involve the selection of subcontractors to provide services, such as claims processing, pharmacy benefits management, or disease management. Two state-run PCIPs began coverage in July 2010, 9 states began coverage in August 2010, 12 states in September 2010, and the remaining 4 states in October 2010. To implement the federally run PCIP for the 24 states that opted not to administer their own PCIP, HHS coordinated with other federal agencies and selected the Government Employees Health Association, Inc. (GEHA) to administer the coverage benefits in these states. In 2011, HHS offered three plans through GEHA—the Standard, Extended, and Health Savings Account (HSA) plans. To assist with the administration of the federally run PCIP, CCIIO established interagency agreements with two federal agencies—OPM and NFC—that had experience administering the Federal Employees Health Benefits Program. Under these agreements, OPM manages the daily operations with GEHA and NFC, and NFC performs administrative functions pertaining to eligibility determination and premium collection. GEHA was awarded a cost-plus- award fee contract, which established that HHS would reimburse GEHA for claims and administrative costs in addition to granting fixed and performance-based award fees. Moreover, the agreements with OPM and NFC established that HHS would reimburse the administrative costs incurred by the two agencies. HHS began taking applications in July 2010, and coverage began in August 2010 in 21 states, in September 2010 in 2 states, and in October 2010 in 1 state. (See fig. 1.) The interim final rule set forth additional requirements for both state- and federally run PCIPs providing CCIIO the means to oversee the program and to promote its efficient and fair operation. For example, the rule requires PCIPs to establish procedures to identify and report instances of fraud, waste, and abuse, as well as cases of “insurer dumping”—that is, insurance carriers or employers discouraging high-risk individuals from remaining enrolled in their coverage so that they may instead enroll in a PCIP program. In addition, state-run PCIPs operating in states that had an existing HRP were subject to a maintenance of effort provision, which required these states to maintain funding for the existing pool. Provisions relating to maintenance of effort and other requirements were included in contracts signed with states and nonprofit entities administering the PCIPs. Health insurance plans offered by state- and federally run PCIPs generally had similar cost sharing features. Other PCIP features varied across states, such as coverage limits, premiums, and the criteria for demonstrating that an applicant had a pre-existing condition. Health insurance plans offered by state- and federally run PCIPs had similar cost sharing, including annual deductibles and out-of-pocket maximums. For example, the most popular plans available in most states had annual deductibles ranging from $1,000 to $2,999, out-of-pocket maximums at or near the legal maximum of $5,950, and coinsurance of 20 percent. (See table 2.) In 2011, the 27 state-run PCIPs collectively offered 49 plans—15 out of the 27 states offered a single plan, 5 states offered 2 plans, and 7 states offered more than 2 plans. HHS offered 3 plans in the 24 federally run PCIP states—known as the Standard, Extended, and HSA plans. See appendix I for PCIP cost sharing features by state. In 2011, almost all state- and federally run PCIPs had coverage limits for some benefits; however, the selected benefits and the extent of coverage limits varied. (See fig. 2.) Most PCIPs imposed limits on skilled nursing, home health, and therapy services. For example, coverage limits for skilled nursing services in the state-run PCIPs ranged from 30 days to 180 days per year in Utah and Oklahoma, respectively. The federally run PCIP limited skilled nursing charges to $700 per day for up to 14 days following an acute inpatient discharge. Limits on home health services ranged from 25 visits per year in the federally run PCIP states to 270 visits per year in Alaska’s, Arkansas’, and Illinois’ state-run PCIPs. Most state-run PCIPs (17 out of 27) imposed coverage limits for mental health and substance abuse services, whereas the federally run PCIP did not have any limits for these services. For example, in California’s state-run PCIP, adult enrollees were limited to 10 inpatient days and 15 outpatient visits per year for mental health disorders, and up to 20 visits per year for outpatient alcohol and drug treatment. Additionally, the federally run PCIP and 13 state-run PCIPs did not impose any lifetime dollar limits, whereas 14 state-run PCIPs had lifetime limits ranging from $1 million to $5 million. In addition to these common coverage limits, some state-run PCIPs also imposed limits on professional services, durable medical equipment, and hospital inpatient services. Premiums among PCIPs varied by age, state, and plan type, and premiums were on average higher among state-run PCIPs compared with the federally run PCIP. (See fig. 3.) As of June 2011, the average monthly premium for a 50-year-old person was $407 across all states, ranging from $240 in Utah to $1,048 in Alaska. Monthly premiums among state-run PCIPs were 19 percent higher, on average, than the average premium for the same enrollee in the federally run PCIP Standard plan— $440 per month for a 50-year-old person compared to $370, respectively. In 2010, however, average premiums among state-run PCIPs were 5 percent lower compared to the federally run PCIP— $431 per month versus $455. Eleven state-run PCIPs charged higher premiums for smokers, and seven state-run PCIPs varied premiums by geographic regions within the state. Conversely, the federally run PCIP did not vary premiums by smoking status or geographic regions within states. Furthermore, in developing their standard rates, state-run PCIPs typically based their rates on a survey of top insurance carriers in their states, whereas HHS and OPM calculated the rates for the federally run PCIP states based on premiums charged by existing state HRPs. See appendix II for the premium rates for the most popular PCIPs by state. Until July 1, 2011, applicants for the federally run PCIP generally had fewer options available to demonstrate their eligibility based on a pre- existing condition than did those in the state-run PCIPs. In the federally run PCIP, applicants could demonstrate the criteria by providing documented evidence in one of two ways: (1) a denial letter indicating refusal of coverage by an insurance carrier; or (2) an offer of insurance with a rider that excluded coverage for a pre-existing condition. Additionally, within the federally run PCIP, all children under age 19 had the option to provide documented evidence of an offered plan with premium rates at least twice that of the PCIP Standard plan premium rates offered in their respective states. On May 31, 2011, HHS announced in a news release that beginning July 1, 2011, applicants could demonstrate their pre-existing condition by providing a letter from a health care provider dated within the previous 12 months documenting a current or past diagnosed medical condition. In contrast, most state-run PCIPs have allowed three options to demonstrate a pre-existing condition since their inception. Similar to the federally run PCIP, most state-run PCIPs allowed applicants to document their pre-existing condition by submitting a notice of denial or an offer of coverage with a rider excluding the condition. In addition, 24 state-run PCIPs allowed applicants to provide documentation from a health care provider of a medical condition on the state’s pre-existing condition list. Additionally, seven states accepted evidence of an offered health plan with premiums higher than the PCIP premiums available to the same applicant in those states. Considering the four options above, 20 states accepted at least three options, including 5 states that accepted all four options for demonstrating a pre-existing condition. (See fig. 4.) See appendix III for the criteria allowed for demonstrating a pre-existing condition in each state. As of April 2011, enrollment in state- and federally run PCIPs was significantly lower than projected, though it has increased steadily. To increase awareness of the program, HHS and states have undertaken a variety of outreach efforts. Consistent with the low enrollment, spending has also been lower than projected. Early PCIP enrollment has been significantly lower than initially projected. By November 2010, after about 4 months of coverage, total PCIP enrollment was about 9,000, and increased to nearly 21,500 by April 2011, ranging from 0 in Vermont to nearly 3,200 in Pennsylvania. Initial projections of average monthly enrollment made in 2010 were about 71,500 for state-run PCIPs and about 78,000 for the federally run PCIP. As of April 30, 2011, actual enrollment totaled about 15,800 in the state- run PCIPs and about 5,700 in the federally run PCIP. (See fig. 5.) This represents 5.6 people per 10,000 uninsured living in the 27 state-run PCIP states and 2.5 per 10,000 uninsured living in the 24 federally run PCIP states. Enrollment in PCIPs was evenly split between males and females and the majority of enrollees were age 45 or older. See appendix IV for additional information on state-level PCIP enrollment. We found that lower than expected enrollment may be attributed to five factors: (1) the statutory requirement that applicants be uninsured for 6 months prior to applying, (2) affordability concerns, (3) a lack of awareness about the program, (4) the processes used for determining eligibility, and (5) existing state laws or state-supported health insurance programs. 1. Statutory requirement that applicants be uninsured for 6 months: Officials from several state-run PCIPs told us they considered this requirement to be a barrier to eligibility. Based on applications data received from CCIIO, 45 percent of denials for state-run PCIPs and 69 percent of denials for the federally run PCIP were due to the applicant having creditable health coverage within the previous 6 months. Other individuals likely did not apply because they had creditable coverage within the prior 6 months and knew they were not eligible. 2. Affordability concerns: CCIIO and state PCIP officials told us they considered the cost of premiums—which were required to be set at 100 percent of the standard market rate, and averaged $407 per month in June 2011—to be unaffordable for many. In its May 31, 2011 news release, HHS announced it would reduce PCIP premiums in 18 states with a federally run PCIP beginning July 1, which may improve the affordability in those states. 3. Lack of awareness of the PCIP program: PCIP officials cited several possible reasons for why awareness about the program has been low. First, PCIP officials explained that the quick roll-out of the program allowed little time to focus on marketing and outreach, and that the agency intentionally limited initial marketing activities in an effort to avoid enrolling more individuals than the plan could support. Further, PCIP officials also said that, compared to other populations targeted by federal programs (such as low-income children), the segment of the uninsured population with pre-existing conditions has been difficult to identify and target. Additionally, hospitals and providers are generally less familiar with the individual insurance market and where to refer uninsured individuals. 4. Processes used for determining eligibility: Lower enrollment in the federally run PCIP states may be due, in part, to the fact that applicants only had two options to demonstrate their pre-existing condition through June 2011, whereas most state-run PCIPs allowed three or more options. Most notably, the federally run PCIP did not use a pre-existing condition list, and required applicants to provide proof of denial or an offer of coverage with an exclusionary rider from another insurance carrier, which could have imposed additional burden. We found that over half of new enrollees in state-run PCIPs demonstrated their pre-existing condition by providing evidence of a diagnosed condition on their state’s list. In its May 31, 2011 news release, HHS announced that beginning July 1, 2011, applicants living in the 24 states in the federally run PCIP would be able to demonstrate their pre-existing condition by submitting a letter from a provider documenting a current or past diagnosed medical condition. 5. Existing state laws or state-supported health insurance programs without pre-existing condition limitations: PCIP enrollment has likely been affected by state health insurance laws. For example, five states—Maine, Massachusetts, New Jersey, New York, and Vermont—have guaranteed issue laws that prohibit health insurance denials based on health status or medical condition, which may have contributed to low PCIP enrollment in these states. PCIP enrollment may also be lower in states that offer other state-funded health insurance programs that do not impose pre-existing condition limitations. For example, PCIP officials from Connecticut and Maine told us that they attribute low PCIP enrollment, in part, to the availability of alternative health insurance programs in their states that provide lower cost coverage for individuals without imposing any restrictions for those with pre-existing conditions. Similarly, controlling for differences in state populations of uninsured individuals, enrollment was lower among the states with an existing HRP compared to the states that did not have an existing pool—3.7 per 10,000 uninsured compared to 5.5, respectively. In efforts to improve the affordability of PCIP coverage and to increase awareness of the program, CCIIO lowered PCIP premiums and undertook additional marketing and outreach efforts beginning in 2011. Compared to 2010 premiums, CCIIO lowered 2011 premiums for adults in the federally run PCIP Standard plan by about 19 percent, and intends to further lower premiums, ranging from 2 percent to 40 percent, in 18 states beginning July 1, 2011. HHS also added rates for children under 19 beginning in 2011, which allowed these enrollees to pay lower premiums than they would have paid in 2010. CCIIO’s outreach efforts included educating various referral sources about the PCIP program—that is, those who most often interact with potential PCIP applicants, such as disease advocacy groups, provider groups, and state officials. In addition, CCIIO conducted several nationwide webinars, distributed posters and brochures, and coordinated with the Social Security Administration to contact individuals applying for disability insurance. Since integrating as part of CMS in 2011, CCIIO and CMS have coordinated to conduct PCIP outreach at over 100 events and conferences. In addition, HHS announced in February 2011 that several large carriers had volunteered to include PCIP information in all insurance denial letters, and the agency announced in its new release on May 31, 2011 that beginning in fall 2011, HHS will begin paying health insurance agents and brokers a referral fee for successfully enrolling individuals in a PCIP. Further, PCIP officials told us they were actively procuring media and grassroots outreach contracts. In contrast to federal outreach efforts, many state-run PCIPs undertook multiple marketing and outreach efforts early on. Officials we interviewed from all eight states told us they conducted outreach to referral sources, such as advocacy and provider groups. Officials from six states told us they leveraged free media outlets, such as news articles or local television coverage, through the use of press announcements or media events; five used paid radio, television, or print advertisements; and four paid agent referral bonuses. The amount of money states have spent on marketing varies, with one state spending as much as $1.1 million and others spending nothing. Any spending on marketing is limited by the 10 percent cap on administrative expenditures. As of March 31, 2011, federal expenditures for the PCIP program totaled about $106 million, significantly lower than projections. Specifically, state- run PCIPs collectively expended about $78 million as of March 31, 2011, and HHS expended almost $26 million for the federally run PCIP and about $1.6 million for its own administrative expenses, which together represented about 2 percent of the total $5 billion appropriation. (See table 3.) Related to lower-than-expected enrollment, expenditures have been significantly lower than projections. State-run PCIPs had initially projected that they would collectively spend about $123 million in calendar year 2010 and over $644 million in 2011. Initial spending projections for the federally run PCIP were nearly $71 million in fiscal year 2010 and over $555 million in fiscal year 2011. While spending varied across states, according to CCIIO officials, it is too soon to predict whether they will need to reallocate funds. See appendix IV for additional information on state-level PCIP expenditures. On average, state-run PCIPs spent about 19 percent of their total expenditures on administrative expenses as of March 31, 2011. In sum, state-run PCIPs spent the most on marketing, eligibility screening, claims processing, personnel costs, and “other” costs, which included such expenses as case and utilization management, consultant services, audit fees, and pharmacy benefits management. According to state PCIP officials we spoke to, it is expected that administrative expenditures as a percentage of program spending will drop to below 10 percent of total expenditures over the lifetime of the program that was established in the interim final rule. Administrative expenditures by the federally run PCIP were incurred by federal agencies and GEHA, and represented about 16 percent of its total spending as of March 31, 2011. Specifically, OPM received interagency payments totaling $2.2 million to manage the daily operations with GEHA and NFC, though according to CCIIO officials, OPM had only expended a portion of the funds and will return any unused funds to HHS. NFC is authorized to receive up to $63.7 million through fiscal year 2011 to conduct eligibility screening and premium collection, though as of March 31, 2011, the agency had not withdrawn any funds from HHS. Administrative expenses also included payments to GEHA to reimburse its incurred costs for such items as claims processing, customer service, and member materials. In addition, GEHA received $865,000 in payment for its contractual fixed award fee, which was set at 5 percent of projected administrative costs. Due to lower than expected enrollment, actual administrative costs were only 13 percent of projections in 2010, and thus projections were revised significantly downward for 2011 to about $6 million with a fixed award fee of $296,400. Contained in the contracts CCIIO established with states and GEHA are provisions intended to help CCIIO assure program requirements are met. Three federal agencies—CCIIO, OPM, and HHS Office of Inspector General (OIG)—are currently engaged in or planning oversight activities. The contracts HHS signed with states and GEHA to provide PCIP coverage are a primary means to ensure that the state- and federally run PCIPs are implemented efficiently and as intended. For state-run PCIPs, CCIIO developed a model contract requiring states, or their non-profit designees implementing the PCIP on their behalf, to conduct key activities consistent across all states. The contracts formalized and operationalized the federal requirements established in PPACA and the interim final rule. For example, state-run PCIPs are contractually required to: verify that the enrollee meets all PCIP eligibility criteria; implement disease and utilization management procedures to ensure enrollees receive necessary but cost-effective care;  establish a detailed claims database that tracks each covered service;  develop operating procedures to detect and report to CCIIO incidences of fraud, waste, abuse, and insurer dumping;  notify CCIIO if enrollment reaches 75 percent of projected levels or if the state expects its expenses to exceed its allotted funding, and develop a mitigation strategy to control costs, which may include raising premiums, reducing benefits, or capping enrollment, as approved by CCIIO; submit monthly cost reports—certified as being accurate and complete—with information on administrative expenses, paid claims, premiums collected, and withdrawals from HHS;  provide CCIIO with an independently audited financial report detailing all PCIP finances by June 30 of each year, 2011 through 2013, in accordance with the state’s standard accounting practices or generally accepted accounting principles. Additionally, states with existing high-risk pools were required to segregate PCIP funding from expenditures associated with the operation of the existing pool, and to comply with the maintenance of effort requirement that they maintain funding for their existing high-risk pools. CCIIO required that states include in their proposals a description of how they would comply with the maintenance of effort requirement and stipulated in the signed contracts that any state-run PCIP shall notify the agency of any changes in the state’s funding levels or methods of the existing pool. For the federally run PCIP, GEHA was generally subject to contractual requirements similar to those applied to state-run PCIPs, such as implementing disease and utilization management, reporting cases of fraud or insurer dumping, and submitting regular cost reports. As do the state-run PCIPs, GEHA is also required to submit independently audited financial statements each year. Notable differences from the state PCIP contracts included provisions related to periodic data reporting and reporting of fraud, waste, and abuse. Rather than the monthly cost reports required of state-run PCIPs, GEHA is required to report similar information biweekly, including claims and administrative expenses and a reconciliation of expenditures to withdrawals from HHS. Regarding fraud, waste and abuse, HHS stipulated additional requirements for GEHA— specifically that it would annually (by March 31) report detailed information on the disposition and dollar amounts associated with any identified cases. In the first such report required, GEHA identified one active case. CCIIO is engaged in or planning a range of PCIP oversight activities. While ultimately responsible for the entire program, CCIIO also relies on OPM in its capacity as administrator of the contract with GEHA to perform oversight. Additionally, the OIG is considering its role. CCIIO, in its role directly overseeing state-run PCIPs, relies on several mechanisms to monitor their compliance and performance. For example, according to CCIIO officials, the agency uses the data provided by state- run PCIPs in their monthly reports to conduct comparisons between projected and actual costs, and reported withdrawals of federal funds. According to CCIIO officials, the agency also conducts a more formal annual reconciliation in March of each year to compare state-reported claims and state-reported withdrawals with records of actual withdrawals from HHS’s Payment Management System. CCIIO notifies any state with identified discrepancies, asking them to correct or clarify the difference. For example, as part of its first reconciliation, CCIIO identified a small number of states for which reported withdrawals did not match records from HHS’s Payment Management System in a given month. In addition, CCIIO officials said they will examine the independently audited financial statements each state-run PCIP is required to provide by June 30th of each year. In addition to financial audits, CCIIO officials stated that they are developing a performance audit strategy, which will include oversight of enrollment, disenrollment, spending as a percentage of allocated funds, and other performance metrics. To identify which states to review, CCIIO officials told us they will conduct a risk assessment of state-run PCIPs based on such factors as enrollment, premium revenue, claims expenditures, and applicability of the maintenance of effort provision. OPM, as the agency overseeing GEHA’s day-to-day operation of the federally run PCIP, reviews GEHA’s compliance with contractual requirements and its financial reports. According to OPM officials, they monitor GEHA’s daily reimbursements from HHS and request detailed information when needed to explain any unusually high claims. OPM also plans to review the annual independently audited financial report to compare claims and administrative expenses to the withdrawal of federal funds. OPM is also responsible for reviewing GEHA’s reported performance measures and determining the amount of its incentive award fee. While GEHA’s performance is self-reported, the systems it relies on to calculate performance will be evaluated by an independent auditor as part of its annual financial audit, according to OPM officials. Finally, the OIG has authority to initiate reviews of state or federal PCIPs at its discretion, per the signed contracts with state PCIPs and GEHA. Although still in the planning phase, OIG included in its fiscal year 2011 work plan an evaluation of the methods used across the PCIP program (state and federal) to prevent and identify fraudulent health care claims. An OIG official told us in May 2011 that it is reconsidering whether to conduct the audit given lower than expected enrollment in the program. We provided a draft of this report to HHS for comment, and received a written response, which is included in this report as appendix V. In commenting on the draft, HHS emphasized our findings addressing its recent and planned efforts to increase enrollment by expanding outreach activities, providing additional ways for applicants to demonstrate eligibility, and reducing premiums. Regarding our finding that administrative costs incurred by the federally run and some state-run programs have exceeded 10 percent of total expenditures during the first year, HHS said that it anticipates administrative costs will average 10 percent or less of total expenditures over the life of the program as required by the interim final rule, and will continue to monitor those costs closely. HHS also provided technical comments, which we incorporated as appropriate. As arranged with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days after its issuance date. At that time, we will send copies of this report to the Secretary of Health and Human Services, the Administrator of the Centers for Medicare & Medicaid Services, and other interested parties. In addition, the report will be available at no charge on the GAO web site at http://www.gao.gov. If you or your staff members have any questions about this report, please contact me at (202) 512-7114 or dickenj@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix VI. Legend: N/A = Not applicable This deductible only applies to brand name drugs. The 24 states in the federally run PCIP are Alabama, Arizona, Delaware, District of Columbia, Florida, Georgia, Hawaii, Idaho, Indiana, Kentucky, Louisiana, Massachusetts, Minnesota, Mississippi, Nebraska, Nevada, North Dakota, South Carolina, Tennessee, Texas, Vermont, Virginia, West Virginia, and Wyoming. The three plan options are the Standard, Extended, and Health Savings Account options, which have annual medical deductibles of $2,000, $1,000, and $2,500, respectively. State-run Pre-Existing Condition Insurance Plans (PCIP) Appendix IV: Enrollment and Expenditures for State- and Federally Run Pre-Existing Condition Insurance Plans (PCIP) Legend: N/A = Not applicable For the federally run PCIP states, administrative expenses and federal reimbursements were not available on a state-by-state basis. In addition to the contact named above, Randy DiRosa, Assistant Director; Laura Brogan; Drew Long; Perry Parsons; Said Sariolghalam; and George Bogart made key contributions to this report.

Summary: Individuals applying for health insurance are often denied coverage due to a pre-existing condition. The Patient Protection and Affordable Care Act appropriated $5 billion to create a temporary pool--known as the Pre- Existing Condition Insurance Plan (PCIP) program--to provide access to insurance for such individuals until new protections take effect in 2014. Twenty-seven states opted to run their own PCIPs, while 23 states and the District of Columbia opted to let the Department of Health and Human Services (HHS) run the PCIPs for their residents. Initial projections of total enrollment varied from 200,000 to 375,000, and questions have been raised about funding, implementation, and oversight of this new program. GAO examined (1) PCIP features, premiums, and criteria for demonstrating a pre-existing condition, (2) trends in PCIP enrollment and spending, including administrative costs, and (3) federal oversight activities. GAO reviewed PCIP benefits and rates; interviewed officials from selected state PCIPs, HHS, and the Office of Personnel Management (OPM), which assists HHS in administering aspects of the federally run PCIP; analyzed data provided by HHS and OPM; and examined contracts and interagency agreements. In its comments, HHS emphasized its recent efforts to increase enrollment and provided technical comments, which GAO incorporated as appropriate. State- and federally run PCIPs generally had similar cost sharing arrangements, although other features varied. Most states had annual deductibles falling within $1,000 to $2,999, with out-of-pocket limits at or near $5,950. Coverage limits were common but varied, both in terms of the benefits affected and the extent of the limits. Monthly premiums ranged considerably--from $240 in Utah to $1,048 in Alaska for a 50-year-old enrollee--and were generally lower in the federally run PCIP. Additionally, applicants in the federally run PCIP generally had fewer options to demonstrate a pre-existing condition--a criteria of program eligibility-- than did those in the state-run PCIPs. Enrollment and spending for state- and federally run PCIPs have been significantly lower than initial projections. As of April 30, 2011, enrollment had exceeded 21,000, ranging from 0 in one state to nearly 3,200 in another state. Factors contributing to low enrollment include the statutory requirement that enrollees be uninsured for 6 months prior to applying; premiums that may be unaffordable to many; and a lack of PCIP awareness. In response, HHS reduced premiums in the federally run PCIP states and increased its outreach efforts in 2011. Spending was also lower than projected--about 2 percent of total program funding had been spent, or about $78 million by state-run PCIPs and $26 million for the federally run PCIP. To provide for program oversight, HHS established contracts with states and the carrier selected to provide benefits for the federally run PCIP, which include numerous provisions to ensure program requirements are met. For example, the contracts require regular reporting of expense and enrollment data, and annual completion of independently audited financial reports. Also, HHS and OPM are engaged in ongoing oversight activities, such as reconciling the reported data, and HHS intends to conduct performance audits in the future.