A Risk Pool is a way of managing the medical costs of persons who have the most expensive healthcare needs. These needs do not have to be chronic. Individuals can face a period of very high-cost medical care because of a single issue.
A risk pool isolates these persons from the rest of the insurance pool used to manage the costs of community health insurance. In theory, the costs of medical care in the risk pool are subsidized so that the premium for using this risk pool insurance remains in the ballpark of the rest of the larger community’s health insurance program.
In the early 80’s I was introduced to the concept of risk pools by a civil rights attorney from New York who had initiated actions involving the way risk pools (then experimental) failed to accomplish what they promised. The current wave of risk pools (35 state ones and the temporary risk pool implemented through the ACA) have failed for the same reasons, with one exception. The national risk pool that ran for two years as part of the Affordable Care Act terminated when the prohibition against the use of pre-existing conditions to exclude insurance participation went into effect. Many of the problems with risk pools described below also occurred with the ACA risk pool model.
Ordinarily, a state policy initiative that had failed 35 out of 36 times would not be considered again, but risk pools have arisen from the dead so many times, that it warrants asking exactly what problem they are intended to solve. It seems to me that risk pool proposals are nothing more than political efforts by the health insurance industry to exclude those with the most expensive and least predictable medical costs from their underwriting expenses.
Additionally, the one risk pool success clearly points to the actual requirements for effective risk pools and those requirements, I think, undermine the political point of risk pools.
Recently, there has been a successful partial implementation of a different kind of risk pool in Maine that also points to the requirements for a successful risk pool.
The Deep Problem
Because the insurance premium in the risk pool will always be out of reach of those persons who have very high short-term or chronic expensive health care needs, the pool must be subsidized by the state or nationally. The subsidy is and will remain expensive. The cost of a national risk pool, and not one that most people would consider fair, would be in the vicinity of $180 billion dollars a year, which is about one-quarter of the proposed annual defense budget of the current administration. This plan would still be of high cost to the insured person and their family and would have deductibles that would make me blanch.
While the core of political difficulty in risk pools surfaces because of the lack of meaningful commitment to persons with high medical costs compared to the political commitment to insurance companies, there are other problems with the way risk pools have been implemented:
Persistently High Premiums
Because of the cost, complexity, and wild unpredictability of claims in any risk pool, the administrative processing costs per pool claim are also extraordinarily high compared with community-based insurance.
The state pools have had a chronic difficulty in maintaining even their more limited subsidization. This difficulty is a combination of unavoidable cyclic changes in state tax revenues mirroring business cycles, the common requirement for balanced state budgets, and the virtually non-existent political capital of the population covered by risk pools. This results in escalating premium costs over the years and lowered enrollments. In fact, the point of the increasing premiums is to force people to choose dis-enrollment.
Most risk pools have used lifetime limits ($1-2 million), high deductibles, and high copays as methods for controlling costs. Understand that lifetime limits produce bankruptcy as the best case and death as the worst case for families trying to manage very expensive medical care.
The use of pre-existing condition clauses to postpone enrollment (6-12 months) is perhaps the most Machiavellian of the methods used to control the use of risk pools. The outcome is that people will die in the meantime, and the total cost for the final expenses will be born by the person’s family and estate, and not the state or federal healthcare systems.
I will include some resources at the end of the next post.
Next Post: Risky Pools 2: What Does It Take to Make Risk Pools Work?