Yesterday the Obama administration announced that it would be extending the Pre-Existing Condition Insurance Program (PCIP) through January of 2014, instead of ending the program at the end of December 2013 as originally planned. In doing so, they managed a political ‘twofer,’ not only averting (or at least delaying) a looming healthcare and political catastrophe that would have occurred if current beneficiaries of PCIP had been dumped from coverage before they were able to enroll in new coverage, but also potentially lowering the average claims expense for insurers, which in turn may reduce premium hikes for 2015.
The PCIP program, commonly known as high-risk pools, are intended for people who are without insurance and who, because of a previous medical condition, are unable to buy insurance in the private market at anything other than extraordinarily high rates. For understandable reasons, insurers have looked at these people as high risks to insure, and will either decline them outright or offer premiums that accurately reflect the likelihood that the insured would rack up massive medical bills.
To deal with this problem several states over the past few decades created high-risk pools. The basic concept was that people who couldn’t get insurance at affordable rates would still be charged higher premiums than others, but those premiums would be subsidized by the state or other insurers to keep the premiums somewhat affordable.
High-risk pools were in existence in 35 states before Obamacare passed, and they have often been suggested by conservative and free-market heath policy experts as one way to deal with ‘uninsurable’ people. For example, the Heritage Foundation had this to say in October 2013 when discussing alternatives to Obamacare:
States could use a variety of approaches to provide coverage to individuals who are unable to purchase insurance. For instance, 35 states already operate high-risk pools with a collective current enrollment of 227,000 individuals to ensure access to coverage for individuals with pre-existing conditions. Alternatively, states could establish reinsurance or risk transfer mechanisms under which insurance companies would reimburse each other for the cost of treating individuals with high medical expenses without added funding from state or federal taxpayers.
In order to help provide immediate coverage to this population, Obamacare created a federal high-risk pool that went into operation in 2010, with the intention that it would end in December 2013 since people in the program would be able to easily enroll in new insurance plans once the Obamacare exchanges opened.
I think you can see part of the problem.
But the bungling of Obamacare did not wait until the online exchanges were unveiled and promptly crashed. The high-risk pools also were a major failure as well, at least in terms of providing coverage to large numbers of uninsurable Americans or coming in close to budget.
High-risk pools were projected to cover 375,000 people, and cost about $5 billion between 2010 and 2013. Instead they enrolled just over 107,000 people, but still managed to run out of money in early 2013, when the administration was forced to halt enrollment.
One major problem with the federal high-risk pool was that the average costs per enrollee were much higher than expected. By its very nature you’d expect medical expenses on average to be higher than the rest of the population. But instead of average expenses per enrollee of around $13,000, similar to the experience of states with their own high-risk pools, average costs by early 2012 were nearly $29,000. This was in part because the law imposed onerous restrictions on who could sign up for coverage under the high-risk pool, ensuring that only the sickest would persist and obtain coverage.
So the high-risk pools are basically filled with people who really, really need the health care services they’re getting, and for whom an interruption in their care can have catastrophic consequences. We’re basically talking about cancer patients, hemophiliacs, AIDS suffers, and others with severe health conditions, many of them lower income.
It was always intended that this program end in December 2013, and those in it would get new coverage through the online exchanges. Then came October 2013, when the term ‘glitch’ was discovered to be a synonym for ‘catastrophic, epic failure of a government program.’ People whose very lives depended on maintaining continuous coverage starting January 1 could not enroll, or at least not be confident they had enrolled.
Yesterday Sarah Kliff of the Washington Post highlighted the story of one high-risk pool patient who could not get new coverage through the exchange:
After three months and more than 50 phone calls, John Gisler gave up on buying coverage through HealthCare.gov.
Gisler wanted to purchase a plan for his 45-year-old son, who has a rare degenerative condition affecting his coordination and speech. His current coverage through Utah’s high-risk insurance pool plan ends Dec. 31. By that time, the Obama administration expects enrollees to transition into health plans sold through the new health-care law.
But so far, Gisler hasn’t succeeded in purchasing coverage — but not for a lack of effort.
“We’ve had three separate applications that failed to make it through,” Gisler says. “I have a notebook with all the calls I’ve made, maybe 50 or 100. It just goes on and on.”
Earlier this week, Gisler quit trying. Worried about a potential gap in coverage, he decided to forgo his son’s $3,000 tax credit and buy outside of the exchange from a local insurance broker.
“We have a son who is critically ill,” he says. “We cannot take any chances. Not having insurance would, in no short order, lead our family to bankruptcy.”
Given the likelihood of tens of thousands of people being dumped from high-risk pools but unable to sign up for new coverage (because so many of them are low-income, the credits available only through exchange-purchased plans are vital), the Obama administration yesterday announced that the high-risk pools will be extended through the end of January, presumably under the assumption that by then the problems with the exchanges would be fixed. In another piece yesterday, Sarah Kliff reported:
With some high-risk patients still struggling to gain health insurance, the Obama administration is extending a health law program that covers more than 100,000 Americans with preexisting conditions.
Obama administration officials said Thursday that the state-based “high risk pools” set up in 2010 will continue to offer coverage to existing members through the end of January rather than ending at sunset on Dec. 31…
Some officials involved with the program estimate that only about half of those high-risk enrollees in some states have successfully enrolled in insurance coverage through HealthCare.Gov…
The Affordable Care Act intended for the PCIP enrollees to transition into health law coverage by the end of this year. The law also gave the agency authority to “extend coverage after the termination of the risk pool involved if the Secretary determines [that] necessary to avoid such a lapse.”
Crisis averted! And for the administration, there’s an added bonus – by keeping the sickest and costliest patients out of the risk pools for exchange-based plans, it means that insurers will have one less month that they need to pay the medical bills for this population.
Hiding Obamacare’s Costs
This is important because insurers will likely only have three or four months worth of claims data to use in setting their premiums for 2015. There is already significant concern that rates will skyrocket in 2015 because those purchasing health insurance right now under Obamacare are generally older and sicker than was initially expected.
Now consider what will happen when the 100,000 or so people currently enrolled in high-risk plans come into the exchange-plans risk pools, especially in light of the relatively modest enrollment in those exchange plans. Imagine a risk pool of 10,000 people with an average medical expense of $6,000 each, for total expenses of $60 million. Now put just 100 people with an average expense of $30,000 into that pool, adding $3 million to the total, meaning a 5% jump in average expenses to the pool and to premiums from this one factor alone. Put 200 high-risk customers in the pool, and premiums rise 10%.
By delaying this population’s entry into the pool for just one month, the administration’s decision will mean insurers have one less month of real claims data to use in setting premiums for 2015, no small matter when only three or four months’ worth of data will be used, potentially shaving a point or two, or even more, off of the insurer’s claims experience.
Insurance companies aren’t dumb, of course, and they’ll be sure to try to calculate the missing month’s claim’s in their rate submissions. But those rate submissions have to be approved by the insurance commissioner in each state, and it’s easy to see them not allowing rate increases based on hypothetical as opposed to real expenses, especially if they’re under political pressure to crack down on ‘excessive’ premium increases (and when is that not the case?).
So the Obama administration appears to have pulled off a bit of a political and policy success, even managing to do it legally, by extending one failed program for a month in order to protect the program’s participants from an even bigger failure, the exchanges inability to let people sign up, and potentially preventing insurers from being able to raise premiums as much as necessary in 2015. Who says this administration can’t do anything right?
Sean Parnell blogs on affordable health care options for people who pay directly for treatment at The Self-Pay Patient, and is the author of the soon-to-be-released book “The Self-Pay Patient: Affordable Healthcare Choices in the Age of Obamacare.”