Monday, March 29, 2010

High risk pools within 3 months? How?

Considering it will take four years to get the health insurance exchanges set up, I'm a little mystified how the Patient Protection and Affordable Care Act can get a program offering catastrophic coverage for people with pre-existing conditions up and running within three months, as the law mandates. Equally mystifying: how can the budgeted $5 billion cover the program?

The basics, as stipulated in Section 1100 of the PPACA and contextualized by Kaiser Health News, are as follows. People with pre-existing conditions who have been without coverage for at least six months can buy coverage in the high risk pool at rates comparable to those available to people without such conditions. The oldest people eligible may pay up to four times as much as the youngest (as opposed to a 3 to 1 ratio in the exchanges).  Their yearly out-of-pocket expenses are capped at  $5950 for individuals and $11,900 for families.  The plans must cover at least 65% of total costs. The program is a stopgap that will end in 2014, when people with pre-existing conditions will be able to purchase insurance from the exchanges on the same terms as everyone else. It is unclear whether the Federal government will set up a single pool or whether The National Association of State Comprehensive Health Insurance Plans will adapt and expand existing state plans.  Nonprofits may also be tapped to administer the plans. 

Here's how it's funded:
      (1) IN GENERAL- There is appropriated to the Secretary, out of any moneys in the Treasury not otherwise appropriated, $5,000,000,000 to pay claims against (and the administrative costs of) the high risk pool under this section that are in excess of the amount of premiums collected from eligible individuals enrolled in the high risk pool. Such funds shall be available without fiscal year limitation.
      (2) INSUFFICIENT FUNDS- If the Secretary estimates for any fiscal year that the aggregate amounts available for the payment of the expenses of the high risk pool will be less than the actual amount of such expenses, the Secretary shall make such adjustments as are necessary to eliminate such deficit.
Kaiser cites estimates that some two million Americans are eligible for coverage in the high risk pool or pools. How can such a major piece of the health care puzzle be put in place so quickly -- and cheaply?  I realize that the exchanges to be established in 2014 will likely cover more than 15 million people, and that the long delay in the exchanges' launch is more a function of the desire to keep the ten-year price tag for health reform down than of the complexity of setting them up.  Also, that some infrastructure for catastrophic coverage is in place, since high risk pools are offered in 35 states.

But the states' high risk pools are expensive; many are underfunded, have long waiting lists or are closed to new entrants, and offer limited coverage, with lifetime caps on coverage as low as $350,000. Indeed, spreading the risk of covering high risk patients is the rationale for the whole architecture of the insurance scheme established by the PPACA.  The core tradeoff is that insurance companies cannot discriminate against people with pre-existing conditions -- and that in exchange for bearing that expense, they will get millions of healthy new customers brought into the exchanges by the individual mandate.  If people with pre-existing conditions can be removed from the equation at relatively modest cost, is this tradeoff necessary?

The answer would seem to be that the program will cost far more than the amount budgeted. Prior to the law's passage, Howard Pollack estimated that more than four million uninsured Americans could take advantage of a high risk pool and that servicing them would cost about $40 billion annually.

So what gives? This is a provisional post: I am seeking further information, e.g., how exactly to read the funding language above.

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