Since the 1980s, high-risk pools (HRPs) have been one mechanism for providing health insurance to so-called “uninsurables.” For now, the Affordable Care Act (ACA, or “Obamacare”) has obviated the need for HRPs, but the approach continues to elicit support, especially from more conservative health care reformers who see them as an alternative to the ACA itself.
For those interested in using markets to improve health care, however, the idea presents problems, both historical and philosophical, though a more recent variation (“invisible high-risk pools,” or IHRPs) may reduce these negatives.
For a brief description: Before the ACA, a narrow swath of the American public (perhaps 3 percent or 4 percent of the population) had difficulty obtaining health insurance because of “pre-existing conditions” — high medical costs or probable costs. Sometimes, insurers required “pre-ex” enrollees to pay very high premiums. Sometimes, coverage was denied altogether.
Around 35 states established HRPs — parallel insurance systems, financed by states. Thus segregated, the logic held, pre-ex patients would no longer drive up the general population’s insurance premiums. Subsidies shielded pre-ex patients from their own sometimes-astronomical costs.
But HRPs were operationally troubled. Despite the subsidies, policies weren’t cheap and were often suboptimal from patients’ perspectives. Many state programs were chronically underfunded and saved money by imposing narrow provider networks, waiting periods for treating pre-existing conditions, and waiting lists for getting into the HRPs.
The ACA guarantees that anyone can purchase whichever policies are available and prohibits insurers from charging higher premiums to pre-ex patients. During the 2010-2014 transition to the ACA, the law established a temporary federal HRP. Enrollment was surprisingly small and costs surprisingly large, so the program was shut down prematurely.
History aside, HRPs pose philosophical pitfalls for market advocates. One can argue that they effectively constitute a single-payer system for sick people. Like Medicare and Medicaid, they remove a segment of the population from the general insurance pool and relegate them to a taxpayer-financed public insurance system. Proponents of increased government involvement in insurance and care can thus argue that HRPs are an effective admission that markets fail in the health sector (a contention I reject wholeheartedly).
Most fundamentally, HRPs put governments in charge of deciding who is and who is not pre-ex-level sick, and this in itself can be inimical to the idea of markets and decentralized decision-making. From there comes a slippery slope.
Once market proponents say, “The government should run the health insurance system for sick people,” they invite a never-ending argument over who is sick and, therefore, HRP-eligible. If markets don’t work for really-really-sick people, then why not add in the merely really-sick people? Stretched to its extreme, this arbitrary demarcation can degenerate to, “We’re all going to die, so we’re all pre-ex.” That’s arguably the logic behind Medicare-for-All and other single-payer proposals. Expanding the boundaries of pre-ex is conceptually similar to arguments for lowering the Medicare eligibility age or broadening the Medicaid eligibility income.
That brings us to the latest wrinkle — IHRPs, an approach pioneered in Maine. Here, pre-ex patients remain in the general population pool and buy the same insurance policies as everyone else at the same prices. Behind the scenes, however, the state still designates who is pre-ex and pays subsidies to whomever insures them. Unlike traditional HRPs, though, IHRP enrollees may not even realize that they are so classified. Their choices add an element of competition to the larger insurance markets.
While this approach seems more market-friendly, it still invites a large question: Do IHRPs (or traditional HRPs) fix the problem they’re designed to alleviate? The original motivation was that when high-cost pre-ex patients share the risk pool with healthy people, premiums rise and the healthy end up subsidizing the sick — sometimes at great cost.
With HRPs, those healthy people no longer subsidize the pre-ex population directly through premiums, but they do pay taxes to the state, which are used to subsidize the pre-ex population. Does this make the healthy population better off financially?
All of this reflects a basic problem with health reform in America. We focus too heavily on payment systems — shifting around who pays and from which account. Ultimately, fixing the problems demands delivery system innovations that lower costs and improve quality.