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State high-risk pools fail to deliver affordable premiums

The lack of reasonably priced health coverage has spawned a rash of insurance scams, costing patients and employers millions of dollars.

By Joel B. Finkelstein, amednews staff. Sept. 15, 2003.

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Washington -- Many states are looking to high-risk pools to address the lack of affordable coverage, a problem that has led to an increase in scams in the individual health insurance market.

High-risk pools have the potential to absorb so-called "uninsurables" while making the individual market more affordable for others. But most states have failed to deliver on this promise, experts said.

The cost of operating high-risk pools is more than the pools can collect in premiums. The programs are generally subsidized through a tax assessment on all of a state's health insurers, both individual and group plans. This spreads the cost of providing health services to a sicker population across a larger group of insured people, instead of relying on the relatively small individual market to cover the chronically ill.

But this subsidy strategy has not proved sufficient to bring premiums for the high-risk pools low enough, said Karen Pollitz, project director at Georgetown University's Health Policy Institute. Coverage rates for high-risk pools can run anywhere from 110% to 200% of the average cost of the state's individual market premiums.

Because they are so expensive, few people can afford to participate in the programs. "In most states, you can invite the high-risk pool over for dinner," Pollitz said.

Among the 31 states that now have high-risk pools, only a handful of programs have more than a few thousand enrollees, according to a new report from Communicating for Agriculture and the Self-Employed.

California and Illinois are among the states with high participation numbers, but this is due mainly to the large populations of those states.

By contrast, Minnesota has by far the largest program, with more than 31,000 participants, even though it has a smaller population. The difference, experts say, is in how the states chose to subsidize their high-risk pools.

Minnesota helps fund its program with a tax assessment on physicians and others offering health care. Physicians may not like the tax on principle, but the impact is small because most of the cost is passed on to payers, said Deborah Chollet, a senior fellow with Mathematica Policy Research.

This approach spreads the risk across all health care users, allowing the state to offer reasonable premiums, as well as relatively generous benefits, Chollet said.

Maryland, the state that most recently established a high-risk pool, has taken a similar approach by adding a tax to hospital rates, which are regulated by the state. This allows the state to spread its subsidy across all of the health payers, said the program's director, Richard Popper.

The program also will be the first to take advantage of federal aid provided by the Trade Act. The state pool is awaiting a $690,000 federal check and also will be eligible for tax credits to steel workers affected by a recent plant closing in the state.

Patients taken for a ride

Even in states without such success, the high-risk pools are lifelines for many patients, mainly those with such chronic ailments as diabetes and heart disease, Georgetown's Pollitz said.

The hardest time to get individual coverage is when you're sick, but that's also the hardest time to be without it, she said. This need and the lack of affordability of high-risk pools are factors in the rising tide of insurance scams preying on consumers desperate for affordable coverage, according to a new report from the Commonwealth Fund.

"They are driven to [these plans] because there is nothing else out there for them," Pollitz said, adding that many patients with chronic diseases are drawn in with the promise that they "can't be turned down."

Unauthorized and unlicensed health plans, which skirt or outright flout state laws, collect premiums from unsuspecting patients, usually charging 20% to 30% below the market, said Mila Kofman, an assistant research professor at Georgetown's Health Policy Institute and lead author of the report.

"The coverage is still expensive; it's just last year's rates," she said.

The plans may offer patients discount health services but do not deliver. But because they don't actually provide health coverage, it is debatable whether state laws regulating insurance apply.

Other plans clearly are covered by state laws, but only stay in business long enough to collect a few months' premiums before state regulators catch on.

Some plans don't pay anything out, but many are clever enough to pay small claims to keep collecting monthly premiums. They uniformly deny large payouts, however, sometimes dangerously delaying treatment for patients.

The study showed that four of the largest unauthorized health plans left nearly 100,000 patients with $85 million in unpaid medical bills.

"There are a lot more people affected than that," Kofman said.

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