HIGH-RISK POOLS –
IMPROVING THE INSURANCE MARKET FOR ALL AMERICANS
One segment of America’s uninsured is not able
to obtain health coverage in the individual market due
to conditions that make them “high-risk”
and medically uninsurable. These individuals can obtain
coverage through state high-risk pools, which extend
health insurance coverage to individuals who would be
otherwise unable to obtain it. Risk pools provide a
valuable service to all Americans by extending quality
coverage to people with significant medical expenses. |
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A state high-risk pool provides health insurance coverage
for individuals who might otherwise be unable to obtain
affordable coverage on the individual market. |
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Currently, 32 states have high-risk pools. |
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Most states charge about 150% of the average cost of
a similar policy in that state, although a few states
are permitted to charge as much as 200% of the average
cost. |
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Because premiums are capped for participants, most state
risk pools receive funding from other sources to offset
their operational losses. Many states impose a dedicated
surtax (also called an assessment) on all insurers participating
in a particular market segment to finance the state high-risk
pool; this ensures that all carriers share the financial
costs associated with high-risk individuals equally. Other
states fund their risk pools through general revenues.
In addition, Congress is considering legislation to extend
a program of federal grants to the states to fund a portion
of the operational losses in their risk pools. |
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Risk pools help to moderate the insurance market
and keep rates lower for all individuals. Because a
small percentage of the population accounts for a large
share of all medical expenses, these individuals can
have a disproportionate effect on insurers, forcing
them to raise rates for the entire population. Risk
pools ensure that this population has access to quality
coverage, and that premiums remain at reasonable levels
for the broader population seeking to purchase health
insurance. |
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The first thing to remember is that insurance is designed
to cover losses that you hope you’ll never have,
not as a means to finance known costs. For example, you
buy auto insurance to cover your losses in the event of
an accident, but you hope you’ll never have to use
it. You don’t expect your auto insurance to pay
for tires or oil changes, or even your brakes when they
need to be replaced. Another example is your homeowner’s
insurance. You wouldn’t expect an insurance company
to issue a policy to you on your home if your house was
on fire when you applied, and if your home is older or
located in an area where costs are frequently higher than
average, you’ll expect to pay more for your coverage. |
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The same holds true for health insurance, particularly
if you are an individual purchasing coverage on your
own. In spite of this, a few states require that insurers
cover all applicants regardless of their health status,
called guaranteed issue. Some of these same states also
require that all applicants pay the same premium, regardless
of their age or place of residence, called community
rating. Although well-intended, these policies have
had unintended consequences. Because these policies
do not encourage the purchase of insurance before a
person develops a health condition, many individuals
wait until they are sick to buy coverage. Because health
insurance premiums are based on the claims the company
pays for health care expenses, there is much less opportunity
to spread risk and the cost of coverage is higher. As
a result, over time, those who are younger and healthier
are priced out of coverage, and the price of coverage
for the older, sicker population of insured individuals
becomes even higher. |
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A national survey of health insurance policies published
by eHealthInsurance found that premiums in states with
guarantee issue and community rating were almost twice
as high as premiums in all other states. This evidence
strongly suggests that guarantee issue and community rating
distort the insurance market in ways detrimental to consumers. |
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While guarantee issue and community rating give a perverse
disincentive to healthy individuals who lack coverage,
risk pools extend coverage to high-risk individuals while
preserving a robust insurance market that is affordable
to the vast majority of people seeking coverage. |
| Groups of the uninsured
for whom HIGH-RISK POOLS would be helpful: |
