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Temporary Pre-Existing Condition Insurance Plans Seek More Applicants


Scott Harrington
Medical Progress Today
November 17, 2010

The Patient Protection and Affordable Care Act's (PPACA) highly touted temporary high risk plans (offering coverage to uninsured people with pre-existing conditions) are off to a very slow start indeed. Advocates for the legislation argued that the pools would help millions of people with pre-existing conditions who couldn't obtain health insurance in current markets at less than astronomical rates, if at all. But, as announced by the Department of Health and Human Services (HHS) on November 5 and discussed a week later in a Wall Street Journal editorial, only 8,011 people had enrolled in the new high risk plans as of November 1. The meager enrollment figures are bad news for Democrats and good news for taxpayers and proponents' of replacing the PPACA with market-oriented reforms.

The plans, named Pre-Existing Condition Insurance Plans, offer coverage at heavily subsidized rates to people with pre-existing conditions that have been uninsured for at least six months. They are intended as a stopgap until the law's prohibitions on health insurance underwriting and pricing based on health status kick in 2014 (assuming that the legislation isn't repealed or overturned before then).

Twenty-three states and D.C. elected to have plans administered by the federal government; 27 states elected to administer their own plans. The first plans opened for business on July 1; plans were accepting business in most states as of September 1. Michigan, New York, Ohio, and D.C. opened plans on October 1, leaving only California, which opened on October 25.

The Congressional Budget Office had predicted that the plans could attract more than 600,000 people by 2014. In April, the Medicare and Medicaid chief actuary estimated that 375,000 people would sign up this year. In fact, it was feared that the $5 billion authorized in the law to subsidize the plans would be quickly exhausted.

Enrollment thus far has been anemic, to say the least. As of November 1, the plans have attracted fewer than 50 enrollees in 20 states and D.C. Pennsylvania’s plan (open September 1) had the most enrollees, with 1,567. Illinois (also September 1) ranked second with just 664 enrollees.

The explanation being offered for the negligible enrollment by Obama administration officials is that coverage is still too expensive. In response, HHS has announced that it will be introducing new coverage options and cutting rates by up to 20 percent to attract more enrollees.

There is no doubt that plan premiums, while heavily subsidized, are still higher than many people are willing to pay, especially in states with high premiums (such as Missouri, where premiums start at $423 per month). But another explanation is that the magnitude of the pre-existing conditions problem in the individual health insurance market is considerably smaller than alleged by Democrats eager to bash the health insurance industry for denying coverage to “millions” of sick patients looking for insurance.

So far, HHS is sticking to the story that droves of people are without health coverage due to pre-existing condition exclusions enforced by insurance companies. The announcement of the plans' November 1 enrollment figures stated that "Coverage for people living with such conditions as diabetes, asthma, cancer, HIV/AIDS has often been priced out of reach of most Americans who buy their own insurance, and this has resulted in lack of coverage for millions." The question arises as to whether HHS will pursue a "whatever it takes" strategy to increase enrollment in order to be able to claim success for the program and justify the Affordable Care Act’s burdensome and expensive insurance regulations.

Nothing is wrong with the high risk pool concept. Market-oriented healthcare reform proposals have regularly included expanded high risk plans as one tool for dealing with the pre-existing conditions problem—without imposing the comprehensive controls (modified community rating and guaranteed issue) on health insurance pricing and coverage contained in PPACA that drive up the cost of insurance for young, healthy applicants. Somewhat schizophrenically, PPACA proponents also argue that the meager early enrollment in the new plans debunks any claim that market-based health care reforms including high-risk pools would make a significant dent in the number of uninsured.

The case, however, for expanded high risk pools as part of a market-oriented reform package is not that the plans alone would substantially shrink the number of uninsured. It is that they will ensure access to affordable coverage for the relatively small number of chronically uninsurable people and for people with health problems that lose employment-based coverage, and that it can achieve that goal without requiring PPACA's complete prohibition on considering health status in insurance pricing and coverage and its accompanying individual mandate to discourage people from waiting to buy coverage until they get sick (because, starting in 2014, companies will have to offer coverage to sick patients at the same price as healthy applicants).

Rather than weakening the case for market-oriented reforms with expanded high risk plans as an alternative to the PPACA, the temporary high risk plans' early experience undermines claims of massive "cherry picking" by health insurers that were made in an attempt to sell the legislation to the public. The other good news from the early experience is that the burden on taxpayers of funding expanded high risk pools may be relatively modest if the PPACA is repealed and replaced with a market-oriented reform program. Combined with other reforms that would further improve portability of coverage, promote interstate competition, and rationalize the tax treatment of health insurance without increasing overall taxes, a market oriented reform package may be able to expand coverage to millions of uninsured Americans without the PPACA’s $1 trillion plus price tag.

Mr. Harrington is the Alan B. Miller Professor of Health Care Management and Insurance and Risk Management at the University of Pennsylvania's Wharton School and an adjunct scholar at AEI.

 
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