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					                                                                         Hot Issues in Health Care

                                                                         February 23: High-Risk Pools – What are they and whom do they serve?

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In the individual market, many Coloradans lack access to health insurance because of pre-existing
medical conditions. Carriers either reject these people or offer limited benefits and premium rates that
far exceed the market rate. As a result, these individuals are deemed “uninsurable” in the private
market, and make up an important segment of Colorado’s 770,000 uninsured.

Thirty-three states, including Colorado, operate a high-risk pool for these uninsurable individuals. High-
risk pools are state-established, subsidized health insurance plans that serve a small market niche for
people who have no other insurance option. High-risk pools also help keep a state’s individual health
insurance market more stable by removing individuals who have extensive medical needs and expenses
that would otherwise increase premiums for healthy individuals. In most states, a nonprofit organization
handles the administration of the program.

Nationwide, approximately 180,000 people participate in high-risk pools. Enrollment ranges from almost
33,000 in Minnesota to just over 100 people in Iowa, with roughly 5,000 enrollees in Colorado’s
CoverColorado program.

Enrollees generally fall into three main eligibility categories: individuals who are uninsurable due to a pre-
existing condition; individuals who are guaranteed individual coverage under the federal Health
Insurance Portability and Accountability Act (HIPAA); and individuals who are enrolled in Medicare, but
need supplemental coverage.

                   Uninsurable individuals constitute the largest percent of enrollees in most states. States require
                   individuals to provide proof of rejection of health insurance coverage or proof that they can obtain
                   coverage but only at a cost that exceeds the pool’s premium rates. For this group, almost all states
                   impose a waiting period that ranges from three to 12 months for pre-existing conditions. Certain
                   conditions may be subject to more extensive waiting periods.

                   HIPAA guarantees individual coverage for individuals who lose group coverage, but had health
                   insurance for the previous 18 months without a significant gap. States use high-risk pools to meet
                   the federal requirements under HIPAA and waive any waiting periods for HIPAA enrollees.

                   Medicare beneficiaries with predictable medical expenses may purchase supplemental (i.e., Medi-Gap)
                   coverage through a high-risk pool. In these cases, the high-risk pool is the payer of last resort.
                   CoverColorado does not provide this type of supplemental coverage.

Funding Mechanisms
High-risk pools need subsidies because the premiums collected do not cover the claims paid out.
Therefore, states use a variety of funding mechanisms to cover their costs. The three most common
funding sources are individual premiums, state appropriations and assessments on insurance carriers.

                   Individual premiums - Typically, premiums provide 50-60 percent of the revenue needed to pay claims
                   and administer a high-risk pool. Premiums are set above market rate, but the rates are capped and
                   almost all states range from 125-200 percent of the individual market rate. States with lower
                   premium rates have broader enrollment, but tend to require more subsidies. Even with a cap, high
    premiums are the biggest barrier to enrollment in a high-risk pool. As a result, a handful of states,
    including Colorado, offer subsidies to low-income individuals to help offset the cost of high

    State funds - Most states provide funding from the general fund or a designated funding source within
    the state budget. A designated funding stream provides a stable source of funding and is less
    vulnerable to state revenue fluctuations.

    Assessments and tax credits for insurance carriers - Most states impose an assessment on insurance
    carriers doing business in the state, usually based on the carrier’s annual share of premiums
    collected or on the number of people it covers in the state. Because of the Employee Retirement
    Income Security Act (ERISA), states cannot assess larger, fully self-insured plans that typically
    account for a large percentage of the state’s premiums. As a result, some states have developed an
    assessment based on “per covered life” rather than premiums collected. This method includes
    insurance carriers as well as stop-loss carriers (reinsurance) that sell to large self-insured plans.
    States that use this method apply the assessment more broadly and therefore decrease the amount
    of the individual assessment levied against any one carrier.

    Many states use an assessment, but offset the assessment with a tax credit. Depending on the tax
    credit’s structure, states may collect assessments to establish a steady funding stream, but realize
    less savings once the carriers file their tax credits.

    Cost-sharing -- States use a variety of cost-sharing mechanisms such as co-payments, deductibles and
    out-of-pocket maximums to help control premium costs. Co-payments vary according to whether
    an enrollee is in or out of network in an HMO or PPO. Deductibles range from $1,000-$10,000,
    while lifetime maximums generally vary from $500,000-$2 million.

Federal Assistance
The 2002 Trade Act (Trade Adjustment Assistance Reform Act of 2002) established federal funding
support for high-risk pools to expand coverage to more uninsured individuals. Congress appropriated
$20 million in FY2003 to help states establish new high-risk pools. In 2003 and 2004, Congress
appropriated $40 million in grants each year to states with qualifying high-risk pools. While the purpose
of the grants was to expand coverage to a specific group of workers, the majority of states used the
grants to pay claims and reduce the amount of subsidy needed to cover their losses. The grant program
expired in 2004, but recently passed legislation extends the grant program through 2010 and increases
funding to $75 million per year, plus $15 million to help states establish new high-risk pools.

The Trade Act also established the federal Health Coverage Tax Credit to provide health care premium
assistance to certain displaced workers and individuals who participated in corporate pension funds, but
who have lost those benefits and now receive payments from the Pension Benefit Guaranty
Corporation. The federal government pays 65 percent of the cost of their premiums in the form of a tax
credit. Individuals can use the tax credit to pay for COBRA, spousal coverage or, in many states like
Colorado, state high- risk pool premiums.

Comparing State High-Risk Pools
The following chart highlights different high-risk pool elements and financing mechanisms for select
states around the country compared to Colorado. While no two high-risk pools are alike, the chart
illustrates how states construct their high-risk pools to fit their respective individual health insurance

Sources: B. Abbee, Comprehensive Health Insurance for High-Risk Individuals, 2004/2005. Communicating for
Agriculture, 2005
L. Achman and D. Chollet, “Insuring the Uninsurable: An Overview of State High Risk Pools” The Commonwealth
Fund, 2001
K. Pollitz and E. Bangit, “Federal Aid to State High-Risk Pools: Promoting Health Insurance or Providing Fiscal
Relief?” The Commonwealth Fund, 2005
                                                              High-Risk Pools in Select States

State   Enrollment             Financing                                      Eligibility                        Premium    Cost Sharing       Waiting Period/
                                                                                                                   Cap                         Condition Period

CO        4,896      1.   Premiums                       1.  Permanent resident for prior 6 months                150%     • Variable copay    6 months/6 months
                     2.   Assessment of insurance        2.  Must have applied for insurance and:                          • $1,000-$10,000
                          carriers - per covered lives   (a) Application was rejected, or                                    deductible
                          basis                          (b) Application accepted, but with higher premium                 • $1 million
                     3.   Allocation from state              than this plan, or                                              lifetime max
                          Unclaimed Property Fund        (c) Application accepted, but pre-existing
                     4.   Premium tax credit ($5             conditions excluded for >6 months, or
                          million limit per year)        (d) Individual has one of specific set of conditions
                                                         3. HIPAA eligible or transferred from another
                                                             pool and applied within 30 days; residency
                                                         4. Eligible according to federal Trade Act
MD        5,078      1.   Premiums                       1.    Refusal of coverage due to a health condition      150%     • 80/20 in-         None/None
                     2.   Assessment on hospitals              or premiums higher than the risk pool's due to                network, 60/40
                          (built into hospitals'               a condition                                                   out-of-network
                          charges)                       2.    HIPAA eligibility                                             copay
                                                         3.    Eligible for Trade Adjustment Assistance Act                • $500-$1,000
                                                               coverage                                                      individual,
                                                         4.    Transfer from another high-risk pool                          $1,000-$2,400
                                                                                                                           • $2 million
                                                                                                                             lifetime max
MN        32,959     1.   Premiums                       1.    Permanent resident for 6 months                    125%     • 20% copay in-     6 months/90 days
                     2.   Assessment to insurance        2.    Refused coverage or had benefits reduced                      network, 30%
                          company association                  within last 6 months due to health reasons                    out-of-network
                          members; no tax offset         3.    Treated for presumptive condition within last 3               with additional
                     3.   Periodic state funding               years                                                         charges
                                                         4.    65 years or older and not eligible for Medicare             • $500-$10,000
                                                         5.    Eligible according to HIPAA                                   deductible
                                                         6.    Eligible according to Federal Trade Act                     • $2.8 million
                                                         7.    Two Medicare supplement plans: Basic and                      lifetime max
                                                               Extended Basic
 State    Enrollment                Financing                                      Eligibility                         Premium     Cost Sharing      Waiting Period/
                                                                                                                         Cap                         Condition Period

  OR         9,885        1.   Premiums                       1.    Permanent resident of OR, and must apply for       125%, or   • 80/20 copay      6 months/6 months
                          2.   Assessments on reinsurers            transfer credit from another risk pool within 63   100% for   • $500-$1,000
                               and insurers – per covered           days of prior coverage expiration                   HIPAA       medical, $100-
                               lives basis; no tax offset     2.    Refused coverage or had coverage terminated                     $1,000 drug
                          3.   Initial $150k assessment to          for health reasons                                              deductibles
                               reinsurers/insurers for        3.    HIPAA eligibility: Covered under employer-                    • $1 million
                               start-up                             provided plan for 180 days and ineligible for                   lifetime max
                          4.   Interest accrued on                  portability on this plan because of service area
                               reserves                             limitations; must have exhausted COBRA, or
                                                                    be moving to Oregon and previously insured
                                                                    for at least 18 months by group carrier
  TX         25,925       1.   Premiums                      One or more of these criteria is necessary:                200%      • 80/20 copay      12 months/6 months
                          2.   Assessments on insurance       1. Legal resident under 65 and:                                     • $500-$5,000
                               company association            (a) Maintained coverage for 18 months prior to                        deductible
                               members; no tax offset             application with no gaps >63 days                               • $1.5 million
                                                              (b) Transferring from another state's HIPAA plan                      lifetime max
                                                              2. Legal resident of TX for 30 days and citizen or
                                                                  permanent resident of U.S. for 3 continuous
                                                                  years and:
                                                              (a) Rejected for coverage due to health reasons, or
                                                              (b) Inability to get similar coverage due to health
                                                                  reasons, or
                                                              (c) Offered insurance, but condition has been
                                                                  excepted, or
                                                              (d) Offered similar insurance with higher premium
                                                              (e) Diagnosed with qualifying condition
  WI         18,341       1.   Premiums 60%                   1.  Be under 65 (some exceptions), and also:              200%      • 80/20 of next    6 months/6 months
                          2.   Assessments on insurance       (a) Covered by Medicare because of disability, or                     $5,000, then 0%
                               companies in WI 20%            (b) Tested positive for HIV, or                                       after that copay
                          3.   Reductions in payments to      (c) Eligible according to HIPAA, or                                 • $500-$2,500
                               health care providers 20%      (d) Rejected or dropped by one or more insurers,                      deductible
                                                                  or                                                              • $1 million
                          60/20/20 distribution required      (e) Had coverage reduced, or                                          lifetime max
                          by law                              (f) Had premiums raised by 50% or more, unless
                                                                  the increase applies to "substantially all" of
                                                                  insurer's policies, or
                                                              (g) Notified that insurer has applied to increase
                                                                  premiums, but increases not yet in effect
                                                              2. Medicare Supplement Plan

Source: B. Abbee, Comprehensive Health Insurance for High-Risk Individuals, 2004/2005. Communicating for Agriculture, 2005.
Compiled by Colorado Health Institute, 2006.

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