Low impact of Pre-existing Condition Insurance Plans

The General Accounting Office released a report in late August detailing enrollment in high risk pools implemented under the Patient Protection and Accountable Care Act (PPACA). The GAO found that as of July just over 20,000 Americans had enrolled in the various Pre-existing Condition Insurance Plans, just over 600 in Georgia. Since the projections of potential coverage for these plans was 10 times greater than actual enrollment there are questions as why is enrollment so low and what are its implications.
Many of the provisions of the Patient Protection and Accountable Care Act are intended to expand private insurance coverage, although the vast majority of them do to take effect until 2014. Some of those provisions prevent insurers from excluding individuals with pre-existing conditions from coverage, guarantee issue to individuals, and regulate risk pooling in an attempt to prevent risk selection. Together these provisions will provide access to health insurance for many individuals currently unable to purchase coverage due to poor health.
As a bridge to 2014 PPACA created Pre-existing Condition Insurance Plans. These plans were modeled after state high risk pools plans that have been in existence for, in some cases, several decades. High risk pool plans were designed to offer a private insurance plan to individuals who had been declared uninsurable by insurers, or had conditions that would result in the denial of coverage. While the plans vary by state, they generally offered individual coverage at a rate between 150% to 175% higher then a similarly aged individual could purchase in their respective markets. Enrollment was only offered to individuals who could demonstrate they were uninsurable. As a result the health service needs of these individuals even the increased premiums were not adequate to cover claims. State high risk pool are subsidized from state revenues, often from a premium tax. As of 2009 just over 200,000 individuals were enrolled in the 35 state high risk plans.
Enrollees in state high risk plans were about 1.8 percent of the individual insurance market in those states with plans. Interestingly, other than providing coverage to individuals who not otherwise have access to coverage, the major effect of these plans is on the small group insurance market. In the absence of a high risk pool, these high risk individual’s only opportunity for health insurance coverage was to become part of a group health plan. The increased risk in the small group market raises premiums and reduces coverage. Research has found that controlling for all other demand factors the presence of a high risk pool in a state significantly increased the probability of an individual having private coverage.
Expectations for enrollment in the Pre-existing Condition Insurance Plans (PCIPs) was based on the experience of these state high risk pools. The plan designs are similar, cost sharing are similar, and while premiums varied considerably on average they are slightly lower in Federal plans. There are however two factors which limit enrollment in PCIPS: restrictions on enrollment and inadequate marketing. There has been limited advertising on the availability of these plans and until July of this year there was no incentive for brokers to recommend these plans.
The most important constraint are the enrollment restrictions. In order to qualify for enrollment in a PCIP an individual must:
• be a citizen or national of the United States or lawfully present in the United States.
• must have had a problem getting insurance due to a pre-existing condition.
• have been uninsured for at least the last six months before you apply.
Since the program began in September, 2010 the rules for demonstrating problems with getting insurance have been clarified, but initially potential enrollees had limited options for documenting their problems with insurance. It however, that requirement of a six month spell of non-coverage that limits enrollment in PCIPs.
The ideal of a high risk pool is provide coverage to those whose health issues are such that private insurers could not cover them. This implies that they have ongoing health care service needs. Many of the individuals who could afford to pay the premiums charged in the PCIPs have found another means of financing their care (often by in the small group market). While moving to the PCIP may be the optimal choice for them and the small group market, spending a half year with out coverage and therefore with limited access to health care services may be too high of a price to pay.
The uninsured face a much different process of health care than those with insurance. They much less likely to have a usual source of care, more likely to receive care in an emergency room or a hospital outpatient department, and less likely to be admitted to a hospital. However when they are admitted to a hospital the uninsured are more likely to experience avoidable admissions, or admissions that could have been treated on an outpatient basis had they been diagnosed early enough, and are likely to be more severely ill upon admission. Once admitted to the hospital studies have found that the uninsured are likely to have short lengths of stay than privately insured individuals with similar conditions. The uninsured are more likely to have adverse results, and higher mortality rates even after adjusting for the severity of illness.
The sixth month spell of non-coverage was implemented to cap Federal subsidy costs and to limit movement of those who already had private coverage into PCIP. The effect however is to severely reduce the benefits of high risk pools for both individuals and the private insurance market.

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