The Wonk Room

The High Costs Of High-Risk Pools

Today, NPR’s Julie Rovner examined the implications of Sen. John McCain’s (R-AZ) proposal to insure uninsurable Americans — individuals who are unable to obtain coverage in the private market due to their medical history — through state-run high risk pools. As Rovner explains, high-risk pools are plagued by waiting periods, premiums that are out of reach for many families, substantial deductibles and co-pays, and limits on mental health and maternity care.

Listen:

The McCain campaign responds to criticism that high-risk pools provide inadequate coverage and access by suggesting that their Guaranteed Access Plan (GAP) is modeled on the best examples in the states, namely the Minnesota high-risk pool program. But Minnesota, like the other 35 states that run high-risk pool programs, limits eligibility to control costs:

In 2006, the Minnesota high-risk pool cost $8,116 per enrollee (21% of the average income) and provided coverage to just 30,000 people. In short, in most of these states, the programs’ prohibitive premiums, deductibles and waiting periods for pre-existing conditions keep many uninsurable Americans from obtaining coverage.

The McCain campaign, recognizing the program’s limitations, says it “might” subsidize GAP “to those making up to four times the federal poverty level, or $41,600 for a single person” but has not made a decision about “waiting periods for pre-existing conditions.” But “subsidies already cover around 50 percent of high-risk pool costs, and expansion of these programs could cost $100 billion.”

With America in the middle of a financial crisis, the likelihood of subsidizing high-risk pools seems like a distant possibility.

UPDATE: Peter Harbage examines Alaska’s high-risk pool program here.

Sarah Palin’s Plan for High Risk Pools

The centerpiece of Sen. McCain’s plan to “help” those with chronic conditions to get health insurance is the creation of high risk pools in every state.

But, McCain has also said that he would ask the nation’s governors how to create these pools (with about 30 states having one today). Since Alaska is one of the states with a high risk pool, it might be interesting to get a sense of how Governor Palin might advise McCain on the creation of these pools.

Based on the high risk pool in her state, Palin’s advice would clearly be to create a high risk pool that: offers very expensive coverage, puts as much burden on individuals as possible, excludes preexisting conditions, and limits benefits as much as possible.

Alaska’s pool is one of the smallest in the country, with 510 enrollees (end of 2006). And, Alaska is one of the most expensive programs in the country—the total cost per enrollee of the program is $18,569 (when you include the enrollee premium spending and subsidies). In the US, the average family premium for an employer sponsored health plan is roughly $13,000—yes, that is for a whole family, not for an individual in Alaska.

Alaska’s high risk pool imposes very high cost sharing on enrollees, which limits enrollment and access to care:

- Premiums: Overall, the monthly premiums are very high. For example, if you are 55 years old and elect the PPO with the $1,000 deductible, your monthly premium cost is $1,404 a month ($16,848 a year). Assuming a two-person, middle class household making $43,750 a year (250 percent of the federal poverty level in Alaska), the premium cost for that one person would consume 39 percent of household income.

- Deductibles: Alaska has a minimum deductible of $1,000 (which is high, but not uncommon for high risk pools). Options exist to allow enrollees to choose from a range of deductibles up to $15,000 (which is very high, even for high risk pools).

- Out-Of Pocket Costs: The premium and deductible are not the only costs to the individual. When seeing an in-network provider, the individual is still responsible for 20 percent of the cost of most services. There is an overall cap on out-of-pocket costs, but that is as high as $25,000 a year for one of the policies.

Alaska’s preexisting condition exclusion and limited benefits hut enrollees:

- Pre-Existing Condition Exclusion: For many individuals in the Alaska high risk pool, pre-existing conditions are excluded for six months. This means that if you are in the pool because you have ovarian cancer, then you will not get any coverage for cancer-related services for six months.

- Limits on Benefits: The PPO plan does not cover many services, including for the following from Part I of the PPO contract: maternity coverage and fertility tests, routine physicals, immunizations, eyeglasses, and mental health benefits services are capped at $4,000 a year.

Alaska’s high risk pool discourages individuals from seeking preventative care and chronic disease services by making such care subject to a deductible. A plain reading of the benefits package shows that preventative care and chronic care services are part of this deductible. Many states will exclude those services from the deductible to encourage patients to get the chronic care they need. Instead, Alaska makes you pay out-of-pocket for such services until the deductible is met.

The McCain Campaign’s Latest High-Risk Pool Variation

During Douglas Holtz-Eakin’s appearance on CNBC’s Squawk Box yesterday, John Harwood questioned Sen. John McCain’s (R-AZ) ability to provide insurance for individuals whose pre-existing conditions disqualify them from coverage in the individual marketplace. Harwood argued that McCain’s proposal to federally subsidize high-risk pools to the tune of $7 to $10 billion is not “really adequate to get those at-risk into health insurance.” Holtz-Eakin begged to differ:

The Senator’s commitment was to devise a best practice…so his idea was let’s look at the practices, get the one that works and make the commitment to fund it. ‘Cause you know, in the end these are high-cost patients who might need more money. So his 7 to 10 estimate, it was a ballpark estimate. It could be higher. The commitment is to get the job done…It could be $20 billion and you could make it work if you do the rest of the reforms in the McCain plan. The important thing is to change the cost of care, and there’s a long list of reforms that the Senator’s proposed. It means changing incentives.

Watch it:

Holtz-Eakin is spinning his wheels as the McCain campaign scrambles to explain how their individual-market centric health care proposal would deliver health coverage to the millions of Americans with chronic illnesses.The McCain health care plan has been a patchwork of conflicting proposals from the very beginning:

- In April, Elizabeth Edwards, a Senior Fellow at The Center for American Progress Action Fund, astutely noted that McCain’s plan offered nothing for the sickest Americans.

- In response to her criticism, McCain offered his current high-risk pool enhancement plan, G.A.P.

- Seven days ago, senior adviser Carly Fiorina floated the idea of establishing “a nonprofit corporation that would contract with insurers” and “partner with other state plans to broaden insurance pools” and cover the sickest Americans.

Holtz-Eakin’s funding boost is the latest inadequate variation. As the Tax Policy Center pointed out, McCain’s high-risk pools would need about $100 billion a year to “prevent large losses in insurance coverage among the sick and needy.”

Implementing “the rest of the reforms in the McCain plan” would only overburden high-risk pools. As The Wonk Room previously pointed out, McCain’ plan to deregulate the insurance industry and push healthy Americans into the individual market could shift sick people — who can’t find coverage in the individual market or afford the increasing cost of insurance in their old risk pools once the healthy people have opted out — into high-risk pools.

These programs don’t spread risks and costs across a mixed pool population of healthy and sick people and would force millions of Americans with pre-existing conditions to pay astronomical insurance premiums and deductibles.

Thus, while McCain’s proposals have changed, his message has remained the same: don’t get sick.

McCain Plan Could Leave Cancer Patients Without Coverage For Cancer Treatments

Yesterday, in a speech at the LIVESTRONG Presidential Town Hall, Sen. John McCain (R-AZ) conceded that his proposal to push Americans into the individual health insurance market could leave cancer patients without health insurance. But McCain promised that his Guaranteed Access Plan — which would subsidize state-run high-risk pools with federal and possibly industry money — will “help in the purchase of coverage for those hardest to insure”:

Some worry that even after this reform many Americans with pre-existing conditions — including many thousands of cancer patients — could still be denied insurance. And to make sure they get the high-quality coverage they need, I have proposed a — or GAP — that will combine industry, state, and federal resources to help in the purchase of coverage for those hardest to insure, including patients with pre-existing conditions. There would be limits on premiums, and lower-income Americans would get additional financial assistance.

Watch it:

Americans with cancer will need more “financial assistance” than McCain imagines. Financing insurance for the millions of Americans with pre-existing conditions who would lose employer-based coverage under McCain’s plan, would cost $100 billion a year, far more than the $10 billion McCain has proposed spending on shoring-up high risk programs.

In fact, the high cost of insuring a large pool of sick people has forced states to limit eligibility. As a result, the 33 states that run high risk pools “exclude from coverage the pre-existing condition that made you eligible for it in the first place.” According to Karen Pollitz, director of the Health Policy Institute at Georgetown University:

These programs [high risk pool programs] are very expensive…because [sick people] account for all of the spending. So these are very expensive programs for states to run…and so states look for ways to restrict these programs and in particular they have limited eligibility rules in some states, the premiums that they charge are exceedingly high…all of these pools will exclude from coverage the pre-existing condition that made you eligible for it in the first place.”

Given the high costs of running high-risk pools and McCain’s penchant for cutting government programs, it is likely that the senator’s Guaranteed Access Plan would leave cancer patients to finance their own treatments.

The McCain Health Plan: Tax Increase Or Budget Buster?

Our guest blogger is James Kvaal, a senior fellow at the Center for American Progress Action Fund.

Nine months after it was released, we still aren’t sure whether John McCain’s health care plan would raise taxes on the middle class or blow up the deficit.

McCain’s health care plan would tax workers’ health benefits, which are largely tax-free today, and create new health insurance tax credits. But will health benefits be subject to both income and payroll taxes or just to income taxes? Since many families pay more in payroll taxes (which fund Social Security and Medicare) than income taxes, the distinction is critical. But the campaign’s statements have been inconsistent.

If it’s both payroll and income taxes, he will raise taxes on tens of millions of middle-class families. A recent Center for American Progress Action Fund report concluded that a typical married couple earning $60,000 would pay $1,100 more in taxes by 2013.

But if it’s only income taxes, he will blow a hole in the budget. The Tax Policy Center report puts the cost at $1.3 trillion over 10 years.

Either way, McCain’s tax credit would rapidly fall behind rising health care premiums. Nearly every household would eventually pay higher taxes on their health insurance.

The new Tax Policy Center report includes a wealth of information on McCain and Sen. Obama’s health care plans (although it is labeled “very preliminary”). Other highlights:

–The McCain plan would decrease the number of uninsured by 5 million in 2013. However, there would still be 55 million without insurance, 8 million more than today. And McCain’s plan covers fewer people each subsequent year.

–Millions of people – 16 million in 2013 — would lose the health benefits they get from employers.

–McCain’s high-risk pools would need about $100 billion a year to “prevent large losses in insurance coverage among the sick and needy.” McCain aides have proposed spending no more than $10 billion a year.

NYT Agrees With Wonk Room: High Risk Pools Are Ineffective

An article in today’s New York Times analyzes Sen. John McCain’s (R-AZ) approach to insuring Americans with preexisting conditions and concludes that the senator’s plan to federally subsidize state-run high risk pools is an inadequate solution to providing coverage to patients who can’t find insurance in the unregulated individual insurance market:

Though high-risk pools have existed for three decades, they cover only 207,000 people in a country with 47 million uninsured…Premiums typically are high, as much as twice the standard rate in some states, but are still not nearly enough to pay claims. That has left states to cover about 40 percent of the cost, usually through assessments on insurance premiums that are often passed on to consumers. Health economists say it could take untold billions to transform the patchwork of programs into a viable federal safety net.

The Wonk Room has long argued that McCain’s reliance on high risk pools is both expensive and unrealistic. Simply put, since high risk pools are populated by individuals whose pre-existing medical conditions require expensive treatments, states look for ways to limit participation. As a result, states “restrict availably, affordability, and adequacy of coverage.”

As Karen Pollitz, the health care expert quoted in the New York Times, argued last week at the Wonk Room’s McCain University event:

These programs [high risk pool programs] are very expensive…because [sick people] account for all of the spending. So these are very expensive programs for states to run…and so states look for ways to restrict these programs and in particular they have limited eligibility rules in some states, the premiums that they charge are exceedingly high.

McCain doesn’t fully comprehend the costs of covering patients through high risk pools. While he has proposed spending $7 to $10 billion to subsidize high risk pools, Pollitz notes in the article, “I do not for a minute think it will cost 7 to 10 billion dollars a year. It may cost 7 to 10 billion dollars a week.”

Ironically, for a candidate who proclaims to be concerned about the rising costs of health care coverage, McCain is proposing the most inefficient and expensive program possible.

McCain’s High-Risk Pools — A Gift To The Insurance Industry

Yesterday, during Sen. John McCain’s (R-AZ) “tele-townhall meeting,” Debbie, a woman who was laid off her job and subsequently denied health insurance in the individual market because she was taking “blood pressure medication,” asked McCain if his health reform plan would “reform the insurance business” and help her find coverage.

McCain conceded that Americans with pre-existing conditions would have a hard time finding coverage in the unregulated market but reassured Debbie that she could find coverage in government subsidized high-risk pools:

We have to develop – the state of FL is starting to develop them – government approved plans. Which is the legislatures and the governors and the federal government join together with the Federal government making a very significant contribution so that they can establish risk pools and others and make sure that every American is able to get – particularly with somebody like you – that basically can’t get insurance, can get affordable and available insurance and the government is going to have to weigh in physically and financially to see that you get the ability and the health insurance that you need…These are tough times and a lot of people facing the same challenge you are, Debbie. I’m committed to fixing it.

Watch It:

Thus, Americans like Debbie would have to pay outrageous premiums and deductibles for health insurance because high risk pools, unlike general risk pools, don’t spread risks and costs across a mixed pool population of healthy and sick people. She would pay more for insurance because, under McCain’s plan, her pre-existing condition would force her into a pool that cannot offset the costs of treating her condition.

In some ways, McCain is right. He would “reform the insurance business.” But rather than increasing access to health care, McCain’s plan to subsidize high risk pools would only release insurance companies from covering sicker people.

High-Risk Pools An Ineffective Way of Covering The ‘Uninsurable’

An editorial in today’s Washington Times suggests that Sen. John McCain’s (R-AZ) plan to insure Americans who can’t obtain coverage from the individual market in high risk pools is the “most effective way to address the safety-net problem of the uninsurable”:

The best solution is to let the health insurance market work for the vast majority of Americans and create a safety net for those who can’t get coverage. That’s what Mr. McCain’s “Guaranteed Access Plan” (GAP) tries to do…Critics like to discuss the problems facing some state pools rather than honestly acknowledging that several of them – including Maryland, Wisconsin and Illinois – work very well.

McCain argues that “people with pre-existing conditions aren’t always as expensive to insure as private companies think.” If the federal government contributed just $7 billion to $10 billion to state-sponsored high-risk pools, the 56 million “uninsurable” Americans — those Americans with pre-existing conditions who currently receive coverage through the employer-based system but will be unable to find coverage in the individual market — will have health insurance.

But McCain’s proposal both overestimates the effectiveness of high-risk pools in covering the sickest Americans and financially overwhelms public high-risk pool initiatives.

According to a forthcoming report on the implications of McCain’s health reform for people with pre-existing conditions by Stephanie Lewis, high-risk pools “have not been a viable alternative for the medically uninsured because of high premiums…and inadequate funding to subsidize the full cost of providing insurance to a high-cost population.”

Indeed, experts estimate that McCain’s $7 to $10 billion funding boost is “nowhere near enough, [to cover the uninsured] particularly given the large number of people with pre-existing conditions who would need this help if employers send their workers out to the open market”:

The history of high risk pools is one of either inadequate coverage or high costs…only 200,000 Americans are covered by state high risk pools, with health expenditures of $1.6 billion. This means that a similar national program funded at $7 billion per year would cover only 875,000 people. Even if participants had to pay half of their own premiums, as is generally the case today in state high risk pools, less than 2 million Americans would be covered.

Moreover, as the Wonk Room has previously pointed out, high risk pools have many of the same draconian limitations as the unregulated private market: waiting periods, premiums that are out of reach for many families, substantial deductibles and co-pays, and limits on mental health and maternity care. While other states offer even harsher terms, “Maryland, Wisconsin and Illinois” – the very programs that the editorial touts– also exemplify the shortcomings of high-risk pools:

- Maryland: 6 month waiting period for coverage of services related to pre-existing conditions, $500-$1,000 deductibles

- Wisconsin: 6 month waiting period for coverage, $1,000-$5,000 deductibles

- Illinois: 6 month waiting period for coverage, $500-$5,200 deductibles, “Premiums charged are established by law at from 125%-150% of the average rates charged individuals for comparable major medical coverage by five or more of the largest insurance companies in the individual health insurance market in Illinois.“

Instead of spreading risk broadly and evenly in diversified insurance pools, McCain’s radical approach to health care policy still leaves many Americans with pre-existing medical conditions without health care coverage.

McCain’s ‘Main’ Health Care Concern Is Clearly Not ‘Cost’

An LA Times piece today contrasts John McCain’s health care plan with the Democratic candidates’ plans by implying McCain is more concerned about health care “costs” while his opponents main concern is “coverage.”

But cost control and universal coverage are not mutually exclusive– they are inextricably connected. By neglecting the 47 million Americans without health insurance, McCain is neglecting one of the best ways to bring costs under control: universal coverage that reduces pricey, last-minute hospital visits by uninsured patients, lowers administrative costs, and encourages cost-effective preventive care.

Furthermore, McCain’s plan would increase the amount America’s families would spend on health care in a few key ways:

Eroding away the value of families’ health care tax benefit: McCain would eliminate the tax break for employee-based coverage, replacing it with a $2,500 tax credit for individuals ($5,000 for families) to help pay for private health insurance. Disturbingly, however, this credit will be pegged to general inflation instead of the price of premiums, the net effect being a “massive tax increase.”

Confusing cheaper coverage with lower costs: McCain wants to shift as many families as possible into an unregulated national insurance market where some people — particularly young, healthy people — may find coverage with enticingly low monthly premiums. But these attractive premiums would disguise, as Ezra Klein points out, “very high deductibles, lots of personal financial risk, and relatively sparse coverage.” After all, when insurance companies “cut costs,” they aim for one thing: denying as much coverage as possible.

Shifting struggling families into flawed, expensive “high-risk” pools: For unlucky families struggling with pre-existing conditions like cancer, heart disease or diabetes, McCain’s plan would offer a chance to buy into “high-risk pools.” Only trouble, these pools have many of the same draconian limitations as the unregulated private market: waiting periods, premiums that are out of reach for many families, substantial deductibles and co-pays, and limits on mental health and maternity care.

National Review Offers Weak Defense Of McCain Health Care Plan

Our guest blogger is James Kvaal, Domestic Policy Advisor at the Center for American Progress Action Fund.

The National Review editors defend Sen. John McCain’s health care plan, disputing that it hurts people with existing illnesses. Today we learned that group includes Jay Cutler, who is healthy enough to be the starting quarterback for the Denver Broncos but also has diabetes.

So how will the McCain plan ensure that people with chronic illnesses can buy coverage? The National Review takes a pass on advocating the McCain campaign’s preferred solution, high-risk pools that subsidize last-resort insurance. Instead, it argues that people who buy their own insurance while healthy will no longer lose it when they change jobs.

Fair enough, but this line of reasoning leaves out the 56 million chronically ill people covered by their employers today. And while individual insurance is generally renewable, “premiums can still increase dramatically for people who develop health problems.” So buying insurance when you’re healthy doesn’t guarantee that you can keep it when you’re sick.

There is a better way to make sure that people can always buy the coverage they need: require insurers to sell to all comers at fair rates and create new subsidies to ensure that premiums are affordable.

McCain’s Health Plan, Like Bush’s, Slashes The Uninsured’s Hospital Safety Net »

Douglas Holtz-Eakin told the New York Times that, to attempt to cover people who fall through the (rather substantial) cracks in his health care plan, McCain would help pay for state “high-risk pools” by redirecting money “from existing federal programs that pay for uncompensated medical care, primarily in hospitals.”

Translation: Holtz-Eakin wants to eliminate some portion of the $7.8 billion in federal support for “Disproportionate Share Hospitals,” or DSH, which serve especially high numbers of poor and uninsured patients. This money is “the largest source of federal support for uncompensated care for uninsured patients.”

States across the country have used DSH money to provide “essential funding to many safety net hospitals” and “maintain access to health services for low-income patients.” States are already fighting back against Bush’s proposed sweeping cuts to Medicaid and changes to health regulations that shift costs to state and local governments, and John McCain is offering more of the same.

As a study by the National Health Policy Forum concludes, “in the absence of a viable plan to broadly expand health insurance coverage, support for providers that serve low-income patients will become increasingly critical.” But John McCain’s plan would leave millions of Americans without health insurance, so his disregard for DSH funds is a bit disturbing. More »« Less

McCain’s Health Care Spending Doubles Obama And Clinton »

The New York Times today did a good job pointing out that some people “could” pay more in taxes under the McCain plan. But the reality is that there is growing evidence that McCain has a massive new health tax as part of his plan, as this blog first discussed earlier. While the press typically portrays Democrats as the tax-and-spenders, McCain is on the verge of changing that paradigm with a plan that could have American’s spending $334 billion more in taxes over 10 years.

McCain’s advisors have confirmed that the spending under his tax credit plan is $3.6 trillion over 10 years, roughly the same amount that the Joint Committee on Taxation estimated would be spent by President Bush when he announced a similar policy. In the first year, the JCT estimated that the Bush policy would spend $220 billion in the first year.

This means the McCain’s spending on health reform is twice the price tag as Senators’ Clinton plan and Senator Obama’s. (Note: Senator Obama only describes his plan’s costs net of savings, but the Washington Post has published a cost estimate.)

Not only is the spending level very different between the Democrats and McCain, but the sources of funds vary as well. McCain would roll back the longstanding tax break for all 160 million Americans who obtain insurance through their employer. In contrast, the lower spending Democratic plans pay for health reform by rolling back President Bush’s tax cuts on the highest income Americans. More »« Less