Obamacare: Battle of the risk pools

The Times’ Maeve Reston on Monday dove into the fight that supporters and opponents of the 2010 healthcare law are waging for the hearts and minds of young adults, a constituency crucial to the new state insurance exchanges created by the law. Unless plenty of younger and healthier people sign up for coverage at the exchanges, insurers selling policies there could get stuck with too many customers who run up large medical bills. That, in turn, could drive up premiums faster, leading fewer healthy people to carry coverage, and so on in a vicious spiral.

That’s the theory, at least. The law also has mechanisms to help insurers who wind up with a disproportionately expensive group of customers, but it’s not clear yet how well they’ll work. Hence the efforts by both sides to lobby young adults to sign up or go uninsured.

I wonder how many advocates of the latter approach are going without health insurance themselves, or worrying about what might happen if some of the people they persuade to skip coverage were to suffer a costly injury or illness? But then, both sides want part of the population to sacrifice for the greater good -- either by paying higher premiums in a system that covers more people or by going uninsured and tempting fate to help bring that system down.

A bit less attention is being paid to the other side of the picture, though, and something interesting is happening there as well.

The Wall Street Journal’s Louise Radnofsky reported Monday that numerous states plan to continue operating insurance pools for people private insurers had refused to cover in the past. Thirty-five states have been providing health plans for “high risk” customers -- typically, people with chronic diseases, a history of serious illness or dangerous jobs. Those high-risk pools were expected to go away because, starting next year, the 2010 law bars insurers from denying anyone coverage or charging people more based on their preexisting conditions. But the Journal reported that 17 states plan to keep their pools going, and more are considering doing so because of the troubled launch of HealthCare.gov and some of the state exchanges. The federal government may also extend the high-risk pools created by the Affordable Care Act that were due to be shut down at the end of the year.

Taking more of the sicker, costlier consumers out of the exchanges would accomplish the same thing as attracting more younger, healthier people. But the total costs of the system would be distributed in a somewhat different way.

In the exchanges, younger, healthier people overpay into the system to subsidize older, sicker people. The law also imposes a tax on every policy issued (more precisely, it assesses a fee per person covered), then uses the money to subsidize insurers that attract a disproportionately risky group of customers. So everyone who carries insurance helps subsidize the costliest customers, with the young and healthy bearing the biggest part of that burden.

The states’ high-risk pools are often subsidized with a tax on insurers, which effectively spreads their cost among everyone with coverage. Some also use general tax revenues, as does the federal government. That approach spreads the cost among all taxpayers.

Having all taxpayers or everyone with insurance pick up the tab for subsidizing high-risk policyholders makes sense, and it may be more politically palatable than making younger and healthier policyholders pay the bulk of the cost. But high-risk pools haven’t worked well in the past -- their premiums have risen even faster than other insurance plans’. So unless someone comes up with a better approach that controls costs more effectively, they’re not a long-term solution.

In the short term, though, they may provide an unexpected boost to the new exchanges, which seem to need all the help they can get.

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