By Robert Laszewski

First Posted at Health Care Policy and Marketplace Review on 3/19/2014

Bob Laszewski, Host of Health Care Policy and Marketplace Review

Bob Laszewski, Host of Health Care Policy and Marketplace Review

We are hearing that Republicans are considering proposing high-risk pools as part of an alternative health insurance reform proposal to Obamacare.

A high-risk pool proposal would likely mean the Congress giving states the flexibility, and perhaps funding, to set up these risk pools. Risk pools by definition are a place where people can go when they are not able to buy health insurance in the regular market because they have a health problem.

That means Republicans would be turning the clock back to a time when insurance companies could turn people down for health insurance because of their health status.

Presumably, the Republicans are contemplating a market where insurance companies could once again choose just who they wanted to cover––the healthy but not the sick.

Anyone turned down could then go the high-risk pool to be assured of having health insurance. Presumably, Republicans would assure consumers that they would be able to access the same kind of comprehensive health insurance and at the same market rates as those able to buy from insurance companies would be able to get.

Let me be clear at this point that I don’t know of anyone in the insurance industry asking to go back to the days when a carrier could exclude people as a result of their health status and make money just covering the healthy.

Whether it’s Obamacare or a risk pool concept, policymakers are faced with the same dilemma: How do you insinuate the unhealthy and otherwise uninsurable into a health insurance system in a way that benefits are comprehensive and costs are affordable for everyone?

The Obamacare route did this by mandating that everyone needed to be in the same system––same benefits and same rates. That meant rates had to increase for everyone to offset the cost of the sick now being allowed in the pool and a temporary reinsurance system had to be devised as the transition took place (the three-year $20 billion Obamacare “3Rs”).

If we instead went down the Republican high-risk pool route, we would have the same challenges. But instead of putting the solution inside a comprehensive health insurance system everyone was in, a risk pool solution would create two parallel health insurance systems––the traditional mainstream system for the healthy and a second high-risk pool system for those who were rejected by the insurers from the mainstream system.

All other things being equal, each system would have exactly the same cost if everyone had access to the same benefits and premium costs. You pay the extra costs for the otherwise uninsurable people inside Obamacare or you pay those same costs outside the mainstream market system by subsidizing high-risk pools.

This is why Republican claims that the Obamacare reinsurance program is an insurance company bailout are so disingenuous. If and when we see a Republican high-risk proposal in detail, you will find much the same financial transition mechanism buried in the high-risk pool structure.

A properly structured high-risk pool system that assured consumers access to the same benefits and prices would accomplish the same thing Obamacare is trying to accomplish. It wouldn’t do a worse job and it wouldn’t do a better job. It wouldn’t cost more and it wouldn’t cost less. Everyone would have quality health insurance at market rates.

But it is a politically stupid idea.

For Republicans to sell a high-risk pool scheme in 2014, they would have to convince voters:

  1. That we need to go backward to the days when insurance companies could deny anyone access to health insurance on account of their health.
  2. That insurers can make their profits covering only the healthy leaving the sick to go to a government supported pool.
  3. That the government supported pool will always have coverage and prices as good as a consumer would have otherwise been able to find in the mainstream market––separate but equal coverage.

History is full of examples of states setting up high-risk pools. They all have one thing in common––they were never adequately funded. The number of people who had access ended up being capped, premiums were higher, and coverage was restricted. Could high-risk pools theoretically work as well as putting everyone in the mainstream market? Yes. Have they ever? No.

I can’t believe Republicans are even considering this idea in 2014.

Do Republcians really want to go into the November elections suggesting we should go back to the days insurance companies make money unilaterally deciding who they would cover and those shut out would be eligible for separate but equal coverage in a government-run pool for the sickest?

Who would want to be in this health insurance equivalent of a ghetto?

I really think Republicans are risking ceding the health insurance issue back to the Democrats.

The polls say people don’t like Obamacare but they think it should be fixed––people don’t want to go back.

I see Democrats slowly coming to the realization that they need to admit Obamacare is broken and that they want to fix it. (Although, I am not always sure they are really willing to fix it or know how to fix it.)

If the best Republicans can do is to end up pushing silly ideas like selling health insurance across state lines, association health plans, and separate but equal high-risk pool ghettos for the uninsurable, they risk taking all of the voter anger over Obamacare for granted and blowing yet another election.

For a good historical perspective on state risk pools, you can access a 2010 Kaiser Family Foundation white paper here.

Recent post on other Republican health insurance reform ideas: Silly Republican Insurance Reform Ideas––Selling Insurance Across State Lines and Association Health Plans