Opinion: Paul Ryan's high-risk insurance pools are far too risky

While Republican House Speaker Paul Ryan's idea to assign people with serious and expensive medical conditions into state-based high-risk pools might seem logical on the surface, this element of an Affordable Care Act replacement plan would lead to significant market distortions and inequities, according to Carolyn Long Engelhard, director of the Health Policy Program at the University of Virginia School of Medicine's Department of Public Health Sciences.

"On the face of it, high-risk pools make some sense, particularly if you are one of the lucky Americans who is mostly healthy most of the time," Ms. Engelhard wrote in The Hill. This is because sick patients who are high utilizers of healthcare services skew the risk within an insurance pool and raise the premiums for everyone. As more sick people gain coverage, as is the case under the ACA, premiums continue to go up for everyone to cover the costs of the services used by the sickest patients, which makes the cost of insurance for healthy people unaffordable. Once this occurs, the healthiest people drop out of the pool. Then even the price-sensitive and less healthy drop out, leaving only the highest utilizers who are motivated to retain their coverage. This adverse selection can lead to a "death spiral" in which insurance becomes unaffordable for everyone, according to Ms. Engelhard.

House Speaker Ryan's proposal to create state-based high-risk insurance pools aims to mitigate adverse selection in private health insurance markets by removing the sickest patients from the average pools and placing them into publicly funded insurance pools. According to Ms. Engelhard, House Speaker Ryan and other supporters of this proposal say this would "dramatically lower the price for everybody else. You make health insurance so much more affordable, so much more competitive and open up competition."

While departing from the ACA's social insurance model by creating high-risk pools could lower the cost of insurance for some, it would inevitably dismantle the ACA's guarantee of comprehensive coverage for the millions of Americans with preexisting conditions, according to Ms. Engelhard.

She says it is true that the ACA has increased the cost of insurance for many people, and the individual mandate alone is not enough to convince the young and healthy who are holding out to buy insurance. "But going back to the world of pre-ACA insurance risk segmentation through state-based high-risk pools is no panacea and would bring other market distortions and inequities," Ms. Engelhard wrote.

A Commonwealth Fund study from 2014 concluded that high-risk pools are not a viable alternative to the protections the ACA provides to people with preexisting illnesses. In the past, they have come with high administrative costs, unaffordable premiums and "skimpy" benefits, according to Ms. Engelhard. Before the ACA was enacted, 35 states ran their own high-risk pools, but premiums in some reached 250 percent more than the state's average premium. Even with the support of subsidies, premiums were unaffordable to many. The Commonwealth Fund report predicted that switching from the ACA to high-risk pools would generate higher spending, higher rates of uninsured and plans that do not meet the medical needs of people with chronic illness, according to Ms. Engelhard.

"The ACA has its problems, and the hyper-partisanship surrounding it is great fodder going into November's presidential election. However, since the ACA was set up in part to address the problems brought on by risk-rating individuals and the inadequacies of state-based high-risk pools, having the Republican leadership embrace the entity as a new strategy to ameliorate the failings of ObamaCare seems risky at best and quite ironic," Ms. Engelhard concluded.

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