State High-Risk Pools: An Update on the Minnesota Comprehensive Health Association

Abstract

State health insurance high-risk pools are a key component of the US health care system's safety net, because they provide health insurance to the “uninsurable.”

In 2007, 34 states had individual high-risk pools, which covered more than 200 000 people at a total cost of $1.8 billion.

We examine the experience of the largest and oldest pool in the nation, the Minnesota Comprehensive Health Association, to document key issues facing state high-risk pools in enrollment and financing. We also considered the role and future of high-risk pools in light of national health care finance reform.

STATE HIGH-RISK POOLS ARE an important component of the US health care system's safety net and will be needed as access expansions are phased in under national health care reform. In 2007, 34 states had individual high-risk pools providing health insurance coverage to 201 047 people at a total cost of $1.8 billion.¹ High-risk pools have extended coverage to those with preexisting health conditions who do not have access to affordable employer-sponsored insurance, do not qualify for public assistance, and have not been able to secure affordable coverage in the individual market because of their health status. Plan eligibility requires individuals to demonstrate that they either have been denied coverage in the private market or were offered coverage with an excessively high premium. As of this writing, the 15 states without high-risk pools are Arizona, Delaware, Georgia, Hawaii, Maine, Massachusetts, Michigan, Nevada, New Jersey, New York, Ohio, Pennsylvania, Rhode Island, Vermont, and Virginia.¹

The nation's current economic crisis amplifies the vulnerability of high-risk individuals. Increases in job loss, mortgage foreclosures, early retirement, and bankruptcies and decreases in individuals' financial assets have implications for the number of uninsured and the extent of their health care coverage needs. The current economic situation also has repercussions for states seeking to maintain existing safety net programs with decreasing general revenue dollars.

The recently passed Patient Protection and Affordable Care Act of 2010 (PL 111-148) established a temporary high-risk pool to supplement state efforts to provide coverage for individuals with preexisting medical conditions until 2014, when federal access expansions will be fully implemented.² The temporary high-risk pool requires individuals to have a 6-month period of being uninsured before enrollment in the pool, which has subsidized premiums and limits annual cost sharing to $5950 for an individual and $11 900 for a family in 2010.

We profiled one of the largest, oldest, and most expensive state high-risk pools in the nation, the Minnesota Comprehensive Health Association (MCHA, pronounced “M”-sha). We provide current information on enrollment, costs, and financing. We include a discussion of key policy issues that MCHA (and other state high-risk pools) are facing and conclude with a recommendation to develop a plan for those currently enrolled in state high-risk pools to transition into the new national model of health care access.

STATE HIGH-RISK POOLS

State high-risk pools have existed for more than 30 years. In 1976, Connecticut and Minnesota were the first states to form high-risk pools. A few states, such as New York, have implemented pooling and reinsurance mechanisms for small employers. We focus solely on high-risk pools for individuals. High-risk pools help address 2 key areas of vulnerability in the private individual market: the lack of statutorily guaranteed coverage and the ability of health insurers to deny coverage for those with preexisting health conditions. State-based pools are also one of the approved mechanisms for meeting federal requirements for guaranteed portability and renewability for policyholders converting from group to individual coverage, as required under the Health Insurance Portability and Affordability Act (HIPAA) of 1996. In addition, 23 states use their high-risk pools as a mechanism for providing health care coverage for individuals eligible for the federal Health Coverage Tax Credit.¹

High-risk pools help stabilize risk in the individual market. By removing high-cost individuals from the private market and by pooling these high-risk individuals and essentially taking them out of the individual market, the rest of the individual market has a lower average risk and, subsequently, lower premiums. State-based risk pools are financed primarily through assessments on fully insured health care plans and enrollee premiums.

THE MINNESOTA COMPREHENSIVE HEALTH ASSOCIATION

Minnesota's high-risk pool, MCHA, is a not-for-profit organization regulated by the Minnesota Department of Commerce. Established in 1976, MCHA currently covers approximately 29 000 enrollees (about 15% of all state high-risk pool enrollees across the country) and has a total budget of $237.6 million.¹ MCHA offers 6 deductible plans (with deductibles that range from $500 to $10 000) and a health savings account plan as well as 1 Medicare supplement plan.^3,4 MCHA is administered by a local health insurance carrier and generally covers hospital care, physician services, prescription drugs, select forms of long-term care, mental health services, substance abuse services, limited preventive care, and other services. MCHA does not cover vision or dental care. The annual out-of-pocket maximum for beneficiaries ranges from $3000 to $10 000. Standard monthly premiums for individuals range from less than $100 to more than $800, depending on deductible level and age. Coinsurance for all plans is set at an 80:20 ratio. The lifetime maximum per covered person is $5 million.

Similar to other state high-risk pools, MCHA has multiple eligibility categories: (1) loss of group coverage (and eligibility under HIPAA), (2) federal Health Coverage Tax Credit program eligibility, (3) being 65 years of age or older but ineligible for the federal Medicare program, (4) health-related rejection in the private health insurance market, and (5) the existence of a presumptive condition. As with all state pools, state residency is required.

MCHA also provides dependent coverage for spouses younger than 65 years, unmarried children 25 years of age or younger, children for whom the applicant or spouse is a legal guardian or has a Qualified Medical Support Order, dependents with a physical or mental disability, and newborn grandchildren who are financially dependent on the applicant.⁴ Dependent coverage is provided in fewer than half of all other state pools.¹

In a recent survey of 1640 MCHA enrollees, 68.7% of respondents indicated that being turned down for an individual policy because of a preexisting condition was a reason they applied to MCHA.⁵ Approximately 23% reported applying to MCHA because their COBRA (Consolidated Omnibus Budget Reconciliation Act of 1985) benefits had terminated, they could not afford COBRA, or COBRA was not available at the time of job termination. Approximately 8% indicated that they applied because their employer did not offer health insurance. A much smaller percentage, 3.3%, reported that they qualified for MCHA under HIPAA.

ENROLLMENT AND CLAIMS

MCHA enrollment has fluctuated over the years (Figure 1). Between 1981 and 1993, enrollment grew consistently, from 2918 to 35 296 members. Between 1993 and 1998, enrollment decreased by 29.3% to 24 954 members. Since then, enrollment has stabilized, with approximately 29 000 members. At the end of 2007, 95.8% of MCHA enrollees were enrolled in 1 of the 6 deductible plans, with the remaining 4.3% enrolled in the Medicare supplement plan.

FIGURE 1.

Minnesota Comprehensive Health Association claims and enrollment: 1981–2007.

Figure 1 represents total claims for all MCHA (both deductible and Medicare supplement) enrollees from 1981 to 2007. With the exception of the late 1990s, when total claims decreased slightly, total enrollee claims have increased steadily between 1981 and 2007 (from $2.9 to $224.9 million).

Not surprisingly, the near-elderly (aged 55–64 years) represent the largest enrollment category, as seen in Figure 2. These individuals are more likely than are those in other categories to have a health condition and be too young to qualify for Medicare coverage. The next largest category is individuals aged 45 to 54 years.

FIGURE 2.

Age distribution of Minnesota Comprehensive Health Association deductible plan enrollees: 2006.

Figure 3 presents medical expenditures expressed as total claims per enrollee at the end of each year and shows a steady growth in claims. In 1981, total claims per enrollee amounted to approximately $2000; by 2007, the amount was $7793.

FIGURE 3.

Per-enrollee claims submitted to the Minnesota Comprehensive Health Association: 1981–2007.

MCHA's 2004 annual report provides information on service utilization and reports the distribution of expenditures for both deductible and Medicare supplement plan enrollees by 4 categories (physician, pharmacy, inpatient hospital, and outpatient hospital services).⁶ A third of all costs were attributable to physician services, followed by inpatient hospital services (25%), pharmacy services (23%), and outpatient hospital services (21%). For deductible plan enrollees, the top diagnostic categories in terms of costs were cardiovascular, neoplasm, and musculoskeletal (together representing 39.1% of costs). For Medicare supplement enrollees, the top 2 diagnostic categories, comprising 31.7% of costs, were cardiovascular and genitourinary (reproductive and urinary). Although representing only 2.1% of total MCHA enrollment, catastrophic cases (in which claim payments exceeded $50 000 in a year) contributed 34.0% to total expenditures in 2004.⁶

FINANCING

Since its inception, MCHA has been financially supported by 2 main sources: enrollee premiums and annual assessments on insurers selling in the individual and group health insurance markets within the state. As a result of the federal Employee Retirement Income Security Act of 1974 (ERISA), self-insured employer plans are protected from these assessments. In addition, state general fund appropriations have supported the pool for 3 years of MCHA's history.

In 2007, MCHA premiums totaled $114.1 million, about 48% of total funds. Premiums represented the majority of funding in more than half of the pools.¹ State law requires MCHA premiums to fall between 101% and 125% of the average premium rate for a comparable individual plan in the commercial market. In 2007, MCHA's premium rates were 119% of this average premium rate.

There are 2 MCHA premium rates, one for tobacco users and another for nonusers.⁷ The annual insurer assessments are determined by MCHA, approved by the Commissioner of Commerce, and derived from the proportion of each insurer's volume of premium revenue to the total premium revenue all relevant insurers in Minnesota. In 2007, annual insurer assessments totaled $115.4 million (49% of total pool funds). These assessments resulted in an estimated 2% increase in commercial health insurance premiums.⁸

State funds have subsidized MCHA costs and offset losses at several points during the program's history using various funding sources.^6,9 Until 1987, the state subsidized contributing insurers by granting them a 100% income and premium tax offset against the MCHA assessments. In 1997, $30 million from the Health Care Access Fund was used to subsidize MCHA for 2 years. A 2% assessment on hospital and provider revenue supports this fund. Because providers are able to build this assessment into the rates charged to payers, self-funded plans indirectly contributed to MCHA during these 2 years. In 2001, $15 million was appropriated to cover MCHA's losses using surplus funds from the Minnesota's Workers Compensation assigned risk plan.⁹ Finally, in 2006 approximately $73.9 million in funds from the 1998 state tobacco settlement fund were disbursed to MCHA to offset losses and insurer assessments.¹

Continued Cost Increases and Limited Cost Control

Minnesota's experience with MCHA highlights some challenges for state high-risk pools with regard to costs, financing mechanisms, enrollment, and affordability. These challenges are magnified in the context of the current economic crisis, its potential impact on the number of uninsured and uninsurable, looming deficits in state general funds, and, now, the uncertainty of the future of state pools owing to the new national health care reform legislation.

A prominent concern about MCHA has been its growing health care expenditures, which have led to higher average costs per MCHA enrollee compared with general health care spending in the state. Although MCHA enrollee health care spending has always been higher than has the average cost of health care spending in Minnesota, the differential has increased over time. In 1998, per capita spending for MCHA Plan 2 with a $500 deductible was only 6.3% higher than was the average per capita health care spending in Minnesota.¹⁰ By 2007, the average cost per MCHA enrollee was 15% higher than was the average per capita health care spending in Minnesota.¹¹

It is important to note that although MCHA is the largest high-risk pool in the country, it is still a relatively small group. A large increase in expenditures for a subset of the population that is already defined as high risk can have a significant impact on total costs of care. In 2004, MCHA catastrophic cases (in which claim payments exceeded $50 000 in a year) represented only 2.1% of enrollees but contributed 34.0% to total expenditures.⁶

Containing high-risk pool costs is difficult given the many health care needs of enrollees with preexisting health conditions. Minnesota's main cost-containment strategies are managed through its deductibles and copayment policies. Another cost-control strategy gaining momentum in Minnesota and in other states is aggressive disease management. MCHA enrollees have access to the same disease management programs as the plan administrator's private health care plan enrollees. There is limited information on the costs and benefits of these disease management programs, as they are relatively new.

Many other state high-risk pools have attempted to control costs through eligibility parameters (such as excluding spouses and dependents), plan design, and enrollment caps.¹² Minnesota has no enrollment cap and includes coverage for dependents.

Flat and Declining Enrollment

Compared with other state pools, MCHA has experienced stable enrollment (though limited growth despite having no cap on enrollment), a lower cap on premiums (125% of premiums in the private market compared with 150%), and the availability of dependent coverage. Even with the economic downturn, enrollment has been stagnant. During the first 10 months of 2009, more than 5000 members left MCHA, and approximately the same number of new individuals enrolled in MCHA. Enrollment may be flat because there are always a significant number of older individuals in the program who eventually age-out of the program as they become eligible for Medicare. In 2006, 62% of enrollees were between 45 and 64 years of age. Yet, increasing premiums continue to be a concern, as expressed by the 1 in 10 individuals who reported that they left the program because of the high cost of coverage.¹³

MCHA is meeting only part of the increasing need in Minnesota.¹⁴ With a drop in employer-sponsored insurance in Minnesota, like the rest of the nation, Minnesota had a significant increase in its uninsured rate: from 6.1% in 2001 to 9.1% in 2009.^15,16 Continued job losses and state budget deficits translate into potential losses in health insurance coverage and losses in the amount of revenue available from premium assessments. Minnesota and other states may be forced to reexamine enrollment, spending limitations, and other cost-control mechanisms for their high-risk pools even between now and the implementation of the access expansions in national health care reform expected in 2014.

Financing Challenges

State high-risk pools, by design, lose money and need to be financially subsidized to remain viable.¹⁴ MCHA has been supported primarily through enrollee premiums and insurer assessments with occasional support from the state. Minnesota's premium rate level (permitted to be up to 125% of the standard premium rate) is among the lowest rate limits states use. In most other states that have high-risk pools the maximum is at least 150%, and in half of the states it is 200%.¹ Legislators have considered increasing the MCHA premium range in an effort to keep pace with health care spending but have yet to do so.

Given that MCHA helps to address both fully insured and self-insured market failures, some believe that the insurer assessments used by MCHA (and other state pools) should be broader, with insurer assessments based on not just the fully insured plans (consisting of many small businesses and individuals) but also the self-insured plans (typically large employers). However, the Employee Retirement Income Security Act currently prohibits assessments on the self-insured plans. Compounding this concern is recent growth in self-insured plans, which represented 60% of Minnesota's private health insurance market in 2005 (nationally, the percentage of workers with health insurance enrolled in a self-insured plan was 54% in 2005).¹⁷ Some legislators and policy analysts have considered alternative mechanisms to financing, such as third-party administrator assessments or an increase to the current 2% provider assessment, with the increase earmarked for MCHA financing.

Minnesota is not unique in its relative lack of state general fund financing. In 2007, only 5 state high-risk pools received funding from their state general funds.¹ Minnesota policymakers and analysts believe that there is a need for a more consistent state role in the financing of MCHA. A concern related to state general fund financing, however, is its consistency and stability, as evidenced by the current state budget deficits in Minnesota and elsewhere.

Recent Federal Support of High-Risk Pools

The federal government has played a role in increasing the availability of state high-risk pools by providing opportunities for expansion and innovation. The Federal Trade Act of 2002 (PL 107-210) created a state high-risk pool grant program of $20 million under section 2744 of the Public Health Service Act.^18,19 In addition to start-up funding, bonus grants were given to state pools that provided premium subsidies for those with low incomes, provided additional benefits, eliminated waiting lists, or implemented disease management programs.¹⁹ The State High-Risk Pool Extension Act of 2006 (PL 109–172) extended the provisions of the Federal Trade Act and authorized an additional $90 million of seed funding (2005–2009) to encourage states to establish qualified high-risk pools.²⁰ Premiums under both of these programs were limited to 150% of the standard in the individual market for states to qualify for a grant. The recent inclusion of the temporary high-risk pool funded by the federal government represents the latest federal-level activity in this area.

Affordability Initiatives

Premiums in the individual market continue to increase, and even with the premium cap many pool-eligible enrollees still cannot afford the premiums and may not reach the deductible, especially in the case of the high-deductible plans. One feature MCHA has used to enhance its affordability for enrollees is its split deductible—one for medical services and one for pharmaceutical drugs. Excluding preventive care from the required deductible is another example of an affordability option that has been considered.

In addition, with federal grant support, MCHA and other states have provided subsidies to eligible low-income enrollees at several times in the past decade.²¹ In 2007, 2422 MCHA beneficiaries with incomes below 200% of the federal poverty level, or about 8% of all plan enrollees, received premium assistance.⁸ Additional federal or state subsidies could help more individuals afford coverage through a high-risk pool. This program may grow if federal funding continues, as those losing jobs and income may qualify. As noted, in 2005, 23% of enrollees reported that they applied to MCHA because their COBRA benefits had terminated, they could not afford COBRA, or COBRA was not available to them at the time of job termination.⁵

CONCLUSIONS

State high-risk pools will play an important role in the transition actuated by national health care reform, which establishes an individual mandate, eliminates exclusions for preexisting conditions, and reforms rating rules. However, high-risk pools cover too small a portion of the uninsured population to be a panacea for the problem of the uninsured or the uninsurable. MCHA's enrollment represents only 7% of the state's uninsured population, and in most other states, high-risk pool enrollment comprises less than 1% of the uninsured population. Still, as long as the number of people with preexisting conditions remains small, high-risk pools may be an effective way to alleviate most of the inequity generated by the normal operation of a private insurance market.²²

With the full implementation of national reform, all individuals should be able to purchase private health insurance from an insurance exchange. Yet how the risk and the cost of those currently enrolled in high-risk pools will be integrated into this new system is unclear. The interim strategy, included in the Patient Protection and Affordable Care Act, is to create a temporary national high-risk pool to meet the current needs of those with preexisting conditions living in states that do not currently have high-risk pools. A transition plan for moving all those newly enrolled in the national pool and those currently enrolled in state pools will be an important component of successful implementation of reform in 2014.

On April 2, 2010, the secretary of Health and Human Services, Kathleen Sebelius, asked states to indicate their intention to participate in the temporary high-risk pool. As of September 2010, 27 states and the District of Columbia opted to run their own federally funded program, administered either by the state or a designated HIPPA health insurance carrier. Twenty-three of those states opted for the federally administered national Pre-existing Conditions Insurance Plan (PCIP). As of November 2010, approximately 8,000 individuals were enrolled in the national PCIP.^23-24 A key concern of the states is that the $5 billion appropriated for the state high-risk pools will not be enough to cover the costs of a new state-based program.

We believe a transition plan will need to be developed for the more than 200 000 people currently enrolled in state high-risk pools and those newly enrolled in the national pool between now and 2014. It will be difficult to transition the current high-risk pool enrollees into the insurance exchange without substantial subsidies to help offset the high cost and to protect health care plans from adverse selection. A risk-adjustment mechanism to help average out plan premiums between plans derived from the risk profile of their enrollees will need to be developed along with the data systems required to support an effective system.

The combination of existing state high-risk pools and the temporary high-risk pool will provide a needed bridge of coverage until health care reform is fully developed and implemented. Policymakers can learn a great deal from the experiences Minnesota and other states have had in addressing the unique needs of the uninsurable using state high-risk pools. These programs should be kept in place until other provisions are developed to meet the health care needs of those who truly need access to care and coverage.