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Temporary Federal High Risk Health
Insurance Pool Program
Mark Newsom
Analyst in Health Care Financing
May 13, 2010
Congressional Research Service
7-5700
www.crs.gov
R41235
CRS Report for Congress
P
repared for Members and Committees of Congress
c11173008
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Temporary Federal High Risk Health Insurance Pool Program
Summary
This report briefly describes the temporary federal high risk health insurance pool program
established by the Patient Protection and Affordable Care Act (PPACA, P.L. 111-148, as amended
by the Health Care and Education Reconciliation Act of 2010, P.L. 111-152). Under PPACA, the
federal high risk pool program is intended to help individuals with preexisting conditions who
have been uninsured for six or more months to obtain health insurance coverage before 2014,
when other relevant reforms take place. States can run the program or elect to have the
Department of Health and Human Services operate the program in their state.
To be a qualified high risk pool, the high insurance coverage must have an actuarial value (the
average percentage of expenses that the plan would cover) of at least equal 65% of total allowed
costs, and out-of-pocket costs cannot exceed $5,950 for an individual in 2010. The premiums
must be established at a standard rate for a standard population, and age rating cannot exceed a
factor of 4 to 1. Claims and administrative costs will be subsidized by the federal government.
PPACA appropriates $5 billion of federal funds to support the program, available beginning on
July 1, 2010, until the program ends on January 1, 2014. The Department of Health and Human
Services has proposed allocating funds to states by using a combination of factors, including
nonelderly population, nonelderly uninsured, and geographic cost as a guide, with the intention of
reallocating funds based on actual enrollment and expenditure experiences. The Secretary of
Health and Human Services may take any actions necessary to prevent deficits.
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Temporary Federal High Risk Health Insurance Pool Program
Contents
Introduction ................................................................................................................................ 1
Temporary Federal High Risk Pool Program ............................................................................... 1
Eligible Individuals ............................................................................................................... 2
Benefits and Premiums ......................................................................................................... 3
Protection Against Dumping by Health Insurers .................................................................... 4
Program Administration .............................................................................................................. 4
Eligible Entities .................................................................................................................... 4
Funding ................................................................................................................................ 5
Tables
Table 1. State High Risk Pool Enrollment, Participation in the Federal High Risk Pool,
and Proposed Allocation of Federal Funds................................................................................ 6
Contacts
Author Contact Information ........................................................................................................ 7
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Temporary Federal High Risk Health Insurance Pool Program
Introduction
Since 1975, a growing number of states (35 currently) have implemented high risk pools, which
offer nonprofit health insurance to individuals who are unable to purchase affordable coverage in
the private market because of preexisting conditions.1 State high risk pools often contract with a
private health insurance carrier to administer the pool, and plan options can vary significantly
both within pools and from state to state.2 The Government Accountability Office (GAO)
estimates that nearly 4 million individuals were eligible in states with high risk pools between
2005 and 2007.3 However, in 2008, only a total of 199,020 individuals (ranging from 300 in
Florida to 27,386 in Minnesota) were enrolled in the 34 high risk pools in operation during that
time.4
The National Association of State Comprehensive Health Insurance Plans (NASCHIP) believes
that the limited funding to subsidize the relatively high premiums charged for high risk pools has
restrained enrollment in the plans.5 The Patient Protection and Affordable Care Act (PPACA, P.L.
111-148, as amended by the Health Care and Education Reconciliation Act of 2010, P.L. 111-152)
established a temporary federal high risk pool program. Under PPACA, the federally financed
high risk pool program is intended to help certain individuals with preexisting conditions obtain
coverage for the period between the dates beginning not later than 90 days from enactment (June
23, 2010) and January 1, 2014.6
Temporary Federal High Risk Pool Program
Under PPACA, the Secretary of Health and Human Services (hereafter referred to as the
Secretary) must establish a temporary high risk health insurance pool program no later than 90
days after enactment, June 23, 2010.7 The program is intended to bridge uninsured individuals
with preexisting conditions to January 1, 2014, when group health plans and health insurance
issuers of group or individual health insurance coverage will be prohibited from having
preexisting condition exclusions.8 Also effective for 2014 is the “guaranteed issue” provision
1 Lynn Gruber, “How state health insurance pools are helping Americans,” National Association of State
Comprehensive Health Insurance Plans, January 6, 2009. High risk pools are often called health insurance associations
or comprehensive health insurance associations. The Connecticut Health Care Act of 1975 created the first state high
risk pool followed by the Minnesota Comprehensive Health Association in 1976.
2 United States Government Accountability Office, Health Insurance: Enrollment, Benefits, Funding, and Other
Characteristics of State High-Risk Health Insurance Pools, July 22, 2009.
3 Ibid.
4 Kaiser Family Foundation, State High Risk Pool Programs and Enrollment, December 2008. Available at
http://www.statehealthfacts.org/comparetable.jsp?ind=602&cat=7. North Carolina established the 35th state high risk
pool in 2009. For more background information on state high risk pools, see CRS Report RL31745, Health Insurance:
State High Risk Pools, by Bernadette Fernandez.
5 Lynn R. Gruber, “State high risk pools hold value in the era of health reform,” National Association of State
Comprehensive Health Insurance Plans Board of Directors, November 15, 2007. The National Association of State
Comprehensive Health Insurance Plans (NASCHIP) was created in 1993 to provide educational opportunities and
information for state high risk health insurance pools that have been, or are yet to be, established by state governments
to serve the medically “uninsurable” population.
6 Plan enrollments generally are effective on a monthly basis, thus July 1, 2010, would be actual start date for coverage.
7 §1101(a) of PPACA.
8 §1201 PPACA: §2704 PHSA. A preexisting condition exclusion means denying benefits for chronic illnesses or
(continued...)
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requiring health insurance coverage in the individual or group market to accept every employer
and individual in the state that applies for coverage.9 Thus, individuals with preexisting
conditions should not require a special high risk pool on or after January 1, 2014, because they
will have access to health insurance coverage in the reformed insurance marketplace.
Eligible Individuals
The temporary federal high risk pool is intended to supplement existing state high risk pools.
Indeed, existing state high risk pool enrollees will be ineligible for the federal program because
federal enrollees must be without credible coverage for a six-month period prior to the date on
which the individual is applying for coverage through the federal high risk pool program.10
Credible coverage is defined by §2701(c) of the Public Health Service Act (PHSA) as a group
health plan, health insurance coverage, Medicare Part A or Part B, Medicaid, coverage from the
Department of Defense, a medical care program of the Indian Health Service (IHS), a state health
benefits risk pool, the Federal Employee Health Benefits Program (FEHBP), a public health plan
(as defined in regulations), or a health benefit plan under the Peace Corps Act.11 Eligible
individuals must also have a preexisting condition, as determined by the Secretary, and be a
citizen or national of the United States or be lawfully present in the United States.12
Existing survey data on health conditions and insurance status give a range of estimates of
potentially eligible individuals. The GAO estimate of approximately 4 million individuals was
limited to states with existing high risk pools, and thus probably represents a low-end estimate of
eligible individuals for the federal program, which will operate in all states.13 Other full
population survey estimates have found between 6.6 and 11.4 million adults are uninsured and
have a chronic preexisting condition.14 With respect to a likely number of enrollees, a survey of
health insurance companies in the individual market found that there were 223,240 denials of
coverage in 2008.15 This figure likely represents a floor estimate of the number of individuals that
would actually seek coverage in a federal high risk pool, since they have preexisting conditions,
are probably uninsured due to the denial, and have actively sought coverage, thus showing a
willingness to take the necessary steps in order to obtain coverage.
(...continued)
injuries, like carpal tunnel syndrome, diabetes, heart disease, and cancer, that an individual had before obtaining the
current health insurance coverage.
9 §1201 PPACA: §2702 PHSA.
10 §1101(d) of PPACA.
11 45 CFR 146.113 defines a public health plan as any plan established or maintained by a state, the U.S. government, a
foreign country, or any political subdivision of a state, the U.S. government, or a foreign country that provides health
coverage to individuals who are enrolled in the plan.
12 Ibid.
13 United States Government Accountability Office, Health Insurance: Enrollment, Benefits, Funding, and Other
Characteristics of State High-Risk Health Insurance Pools, July 22, 2009.
14 Andrew P. Wilper, Steffie Woolhandler, Karen E. Lasser, Danny McCormick, David H. Bor, and David U.
Himmelstein, National Study of Chronic Disease Prevalence and Access to Care in Uninsured U.S. Adults, Annals of
Internal Medicine, 2008, 149:170-176. Ha Tu, “Rising health costs, medical debt and chronic conditions,” Center for
Studying Health System Change, September 2004.
15 America’s Health Insurance Plans (AHIP), “Individual Health Insurance 2009: A Comprehensive Survey of
Premiums, Availability, and Benefits,” October 2009.
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Benefits and Premiums
The law establishes certain benefits and premium requirements. To be a qualified federal high risk
pool, the health insurance coverage must have an actuarial value of at least 65% of the total
allowed costs.16 The coverage must also have an out-of-pocket limit no greater than the applicable
amount for high-deductible health plans linked to health savings accounts, which is $5,950 for an
individual in 2010.17 This means the total annual cost sharing requirements, including
deductibles, cannot exceed $5,950. While specific coverage policy is not addressed by the law
(e.g., providers covered, covered days of hospitalization, covered prescription drugs), the
Secretary is granted the authority to establish additional requirements concerning qualified high
risk pools.18
By definition, individuals with preexisting conditions are generally high-cost members for a
health insurer. Thus, it will be a challenge to balance coverage generosity and affordability of
premiums with this high-cost population. Indeed, in 2007 the estimated national average per
person annual medical spending for privately insured persons under 65 was $3,648, and it was
about $9,000 per person for the enrollees in state high risk pools.19 For currently operating state
high risk pools, premiums have generally been high. Average state high risk pool premiums have
been between 110% to 200% of the premium rates charged by other private health insurance
carriers offering coverage in the individual market in the same state.20
Certain PPACA requirements for the federal high risk pool attempt to make premiums fair and
affordable. By law, premiums for the federal high risk pool coverage must be established at a
standard rate for a standard population and age rating cannot exceed a factor of 4 to 1.21 These
provisions will limit the variability of premiums among enrollees in the program. PPACA also
subsidizes premiums by appropriating $5 billion for the payment of claims and administrative
costs of the high risk pool that are in excess of the amount of premiums collected from
enrollees.22 Depending on the risk profile of the enrollees and the number of enrollees being
subsidized, premiums could still be relatively high despite the subsidization.
16 §1101(c)(2)(B) of PPACA. The actuarial value of a health insurance policy is the percentage of the total covered
expenses that the plan would, on average, cover. For example, a plan with a 65% actuarial value means that consumers
would on average pay 35% of the cost of health care expenses through features like deductibles and coinsurance. The
amount that individual consumers pay could vary substantially by the amount of services used.
17 §1101(c)(2)(B) of PPACA and §223(c)(2) of the Internal Revenue Code of 1986.
18 §1101(c)(2)(D) of PPACA.
19 David Kashihara and Kelly Carper, “National Health Care Expenses in the U.S. Civilian Noninstitutionalized
Population, 2007,” Statistical Brief #229, December 2008, Agency for Healthcare Research and Quality. Available at
http://www.meps.ahrq.gov/mepsweb/data_files/publications/st229/stat229.pdf. Kaiser Family Foundation, State High
Risk Pool Programs and Enrollment, December 2007. Available at http://www.statehealthfacts.org/comparetable.jsp?
ind=602&cat=7.
20 United States Government Accountability Office, Health Insurance: Enrollment, Benefits, Funding, and Other
Characteristics of State High-Risk Health Insurance Pools, July 22, 2009.
21 §1101(c)(2)(C) of PPACA. The terms “standard rate” and “standard population” were not defined by PPACA. HHS
has interpreted this provisions to mean that the rate may not exceed 100% of the standard non-group rate. U.S.
Department of Health and Human Services, “Fact Sheet—Temporary High Risk Pool Program,” April 2010. Available
at http://www.hhs.gov/ociio/initiative/hi_risk_pool_facts.html. Age rating refers to the practice of a health insurer
estimating the expected health care spending for all individuals within a given age group and then varying the
premiums for individuals across groups to account for the differences. The higher the age group the higher the
premiums are.
22 §1101(g) of PPACA.
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Protection Against Dumping by Health Insurers
Health insurers would have a powerful financial incentive to dump high-cost individuals with
preexisting conditions into a high risk pool plan if they could. In order to prevent this type of
activity, the Secretary must establish criteria for determining whether health insurance issuers and
employment-based health plans have discouraged an individual from remaining enrolled in prior
coverage based on that individual’s health status.23 If an issuer or employment-based health plan
is found by the Secretary to have encouraged an individual with preexisting conditions to
disenroll, then the issuer or plan would be responsible for reimbursing the federal high risk pool
program for the medical expenses incurred for that individual.24 PPACA expressly permits the
Secretary or a state operating the program to develop additional remedies to enforce the provision
against dumping.25
Program Administration
PPACA provides that the Secretary may carry out the federal high risk pool program directly or
through contracts to eligible entities.26 In order to carry out the program, and other PPACA
private health insurance provisions, the Secretary created a new Office of Consumer Information
and Insurance Oversight (OCIIO) within the Office of the Secretary (OS).27 OCIIO is led by a
director that reports to the Secretary. Within OCIIO is an Office of Insurance Programs that is
responsible for administering the temporary high-risk pool program and associated funding to
states.28
Eligible Entities
To be eligible to contract with the Secretary for the federal high risk pool, an entity must either be
a state or nonprofit private organization.29 States that enter into a contract with the Secretary must
agree not to reduce the annual amount expended for the operation of state high risk pools during
the year preceding the year in which such contract is entered into.30 On April 2, 2010, the
Secretary sent a letter to state officials inviting them to participate in the program and asking that
they submit a letter of intent by April 30, 2010.31 To date, all states and the District of Columbia
have either formally responded to the Secretary or made a public proclamation of their intentions,
except Oregon and Utah. Most states (30 total) have chosen to contract with the Secretary to
23 §1101(e)(1) of PPACA.
24 §1101(e)(2) of PPACA.
25 §1101(e)(3) of PPACA.
26 §1101(b)(1) of PPACA. Eligible entities other than a state must be a non-profit organization.
27 Department of Health and Human Services, “Statement of Organization, Functions, and Delegations of Authority,”
Federal Register, Vol. 75, No. 74 , Monday, April 19, 2010.
28 Ibid.
29 §1101(b)(2) of PPACA.
30 §1101(b)(2)(C)(3) of PPACA.
31 U.S. Department of Health and Human Services, “Sebelius Continues Work to Implement Health Reform,
Announces First Steps to Establish Temporary High Risk Pool Program,” April 2, 2010. Available at
http://www.hhs.gov/news/press/2010pres/04/20100402b.html.
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administer the program.32 A total of 19 states indicated that they would not be participating. The
Secretary will operate the program in those states. A list of states by their participation status is
provided in Table 1.
Funding
PPACA appropriated $5 billion to pay claims and the administrative costs of the high risk pool
that are in excess of the amount of premiums collected from enrollees beginning on July 1 until
the program ends on January 1, 2014.33 There has been some concern that the funding amount is
inadequate for the program, even though various key factors such as the specific actuarial value,
coverage policy, premiums, and cost sharing have not been defined yet for each plan. Rick Foster,
the chief actuary of the Centers for Medicare and Medicaid Services, estimates that by 2011 and
2012 the initial funding will be exhausted, “resulting in substantial premium increases to sustain
the program.”34 Many of the states that elected not to participate cited the funding as their reason.
For example, Texas Governor Rick Perry in a letter to the Secretary stated that the funding is
insufficient and that “state officials could be forced to reduce health coverage, raise premiums or
ask state taxpayers to pay” for the high risk pool.35 Similarly, Wyoming Governor Dave
Freudenthal wrote the Secretary expressing the concern “that the allotted money may prove to be
insufficient to fully operate this program until 2014.”36 If there are funding shortages, the law
gives the Secretary broad authority for dealing with them. If the Secretary estimates for any fiscal
year that the aggregate amounts available for the payment of the expenses of the high risk pool
will be less than the actual amount of expenses, the Secretary may make any program adjustments
necessary to eliminate the deficit.37
The Secretary has proposed allocating funds for the program by using a formula similar to what
was used for the State Children’s Health Insurance Program (CHIP), whereby funds would be
allotted to states using a combination of factors, including nonelderly population, nonelderly
uninsured, and geographic cost, as a guide.38 The Secretary intends to reallocate the unspent state
allotments after a period of not more than two years, based on an assessment of enrollment and
expenditure experiences of each state. A breakdown of the proposed funding by state is provided
in Table 1.
32 Jenny Backus, “High-Risk Pool Programs Take a Step Forward,” April 30, 2010. Available at
http://www.healthreform.gov/forums/blog/blog_20100430_1.html. National Conference of State Legislatures,
“Coverage of High-Risk Individuals: State and Federal High-Risk Pools,” May 6, 2010. Available at
http://www.ncsl.org/?tabid=14329.
33 §1101(g)(1) of PPACA.
34 January 8, 2010, memorandum “Estimated Financial Effects of the Patient Protection and Affordable Care Act as
Passed by the Senate on December 24, 2009” from CMS Chief Actuary Richard S. Foster to the Congress. Available at
http://www.cms.gov/ActuarialStudies/Downloads/S_PPACA_2010-01-08.pdf.
35 April 30, 2010 letter from Governor Rick Perry to Secretary Kathleen Sebelius. Available at
http://governor.state.tx.us/files/press-office/O-SebeliusKathleen20100430.pdf.
36 Leigh Anne G. Manlove, “Governor Freudenthal Opts for Federally Run High-Risk Insurance Pool,” April 28, 2010.
Available at http://governor.wy.gov/press-releases/governor-freudenthal-opts-for-federally-run-highrisk-insurance-
pool.html.
37 §1101(g)(2) of PPACA.
38 U.S. Department of Health and Human Services, “Fact Sheet – Temporary High Risk Pool Program,” April 2010.
Available at http://www.hhs.gov/ociio/initiative/hi_risk_pool_facts.html.
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Table 1. State High Risk Pool Enrollment, Participation in the Federal High Risk
Pool, and Proposed Allocation of Federal Funds
Pre-PPACA State
High Risk Pool
Potential Allocation of
Enrollment
HHS or State to Run
Federal High Risk Pool
State
(2008)a
Federal High Risk Pool
Funds (in millions)
Alabama
2,653
HHS
$69
Alaska
469
State
$13
Arizona
No program
HHS
$129
Arkansas
3,061
State
$46
California
7,036
State
$761
Colorado
8,543
State
$90
Connecticut
2,336
State
$50
Delaware
No program
HHS
$13
District of Columbia
No program
State
$9
Florida
300
HHS
$351
Georgia
No program
HHS
$177
Hawaii
No program
HHS
$16
Idaho
No program
HHS
$24
Illinois
15,682 State
$196
Indiana
6,561
HHS
$93
Iowa
2,732
State
$35
Kansas
1,830
State
$36
Kentucky
4,458
State
$63
Louisiana
1,110
HHS
$71
Maine
No program
State
$17
Maryland
15,180
State
$85
Massachusetts
No program
State
$77
Michigan
No program
State
$141
Minnesota
27,386
HHS
$68
Mississippi
3,464
HHS
$47
Missouri
2,999
State
$81
Montana
2,995
State
$16
Nebraska
5,089
HHS
$23
Nevada
No program
HHS
$61
New Hampshire
1,094
State
$20
New Jersey
No program
State
$141
New Mexico
6,020
State
$37
New York
No program
State
$297
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Temporary Federal High Risk Health Insurance Pool Program
Pre-PPACA State
High Risk Pool
Potential Allocation of
Enrollment
HHS or State to Run
Federal High Risk Pool
State
(2008)a
Federal High Risk Pool
Funds (in millions)
North Carolina
Program started 2009
State
$145
North Dakota
1,463
HHS
$8
Ohio
No program
State
$152
Oklahoma
2,098
State
$60
Oregon
15,320
Undecided
$66
Pennsylvania
No program
State
$160
Rhode Island
No program
State
$13
South Carolina
2,328
HHS
$74
South Dakota
653
State
$11
Tennessee
4,516
HHS
$97
Texas
26,908
HHS
$493
Utah 3,715
Undecided
$40
Vermont No
program
State
$8
Virginia No
program
HHS $113
Washington 3,397
State $102
West Virginia
653
State
$27
Wisconsin 16,284
State $73
Wyoming 687
HHS
$8
Totals
199,020
30 State, 19 HHS, 2 Undecided
$5 billion
Sources: Jenny Backus, “High-Risk Pool Programs Take a Step Forward,” April 30, 2010. Available at
http://www.healthreform.gov/forums/blog/blog_20100430_1.html. National Conference of State Legislatures,
“Coverage of High-Risk Individuals: State and Federal High-Risk Pools,” May 6, 2010. Available at
http://www.ncsl.org/?tabid=14329. U.S. Department of Health and Human Services, “Fact Sheet – Temporary
High Risk Pool Program,” April 2010. Available at http://www.hhs.gov/ociio/initiative/hi_risk_pool_facts.html.
Notes: Oregon and Utah are considered “undecided” because they have engaged the Secretary in a series of
discussions around concerns they have about operating the program. Both states have indicated they will not
make a final decision until those discussions are completed.
a. This column provided the latest available enrollment statistics for state high risk pools in existence before
PPACA.
Author Contact Information
Mark Newsom
Analyst in Health Care Financing
mnewsom@crs.loc.gov, 7-1686
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