John Cochrane, a Senior Fellow at the Hoover Institute, has called the problem of preexisting medical conditions, “The Central Defect of American Health Insurance”. No health care reform plan will be successful without solving this problem.
Between 1994 and 2002, New Jersey required health insurance plans to ensure patients with pre-existing conditions (Guaranteed Insurability) and pass the extra cost on to fellow policyholders (Community Rating). The cost of insurance premiums multiplied 4.4 to 7.1 times for policies from four major insurance companies. Actuaries simply cannot predict cost when these patients are included with everyone else. These results also occurred with the AffordableCare Act in spite of its employer and individual mandates.
Taking steps to reduce the adverse effects of high risk (exorbitant premiums, financial ruin of insurance companies, etc.) is called risk mitigation.
The risk pool has to be separated and enlarged to cover high-risk patients. Mitigation plans are effective in three states with federal waivers redirecting federal funds previously used to subsidize insurance premiums and combining them with funds from non-federal sources. In Alaska, these include: “ceded funds”, in which the insurance company “cedes” to the pool a portion of previously paid premiums after the patient’s claims have been transferred to the pool; state assessments on insurers; and state general fund contributions.
Eight states have similar, pending or approved mitigation plans. Independent actuarial estimates for these states show reduced premiums and increased patient enrollment. Larger mitigation programs appear to increase these benefits. It is crucially important that reduced premiums for this group of patients would also be budget neutral by reducing federal subsidies.
Block grants to states, HSA expansion, risk mitigation programs, streamlining waiver applications, and other innovations will preserve the availability, quality, and choices at an affordable cost to our health care system.
Robert F. Hamilton, M.D., FACS
(This article first published in Advantage News)