Chapter 4

States Reduce Barriers to Private
Health Insurance

Table 4.1: State Programs to Reduce
Barriers to Private Health Insurance

A number of states have used their own funds to provide health care coverage for the low-income uninsured, as discussed in chapter 3. In an attempt to expand coverage for other uninsured groups, without making significant demands on already strained budgets, states are attempting to ease access to the private health insurance market.

Two groups that have particular problems gaining access to health care coverage are people with high-cost health conditions and owners, as well as employees, of small businesses. Many states using an incremental approach to expanding access, as well as some states with more comprehensive initiatives, have taken measures to make it easier for these groups to obtain affordable health insurance in the private market. The techniques they are using include high-risk pools, insurance market reforms, and subsidies. (See table 4.1.)

High-Risk Pools
Expand Access to
Health Insurance

Of the more than 33 million people in the United States without health insurance, an estimated 1 to 2 million are considered in need of, or at risk of needing, extensive health care services. Some states have established high-risk pools to provide health insurance for these people and to spread the financial risk of their health care costs among all health insurers in the state.

States Reduce Barriers to Private
Health Insurance

As of late 1991, 25 states had legislated or were operating high-risk pools to insure "medically uninsurable" people in their states (see fig. 4.1).1 On average, beneficiaries pay approximately 60 percent of a pool's total claims.2 The remaining 40 percent is covered, in most cases, by insurance company assessments.3

'Of the 25 states with pools, 21 are now operating.

This proportion ranges from 40 to 100 percent in individual states.

California, Illinois, Maine, and Tennessee make up the difference between premiums and claims through allocations from general revenues; Colorado uses a special state income tax surcharge.

High-risk pools have been successful in providing coverage to nearly 77,000 persons. The pools, however, have problems. First, the cost to beneficiaries may be more than beneficiaries are willing or able to pay. Premiums paid by beneficiaries generally equal between 125 and 400 percent of the average individual health insurance premium available in the state. Second, the ERISA preemption provision limits the pool's funding

States Reduce Barriers to Private
Health Insurance

Minnesota High-Risk Pool Expands Access to 30,000 People

base because states cannot regulate self-insured companies and require
them to participate in health insurance assessments to finance the pools.
Finally, the ability of insurance providers (both self-insured employers and
insurance companies) to exclude high-risk people from their insured
groups, in order to offer a lower premium, leads to a shift of high-cost
individuals from the private insurance market to the state-controlled
pools. This can result in higher premiums for those who must rely on
high-risk pools for coverage.

Minnesota's experience exemplifies some of the successes and dilemmas of using a high-risk pool to address the problem of insuring those with high-cost health care. The state operates the nation's largest, and one of the longest-running, high-risk insurance pools; its goal in developing the pool was to group people with medical problems and provide them access to health insurance at a generally affordable rate. The program is intended to insure only high-cost people who are deemed uninsurable. In January 1992, the Minnesota Comprehensive Health Association (MCHA) covered over 30,000 persons, almost double the number insured in January 1989.

Those who are denied coverage by private insurers because of their health status can purchase individual coverage from MCHA. In 1991, the average individual premium for MCHA coverage was $105 a month. This premium is equal to 125 percent of the average rate charged by the five largest-selling private group health insurance plans with benefits similar to those of MCHA. The risk-pool premium has always been lower than the highest of the five premiums used to determine the pool's rates. Any difference between premiums collected and claims paid by the pool is funded by levying surcharges, based on each insurance company's market share, on all the state's private health insurers.

The high-risk pool is intended to be the insurer of last resort. People may,
therefore, apply for coverage only after being denied coverage, offered
coverage at a higher than standard premium, or offered coverage with
substantial coverage limitations. Eligibility has expanded since the
program's 1976 inception to include (1) Medicare patients who do not
qualify for Medicare Part B, (2) those who lose their jobs and cannot
purchase COBRA coverage to continue their health insurance because
their former employers canceled insurance or went out of business, and
(3) employees of firms that discontinue health benefits or go out of
business.

'Minnesota and Connecticut both have operated their high-risk pools since 1976.