(Reuters) – The Obama administration on Friday said it would stop enrolling new beneficiaries in a special $5 billion insurance program for people with pre-existing medical conditions, because of rising costs and limited funding.
The news comes a day after a top U.S. healthcare official told lawmakers on Capitol Hill that the administration is grappling with financial difficulties but determined to keep the Pre-Existing Condition Insurance Plan (PCIP) operating in 23 states and the District of Columbia through 2013.
The PCIP goes into run off mode as federal officials freeze new enrollments hoping to keep it solvent through the rest of the year until medical underwriting in the individual market ends January 1, 2014. In 2010, this blog noted the challenge of maintaining solvency of the PCIP, citing a paper by the National Institute for Health Care Reform. Notably, the Institute predicted the $5 billion the Patient Protection and Affordable Care Act allocated for the PCIP might only cover 200,000 people a year — just half of the number currently enrolled according to the Reuters item.
The interim high risk pool created as part of the Patient Protection and Affordable Care Act (PPACA) to provide a market of last resort for people who buy their own health insurance but who can’t meet medical underwriting standards has become a catastrophic risk pool serving people with very high cost conditions.
According to a federal government report issued this week, those covered by the Pre-Existing Condition Insurance Plan (PCIP) are averaging annual costs more than double the $13,026 actuaries estimated in November 2010, The Washington Post reports.
A review of the report shows nearly 80 percent of claims costs are attributable to five medical conditions: cancer, cardiovascular disease, rehabilitative care and aftercare, and degenerative joint diseases. The higher than expected costs indicate that after getting off to a slow start in 2010, the PCIP could spend all of the $5 billion the PPACA appropriated to it by 2014 when insurers must accept all applicants regardless of medical condition or history. However, several factors are likely to moderate future enrollments. They include high premiums, the requirement that applicants be medically uninsured for at least six months as well as pre-existing state run high risk pools already serving those deemed medically uninsurable by private insurers and health plans.
The California HealthCare Foundation’s CaliforniaHealthline reports today on an about face by California’s Pre-Existing Condition Insurance Plan (PCIP) that could be a warning of things to come for other state high risk pools.
California’s PCIP was among the first state pools to open for business under a provision of the Patient Protection and Affordable Care Act (PPACA) that created interim high risk pools to provide temporary coverage at standard market rates until insurers and managed care plans must accept all applicants starting Jan. 1, 2014. The PPACA allocated $5 billion to subsidize the pools since by definition they are an adverse risk selection mechanism and aren’t likely to cover claims costs solely with insureds’ premium dollars.
After getting off to a slow start in 2010, federal and state officials grew concerned that too few people were signing up for coverage. So this summer, the Obama administration opened the tap wider on the $5 billion interim high risk pool subsidies, reducing premiums effective July 1 in two dozen states where the federal government runs the pools. California’s PCIP soon followed, reducing premiums by as much as 20 percent to attract more enrollments. The tactic worked, but perhaps too well. Previously believing there were too few enrollees, California’s Managed Risk Medical Insurance Board (MRMIB), which oversees the PCIP, is now apprehensive too many will come aboard and sink the ship.
CaliforniaHealthline’s David Gorn explains:
The threshold for the number of Californians who might participate in PCIP was estimated at about 23,000 people. Since a few more than 5,000 people signed up in that first year — and new enrollees came on board at a rate of roughly 500 a month — it seemed that the program was financially stable and able to take on more participants.
But after the first year, state officials got their first real claims data to test that estimate, and the amount required by recipients was much higher than expected. That 23,000-person threshold estimate was reduced to 6,800 Californians.
That means (given current enrollment of 5,290 including last month’s bump of 726 new subscribers), there’s now only room for a little more than 1,500 new enrollees (which is about two months’ worth of enrollees, given October’s bump of 726 new subscribers).
Unless the federal government pumps more money into the program.
In other words, more people are enrolling, but bringing with them high medical utilization costs that challenge the ability of the MRMIB to keep the PCIP solvent until 2014 when it will no longer be needed. Other states may soon experience a similar conundrum: fulfilling the PPACA’s mandate to have the interim high risk pools serve markets of last resort that must accept applicants without medical underwriting while having enough money to pay for their care. And manage to do so for nearly four years.
A little more than one year ago, this blog discussed how the interim risk pools could become a catastrophic coverage pool for those requiring very high cost care and threaten to rapidly draw down the $5 billion appropriated for them in the PPACA. This may well be happening now.
The Interim High Risk Pool created by the enactment of the Patient Protection and Affordable Care Act’s (PPACA) one year ago has not changed the underlying dynamics of the individual health insurance market and consequently appears to be having a negligible impact on reducing the ranks of the medically insured.
The pool, formalized as the Pre-Existing Conditions Insurance Program (PCIP), was created to provide temporary coverage for those with pre-existing conditions who don’t meet minimum medical underwriting standards of insurers and managed care plans. It goes away on January 1, 2014, when the PPACA outlaws medical underwriting and requires payers to accept all applicants regardless of medical history.
So far, few have signed up for the plan. As prior to the PCIP, younger people who would be eligible for PCIP enrollment pay lower rates for coverage but tend to go without. Older folks in their 50s and early 60s who want coverage are finding PCIP rates out of reach. An added deterrent, other observers note, is the requirement that applicants for coverage be continually uninsured for at least six months.
“The PCIP is a great health plan and the out-of-pocket maximum is low,” Barry Cogdill, president of Business Choice Insurance Services in San Diego, told SignOn San Diego. Nevertheless, he added, PCIP premiums are too expensive for many. “That’s why health care reform happened,” Cogdill explained. “The individual market has been the Achilles’ heel of the health insurance market. You end up with a lot of uninsured people.”
It appears many in this circumstance who aren’t covered by group or government plans will remain so. Whether they will be able to find affordable coverage when state health benefit exchanges designed to aggregate purchasing power of individuals and small employers open for business in January 2014 remains to be seen.
A month ago, the Associated Press reported state Pre-existing Condition Insurance Plans (PCIP) set up this year under the Patient Protection and Affordable Care Act’s (PPACA) are not attracting the flood of applicants some some feared would quickly deplete the $5 billion the PPACA for appropriated for them. The PPACA’s appropriation for the Interim High Risk Pool is to provide coverage for people in the individual health insurance market with pre-existing medical conditions who because of the conditions can’t get coverage in the standard market until insurers must accept all applicants starting Jan. 1, 2014.
The New York Times last week did its own story on the lackluster enrollments in the mostly state-run PCIPs. While sign ups may be slow for a variety of reasons — the bad economy probably chief among them — the PCIPs seem to show the biggest initial appeal to those who have costly conditions requiring expensive treatment such as the cancer patient profiled in the Times story.
If early trends continue, the PCIPs could end up becoming more of a catastrophic coverage pool for those requiring very high cost care, known as high severity losses in insurance terminology. Such high severity losses could threaten to rapidly draw down the $5 billion allocated for them in the PPACA just as easily as too many people turning to PCIPs to get individual health coverage.