This is the second installment of our new feature: Curbside Consult. For the uninitiated, curbside consults are a venerable medical tradition, whereby a doctor seeks informal advice from an experienced colleague in treating a patient with a complex condition. In covering or understanding complex health and social policies, we need sometimes help too.
Today’s interview is with Katherine Swartz, PhD. She is Professor of Health Economics and Policy at the Harvard School of Public Health. Author of Reinsuring Health: Why More Middle-Class People Are Uninsured and What Government Can Do, she has researched state efforts to cover the uninsured and to help people with costly conditions who fare poorly in the private health insurance market.
Swartz is a particular expert in the economics of high-risk pools (HRPs--sorry for the acronym) and reinsurance. If you follow health reform, you’ve probably heard these terms thrown around without a lot of discussion of what these terms actually mean.
To put it simply, HRPs are special insurance plans for people who couldn't get coverage on their own, because of costly pre-existing medical conditions. Reinsurance is probably best explained as "insurance for the insurers." It's a special fund that reimburses insurers for the super-high claims of catastrophic medical expenses. The idea is that this spreads the burden of those expenses as widely as possible, while removing (at least partly) the incentive insurers have to avoid risky beneficiaries.
Both parties propose HRPs and reinsurance to address the immediate and long-term challenges in financing care for people with costly conditions. President Obama mentioned HRPs in his address before Congress to offer quick help to people facing the dual challenges of uninsurance and serious illness. Such provisions are contained in the Baucus bill and in recently-proposed Republican amendments. The Bush administration made modest investments in HRPs. Senator McCain’s 2008 health plan made heavy use of them, as do current Republican proposals presented in the House.
I am no fan of HRPs, although the Senate Finance bill envisions them only as a stopgap measure. For one thing, the financing seems murky at best. Finance would allocate $5 billion to support HRPs before insurance exchanges can get up and running. A Republican proposal would allocate $2 billion per year between 2010 and 2019. No one really knows how many Americans have costly illnesses that would occasion such help. We do know that the budget numbers don’t add up.
An August 2009 Government Accountability Office (GAO) report indicates that about 200,000 Americans are now covered in such HRPs. These men and women have an average household income of only $41,000. They pay higher premiums than private insurers typically charge healthy individuals. Individuals face average deductibles exceeding $1,500 and lifetime expenditure caps. People also endure waiting periods before they can enroll.
To serve 200,000 people, HRPs expended about $1.9 billion in claims last year, about $9,400 per person enrolled. The GAO estimates that another four million Americans would be eligible because they are uninsured and experience costly health problems. The leading bills allocate, at-best, $1,000 per year per person.
Given everything else in health reform, you probably haven’t thought or heard much about these issues--hence the need for this curbside consult. What follows is a shortened and edited excerpt of my September 17 interview with Professor Swartz.
Pollack: I should start by asking a basic question. Few readers really understand the difference between reinsurance and HRPs. Can you just say a little bit about what the difference is between those concepts?
Swartz: High-risk pools, as they have been used, serve people who are perceived or predicted by insurance companies to be likely to have very high medical costs in the next year, usually because they've had high costs in the last couple of years. These people are ceded by the insurers to the HRPs…. Sometimes people are denied coverage because of the prediction. Other times, people are charged such a high premium (in states where insurers cannot deny coverage) that they can't afford it – so in effect, they've been denied coverage. The point is that high-risk pools currently are used to cover small numbers of people who are predicted to have very high medical costs in the coming year.
The reinsurance idea, which hasn't been used much, is more of a proposal. The idea here is that after a year is over, we will know with certainty if someone has had extremely high medical costs. And at that point, you use a pool of money to offset much of the costs of these people who definitely had extraordinarily high costs. So, in the first case with the HRPs, people are there because it’s anticipated they will have high medical costs. In the second case with the reinsurance, we know for sure that a person had medical expenses that landed them in the top one percent or the two percent of the entire population.
I want to add one more thing. HRPs to date cover fewer than 200,000 people each year. And they exist only in 35 states. A number of those states actually have closed enrollment to new people.
