The Commonwealth Fund Blog

Building State Health Insurance Marketplaces: Lessons from the Pre-Existing Condition Insurance Plan

January 25, 2013

Tags: Pre-Existing Condition Insurance Plan health insurance marketplaces Affordable Care Act

Jean HallBy Jean P. Hall

Implementing the Affordable Care Act’s new health insurance marketplaces—formerly known as insurance exchanges—presents challenges as well as opportunities for states. As they move forward with this process, policymakers and administrators can learn from the example of another state-based insurance program, the Pre-Existing Condition Insurance Plan (PCIP).

The PCIP, which was created under the health reform law and opened for enrollment in July 2010, is a temporary insurance program for people with preexisting conditions, many of whom are turned down when they seek private coverage or are offered unaffordable premiums. The PCIP is meant to serve as a “bridge”—helping provide coverage for sick people until 2014, when they will be able to find insurance through the marketplaces, which are required to offer coverage to all. (Starting in 2014, insurers operating both inside and outside of the marketplaces will be banned from restricting coverage or basing premiums on health status or gender.) As of October 2012, nearly 95,000 people were covered through the PCIP.

As with the insurance marketplaces, states had the option to administer a PCIP or have the federal government do so for them. Currently 27 states administer their own PCIP, while the federal government administers it for 23 states and the District of Columbia. States running their own programs had broad latitude in designing them. Given this variability in administration, enrollment levels and costs vary considerably from state to state, with enrollment ranging from one person in Vermont to more than 14,000 people in California.

Generally, states that administer their own PCIPs have had higher enrollment overall and as a percentage of their uninsured populations, especially early on. This may be because state policymakers were better able to target enrollment strategies. For example, state PCIP administrators took advantage of existing relationships with local referral sources such as diabetes associations or AIDS programs and free media outlets to rapidly and effectively reach out to potential enrollees. Another possibility is that the states operating their own PCIPs were more invested in the success of program.

This experience suggests that federally operated health insurance marketplaces will need to work with advocacy groups, hospitals, providers, and other stakeholders in the states to conduct effective outreach to potential enrollees.

Per-member per-month costs for PCIP enrollees have also varied considerably from state to state, though costs have generally been higher than expected in all states. Conversations with PCIP directors in some of the higher-cost states suggest the following cost drivers: 

  • Third-party payers. Some PCIP programs allow hospitals, advocacy groups, or other third parties to pay premiums for an individual. In New Hampshire, PCIP enrollees with third-party payers, mostly hospitals, accounted for 30 percent of enrollees but 55 percent of costs. Hospitals pay premiums to ensure the individual has coverage for the services provided, but frequently stop paying premiums after a patient is discharged, often leading to a loss of coverage if he or she is unable to afford the premiums. Thus, costs are concentrated in a short, high-intensity time period. In the marketplaces, premium subsidies will help individuals maintain coverage and access ongoing care. 
  • Pent-up need. In California, PCIP administrators believe that high costs are due to pent-up need among enrollees, with 40 percent to 50 percent of costs coming from hospitalizations. Given that people must have been uninsured at least six months before obtaining coverage, this is not surprising. When the marketplaces make continuous coverage available, pent-up need should diminish. 
  • Pregnancies. In Utah, costs associated with premature and/or very sick infants have been a source of high costs, including at least one birth resulting in more than $1 million in claims. Indeed, early data from other PCIP states indicated that 2.3 percent of enrollees had high-risk pregnancies, and perinatal claims accounted for up to 8 percent of total claims costs. Because pregnancy is considered a preexisting condition by most insurers, uninsured pregnant women often do not have coverage options other than the PCIP. When insurers are no longer able to deny coverage for preexisting conditions, more women should gain access to appropriate prenatal care and have healthier deliveries. 
  • Cancers. In many states, the prevalence of cancer among enrollees seems quite high and contributes to high costs—as much as 42 percent of PCIP claims. As more people obtain coverage and are able to access free preventive care, certain cancers should be caught earlier, when they may be less expensive to treat. Nevertheless, cancer rates and costs may initially be higher among marketplace enrollees.

The PCIP experience suggests that while costs in the marketplaces may be high early on, they should decline over time. The elimination of coverage exclusions on the basis of preexisting conditions and the availability of affordable, continuous coverage should help, as should spreading costs across the marketplaces’ broader risk pool. Finally, marketplace administrators in each state may wish to consult their PCIP administrators to learn more about specific issues encountered in outreach, enrollment, and early claims patterns.

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Kevin Knauss of Kevin Knauss Health and Life Insurance says:
January 25, 2013

We also have to remember that, at least in California, the PCIP was a one size fits all plan. Folks didn't have the option, like they will in the health insurance exchange, to select a metal level plan. Not that this would have significantly changes the claims, but if they would have been able to offer a higher level deductible/coinsurance plan (with lower premium) they would have had more people in the pool.

As it is, even with the federal subsidy, the PCIP premium in California is still too high for most folks who are looking for "affordable" insurance until they can get back into a group plan or the ACA kicks in.

The real sad part is that I have run into many people that have purchased indemnity plans because they were marketed as health insurance for the un-insurable with pre-existing conditions. The companies that sell those plans should be sued by the State Insurance Commissioner for their deceptive practices.