Sara R. Collins
S. R. Collins, "The Affordable Care Act’s Pre-Existing Condition Insurance Plan Program: A Critical Bridge to 2014, But Not a Long-Term Solution for Universal Coverage," Invited Testimony, Committee on Energy and Commerce, Subcommittee on Health, United States House of Representatives Hearing on "Protecting America’s Sick and Chronically Ill", April 3, 2013.
The Commonwealth Fund’s Sara R. Collins, Ph.D., was invited by the U.S. House of Representatives Committee on Energy and Commerce, Health Subcommittee, to testify at the hearing, "Protecting America’s Sick and Chronically Ill," held on April 3, 2013. What follows is Dr. Collins’ oral statement to the subcommittee; click on the link at left to download her complete testimony.
Thank you, Mr. Chairman, for this invitation to testify on the Patient Protection and Affordable Care Act’s Pre-Existing Condition Insurance Plan (PCIP) Program. The major coverage provisions of the Affordable Care Act go into effect in January 2014, providing new insurance options for people without health insurance and sweeping new insurance market reforms to protect people who must buy health plans on their own. The Congressional Budget Office projects that the combination of new federal subsidies for insurance and consumer protections will newly insure at least 14 million people in 2014, and 27 million by 2021.
The PCIP program was one of several provisions of the law that went into effect in 2010 aimed at providing a bridge to 2014 for people who have been particularly at risk of being uninsured or poorly protected by their health insurance. Millions of adults and children with chronic health problems and young adults have benefited from these provisions, which included bans on lifetime benefit limits and preexisting condition exclusions for children. About 135,000 previously uninsured people with health problems who were not able to gain coverage in the individual insurance market because of their health have enrolled in the PCIP program since August 2010.
The PCIP program has succeeded in offering transitional support for thousands of people who would otherwise have been uninsurable in the individual insurance market. The 50-state program provided more affordable coverage than people could gain through the individual insurance market and most existing state high-risk pools, which operate in only 35 states. And, unlike most state high-risk pools, the PCIP program offered immediate coverage of preexisting conditions for people with serious health problems. The program has been a critical bridge to 2014, but its limitations demonstrate why high-risk pools are an inadequate substitute for the comprehensive insurance market reforms and expanded health insurance options to go into effect under the Affordable Care Act next January.
The PCIP Program Has Experienced Lower-than-Expected Enrollment
The program’s low enrollment relative to the millions of uninsured Americans with serious chronic health problems reflects the program’s lack of premium subsidies. This means that its potential benefits are out of reach for the vast majority of this population. An analysis of 2007 federal data found that 79 percent of the estimated 6.9 million people with a high-cost health problem who had been uninsured for at least six months had annual incomes of less than 400 percent of the federal poverty level; half had incomes of less than 200 percent of poverty.
In the Texas PCIP program, for example, the premium for a plan with a $2,500 deductible was $318 per month in 2012, or $3,816 for 12 months. For a person in Texas with an income of $11,500, or about 100 percent of poverty, the premium would comprise one-third of his income and the deductible, 22 percent of his income. Thus, even prior to out-of-pocket spending on coinsurance above the deductible, he would spend more than half of his annual income on premiums and out-of-pocket costs under the program.
The PCIP Program Has Experienced Higher-than-Expected Per-Enrollee Claims Costs
Like the existing state high-risk pools, premiums in the PCIP program have run well short of claims costs. Jean Hall and Janice Moore of the University of Kansas found that medical claims relative to premiums (medical loss ratios) in both state high-risk pools and the PCIP program exceed 100 percent, but that the PCIP medical loss ratios are as much as seven times that of high-risk pools in some states.
This difference in medical spending between the two risk pool programs is most likely driven by the fact that the PCIP program provides immediate coverage of people with health problems. Combined with the fact that people must be uninsured for six months, this likely has led to an overrepresentation of people in the PCIP program with serious health problems that have gone untreated for a long period. CMS’s analysis of the federal PCIP program found that the top four diagnoses or treatments included cancers, ischemic heart disease, degenerative bone diseases, and follow-up medical care required after major surgery or cancer treatments. These four diagnoses comprised more than one-third (36%) of claims costs in the federal program in 2012. An analysis of one-year program claims found that costs were concentrated in a small number of enrollees: just 4.4 percent of PCIP enrollees accounted for more than half of claims paid. Hall and Moore also find evidence of a higher disease burden among PCIP enrollees compared with people enrolled in state high-risk pools. Costs per member per month in the PCIP program are nearly nine times those in the state high-risk pools.
High-Risk Pools Are Not a Long-Term Solution for Expanding Health Insurance Coverage
The experiences of both the PCIP program and the state high-risk pools demonstrate the profound inefficiency of segmenting insurance risk pools. Without the benefit of a broad and diverse group of insured people, both programs operate at a considerable loss and depend on federal and state financing to fund the enormous gap between premiums and claims costs. Still, because of the high premium costs, particularly relative to the modest incomes of the target population of uninsured people with chronic health problems, both programs suffer from low enrollment.
Older Adults with Health Problems with Low and Moderate Incomes Will Face Far Lower Premiums in 2014 for Plans Offered Through the Marketplaces Compared with the PCIP Program
The Affordable Care Act’s sweeping insurance market reforms take effect next year, making it possible for people with health problems or who are older to purchase a health plan with a comprehensive benefit package. These reforms include: requiring insurers to offer all applicants an essential health benefit package similar to that offered by employers; banning insurers from charging people higher premiums based on health or gender; limiting what older people may be charged relative to younger people by a factor of 3:1; banning carriers from limiting or denying benefits because of preexisting health conditions; and requiring broad pooling of risk in state insurance markets to further reduce the ability of carriers to maintain higher rates on older or sicker enrollees.
Expanded eligibility for Medicaid and premium tax credits for private plans sold through the new insurance marketplaces will help level the playing field between employer coverage and insurance that people must buy on their own for those with incomes under 400 percent of poverty. People with low and moderate incomes with health problems will face far lower premiums than they do now in the PCIP program. For example, a 50-year-old man with an income of $23,011 would contribute 6.3 percent of his income, or $1,450 annually, for a private plan offered through the state insurance marketplaces next year. In contrast, annual premiums for 50-year-olds at this income level in the PCIP program exceed this contribution by nearly two times in Virginia, which has the lowest PCIP premiums, to more than 10 times in Alaska.
Conclusion and Policy Implications
Federal and state policymakers can address the PCIP program’s shortcomings in enrollment and costs by allowing its enrollees to transition to the new state insurance marketplaces and the expanded Medicaid program in January 2014, as Congress intended. State high-risk pools are also likely to end operation in January. Enrollees from both programs will join an estimated 7 million new enrollees in the new state insurance marketplaces next year, with a diverse age and health profile, which will help spread the costs of care across a much broader risk pool. Twenty-seven million people are expected to gain coverage through the marketplaces by 2018.
The Congressional Budget Office estimates that the influx of young and healthy people into the marketplaces will lower premiums by 7 percent to 10 percent below what they are today in the individual market for an equivalent benefit package. Economies of scale and lower administrative costs from bans on underwriting will lower premium costs by an additional 7 percent to 10 percent. A nationwide reinsurance program that will go into effect next year will protect state insurance marketplaces that experience a disproportionately large influx of high-cost enrollees.
One of the central goals of the Affordable Care Act is to pool risk in insurance markets far more broadly than is the case today in the United States. Extensive segmentation of risk in insurance markets has fueled growth in the number of uninsured Americans over the past several decades and has made the U.S. the industrialized world’s unequivocal leader in the cost of insurance administration. The experience of both the PCIP program and the state high-risk pools over their 40-year history underscores why a shared responsibility for health care costs across the population and the life cycle is essential for an equitable and efficiently run health insurance system.