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Are States Misusing Aid for High-Risk Pools?

In 2002, the federal government began offering states matching payments to support their high-risk pools for the "uninsurable"—people who, because of poor health status, cannot obtain affordable, if any, insurance in the individual market. But while intended to make coverage through high-risk pools more affordable or accessible, these payments seem to have primarily helped states improve their balance sheets, researchers say.

Based on their interviews with state officials, Georgetown University's Karen Pollitz and Eliza Bangit, the authors of the Fund issue brief, Federal Aid to State High-Risk Pools: Promoting Health Insurance Coverage or Providing Fiscal Relief?, reveal that in the federal program's first year, 18 of 19 states used all or some of their grant money to refinance their existing pools, rather than reducing enrollee premiums, expanding covered benefits, or otherwise promoting enrollment. Only one state used its entire award to reduce premiums, expand covered benefits, or otherwise promote enrollment.

Most states used grants to pay claims, thereby reducing pool losses requiring external subsidy. In effect, these states passed federal funds through as tax cuts to the insurance industry (in states where insurer assessments finance high-risk pools) or fiscal relief (in states that rely on general revenue financing).

Legislation to reauthorize federal grants for state high-risk pools, now pending in Congress, includes bonus grants and other provisions designed to encourage states to promote enrollment by lowering premiums, eliminating waiting lists, enhancing covered benefits, or other efforts. Lawmakers may also need to strengthen grant requirements, the authors say, to ensure that states spend the money as intended.

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