What is a Risk Pool?
Health insurance risk pools are special programs created by state legislatures to provide a safety net for the "medically uninsurable" population. These are people who have been denied health insurance coverage because of a pre-existing health condition, or who can only access private coverage that is restricted or has extremely high rates.
- Each of the state risk pool-type programs is different. Generally, the programs operate as a state-created nonprofit Association overseen by a board of directors made up of industry, consumer and state insurance department representatives. The board contracts with an established insurance company to collect premiums and pay claims and administer the program on a day-to-day basis. Insurance benefits vary, but risk pools typically offer benefits that are comparable to basic private market plans -- 80/20 major medical and outpatient coverage, a choice of deductible and co-payments. Maximum lifetime benefits vary by state from as low as $350,000 to $2 million.
Generally, there are no exclusions. However, risk pools do have waiting periods for coverage of pre-existing conditions to make sure individuals pay for continual coverage and the program can operate financially sound. Without waiting periods, the concern is that too many people could forego paying for insurance until they had a high cost claim, and the programs could not function financially. However, under the federal portability legislation, people who have had continuous coverage in the group market, not broken by more than 63 days, can access coverage in risk pools without any waiting periods.
Risk pool insurance generally costs more
than regular individual insurance, but the premiums are capped by law in each state to protect the individual from exorbitant costs. The caps range from as low as 125 percent of the average for comparable private coverage in some states, up to 200 percent of the average or more in other states. Most states offer coverage at less than 150 percent of the average.
All state risk pools inherently lose money and need to be subsidized. While the individuals in risk pools pay somewhat higher premiums, roughly 50 percent of overall operating costs need to be subsidized. Subsidy mechanisms also vary from state to state -- some states assess all insurance carriers, HMO's and other insurance providers; others provide an appropriation from state general tax revenue; some states share funding of loss subsidies with the insurance industry using an assessment of insurance carriers and providing them a tax credit for the assessment, or other states have a special funding source, such as a tobacco tax, or a hospital or health care provider surcharge.
It is important to note that risk pools are not created expressly to serve the indigent or poor who cannot afford health insurance. Risk pools are designed to serve people who would not otherwise have the right to purchase health insurance protection. The indigent can access coverage through state medical assistance, Medicaid or similar programs. However, some state risk pools do have a subsidy for lower income, medically uninsurable people.
For information about your state, see "States That Have Risk Pools" contact your state insurance department.