States Face Their First ObamaCare Test

States have until tomorrow to let Washington know if they plan to participate in one of the first government programs to be launched under ObamaCare—new high-risk pools for the uninsured. The question states should be asking is: Why would we participate?

The high-risk program is essentially insurance for individuals who have pre-existing conditions and are expensive to insure. The new health law allocates $5 billion for insuring them until 2014 when enrollees would be transferred to new health-insurance exchanges. But Richard Foster, chief actuary of the Centers for Medicare and Medicaid Services, reported last week that the high-risk program will run out of money next year or in 2012. Therefore, if states sign up for the program, they'll end up shouldering the burden for about two years after it runs out of federal money.

This will be a heavy lift considering the other costs ObamaCare is foisting onto states, one of which is the expansion of Medicaid, a joint federal-state program originally designed to cover low-income Americans. Under ObamaCare, Medicaid will be expanded to cover 84 million people by 2019, up from about 50 million today, putting pressure on states' budgets.

Georgia, Nebraska and other states have already taken a pass. The federal government will likely set up these risk pools without their participation. In a letter to federal Health and Human Services Secretary Kathleen Sebelius, Georgia's insurance commissioner John W. Oxendine said he feared the high-risk pools would "ultimately become the financial responsibility of Georgians in the form of an unfunded mandate." Kansas, Ms. Sebelius's home state, among many others, is considering opting out as well.

In addition to the cost, states are worried about the strings attached to the program. In a conference call with state officials last week, HHS officials weren't able to answer specific questions about federal mandates that will be placed on participating states. That's discomforting because HHS will draft the program's rules only after states decide whether to sign up.

What states already know should give them pause. By law, premiums in the new pools can cost no more than insurance for people in a state's standard nongroup insurance market. Most existing state high-risk pools charge 125% to 200% of standard rates because patients in those pools are by definition more expensive to insure. The new health law says that the federal government will set what states must pay doctors and hospitals for patients in the pools, and that the pools must cover all pre-existing conditions from day one. Right now, most states allow some waiting periods before covering pre-existing conditions to control costs. Washington will also determine which medical benefits must be provided.

Georgia calculated that, under these provisions, the high-risk program would cost more than the $177 million the federal government is expected to allocate for its program.

But what's most disconcerting is that the program will likely disturb the careful balance that some 35 states have struck in setting up their own high-risk pools. The federal high-risk pools would operate alongside existing state pools. States will be required to maintain funding for their pools, even while the federal government signs up new uninsured people for its program. The federal program will have more generous benefits and lower premiums than most state-funded high-risk programs, even though state officials say people in the new federal program are likely to be less needy than those enrolled in existing state risk pools.

The White House says high-risk pools were a Republican idea. But GOP leaders called for allocating $25 billion over 10 years (instead of $5 billion over three-and-a-half years) and would have given states far greater latitude in setting the rules.

If more states opt not to join the federal program, Congress will have to acknowledge that there has been a public repudiation of the federal program. That could create pressure to give states what they want—block grants to increase their existing high-risk pools or, for states that don't have them, money to set up new ones. Deciding whether to sign up for the high-risk program is an important early test for states to tell Washington who is in charge.

Published in The Wall Street Journal, April 29, 2010.

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States have until tomorrow to let Washington know if they plan to participate in one of the first government programs to be launched under ObamaCare—new high-risk pools for the uninsured. The question states should be asking is: Why would we participate?

The high-risk program is essentially insurance for individuals who have pre-existing conditions and are expensive to insure. The new health law allocates $5 billion for insuring them until 2014 when enrollees would be transferred to new health-insurance exchanges. But Richard Foster, chief actuary of the Centers for Medicare and Medicaid Services, reported last week that the high-risk program will run out of money next year or in 2012. Therefore, if states sign up for the program, they'll end up shouldering the burden for about two years after it runs out of federal money.

This will be a heavy lift considering the other costs ObamaCare is foisting onto states, one of which is the expansion of Medicaid, a joint federal-state program originally designed to cover low-income Americans. Under ObamaCare, Medicaid will be expanded to cover 84 million people by 2019, up from about 50 million today, putting pressure on states' budgets.

Georgia, Nebraska and other states have already taken a pass. The federal government will likely set up these risk pools without their participation. In a letter to federal Health and Human Services Secretary Kathleen Sebelius, Georgia's insurance commissioner John W. Oxendine said he feared the high-risk pools would "ultimately become the financial responsibility of Georgians in the form of an unfunded mandate." Kansas, Ms. Sebelius's home state, among many others, is considering opting out as well.

In addition to the cost, states are worried about the strings attached to the program. In a conference call with state officials last week, HHS officials weren't able to answer specific questions about federal mandates that will be placed on participating states. That's discomforting because HHS will draft the program's rules only after states decide whether to sign up.

What states already know should give them pause. By law, premiums in the new pools can cost no more than insurance for people in a state's standard nongroup insurance market. Most existing state high-risk pools charge 125% to 200% of standard rates because patients in those pools are by definition more expensive to insure. The new health law says that the federal government will set what states must pay doctors and hospitals for patients in the pools, and that the pools must cover all pre-existing conditions from day one. Right now, most states allow some waiting periods before covering pre-existing conditions to control costs. Washington will also determine which medical benefits must be provided.

Georgia calculated that, under these provisions, the high-risk program would cost more than the $177 million the federal government is expected to allocate for its program.

But what's most disconcerting is that the program will likely disturb the careful balance that some 35 states have struck in setting up their own high-risk pools. The federal high-risk pools would operate alongside existing state pools. States will be required to maintain funding for their pools, even while the federal government signs up new uninsured people for its program. The federal program will have more generous benefits and lower premiums than most state-funded high-risk programs, even though state officials say people in the new federal program are likely to be less needy than those enrolled in existing state risk pools.

The White House says high-risk pools were a Republican idea. But GOP leaders called for allocating $25 billion over 10 years (instead of $5 billion over three-and-a-half years) and would have given states far greater latitude in setting the rules.

If more states opt not to join the federal program, Congress will have to acknowledge that there has been a public repudiation of the federal program. That could create pressure to give states what they want—block grants to increase their existing high-risk pools or, for states that don't have them, money to set up new ones. Deciding whether to sign up for the high-risk program is an important early test for states to tell Washington who is in charge.

Published in The Wall Street Journal, April 29, 2010.

SHARE THIS ARTICLE

About the author