States Fear Losing Aid For People Who Can't Get Health Insurance

One of the reasons that so many Americans have not had health insurance is the ability, in nearly all states, for health insurance companies to reject the applications of people who have existing health problems. As little as being a few pounds overweight or going to the doctor for a headache could result in an insurance company's rejection of an application.

Even worse, a pre-existing condition could result rejection of a claim months or years later, if the condition was not properly reported on the application form. Diabetes, cancer, or heart attack virtually ensured rejection of any application for insurance, or made it available only at exorbitant rates (in the thousands of dollars per month).

In the meantime, however, Americans with existing medical problems have been able to get coverage through the Pre-Existing Condition Coverage Plan, that is, until recently, as money is thought to be running out for the transitional program.

What Is the Pre-Existing Condition Coverage Plan?

Never very well publicized, the Pre-Existing Condition Coverage Plans are state-by-state programs receiving federal funding for the provision of health insurance to Americans who otherwise would be uninsurable. 

Some states choose to use federal grant money to run their own Pre-Existing Condition Health Insurance plans. These states often offer discounts from the already-reduced premium costs to low-income residents. Other states let the federal government run their Pre-Existing Condition Health Insurance plans, offering no discounts for the needy, and letting the federal government pick up the tab.

Replacing the State Health Insurance Risk Pools

Pre-Existing Condition Coverage programs were set up nationwide by the Affordable Care Act to offer a lower-cost alternative to coverage by state health insurance risk pools. The health insurance risk pools were set up by 34 states, Alabama, Alaska, Arkansas, California, Colorado, Connecticut, Florida, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Minnesota, Mississippi, Missouri, Montana, Nebraska, New Hampshire, New Mexico, North Carolina, North Dakota, Oklahoma, Oregon, South Carolina, South Dakota, Tennessee, Texas, Utah, Washington, West Virginia, Wisconsin, and Wyoming, to provide coverage to residents who have already been diagnosed with a health condition. In most states, acceptance into the program is automatic when someone has been diagnosed with one of a list of conditions, such as heart disease, depression, HIV, or cancer. Most states limit the cost of premiums to 200 or 250% of what comparable coverage would cost a healthy person.

Risk pool insurance, however, is not free. Someone who started in a state risk pool in, say, 1995, paying a premium of just $100 a month for a policy that had only $500 in copays, might be asked in 2013 to pay $1200 per month for a policy with $12,500 in copays. Many states offer assistance with high premiums, but for people in their 50's and 60's, coverage with low deductibles still costs $600, $700, or $800 per month, even with the state chipping in. This compares with the $400 to $500 per month cost of the most expensive policies provided by federal Pre-Existing Coverage plans.

The Crisis Facing The Pre-Existing Condition Coverage Plan

For several years after Pre-Existing Coverage Plans became available in 2010, states weren't finding enough uninsured people to use up their quotas of federal grant money. Although most states had anticipated that the uninsured would throng to the program and it would be necessary to allow only limited numbers of people into the program each year. Nationwide, fewer than 200,000 people signed up for the plan, and nearly every state has had more funds than were needed to care for applicants.

Because pre-existing conditions were not excluded (as they were, at least for the first 12 months, in most of the state risk pools), many people ran up huge bills as soon as they got coverage. A newly insured person might schedule a bypass operation for the month coverage kicked in, or wait until receiving a cancer diagnosis before taking out insurance.

Other people, however, simply could not come up with the cost of coverage, even though they had serious health needs. This kept demands on the plan from exceeding federal funding--until now. Just last February, the Health and Human Services administration froze new applications to the plan, in anticipation of a budget crunch during the last half of 2013.

The Affordable Care Act capped total federal spending on pre-existing condition insurance at $5 billion. Now in its fourth and final year of operation, the program is nearing its spending limit, and President Obama did not ask for any additional funding in his budget. A Republican proposal to divert other healthcare funding to the program failed to reach the floor in May.

And in May, the federal Health and Human Services agency informed the states that they must accept responsibility for cost overruns, or let the federal government manage the program for the next seven months, when Obamacare replaces the current program.

What will happen to insured people in states that finally have spent most of their federal money? Most commentators expected a sharp spike in premiums and co-pays that will last the rest of the year. People who have already incurred their deductible for the year will just have to pay higher premiums, it was thought, but some unhealthy people will have to drop out of the program altogether.

What will the uninsured do?

The Health and Human Services administration issued a ruling that the costs of care not covered by the program cannot be transferred to patients. And in a few states, like New Mexico, state governments have decided to pick up the slack, keeping their health insurance risk pools available to low-income residents with state tax money. In some cities and counties, such as Bexar County, which includes San Antonio, Texas, local taxing authorities have used local taxes to ensure that low-income residents have access to the care they need. But funding for balancing state and local budgets thrown into chaos by federal budget limitations is not on the horizon.