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.