Covering people with pre-existing conditions is popular, problematic

Two hundred of the roughly 35,000 people insured by Common Ground Healthcare Cooperative in 2015 accounted for 53% of its medical and pharmacy costs.

It wasn’t an aberration.

About 500 of the roughly 18,000 people insured by Unity Health Insurance and Gundersen Health Plan last year accounted for half of their medical and pharmacy costs.

The examples show why the most popular provision in the Affordable Care Act — requiring insurers to cover people with pre-existing conditions — also is the most vexing.

The provision is one of the key reasons that premiums for health insurance sold directly to individuals and families have jumped and insurers have incurred substantial losses under the Affordable Care Act.

The initial hope was that the combination of a penalty for not having insurance and subsidies to buy insurance would bring enough healthy people into the market to offset the cost of covering people with high medical bills.

It didn’t work out that way.

People who have bought insurance in the individual market overall are sicker and have higher costs than expected.

Before health insurers were required to cover people with pre-existing conditions, the people who bought health insurance on their own were 40% less costly, said Rob Plesha, vice president of actuarial services for Quartz Health Solutions, which manages Gundersen Health Plan and Unity Health Insurance.

Karen Bender, an actuary with Snowway Actuarial and Healthcare Consulting in Little Suamico near Green Bay, said clients have incurred bills for one person that total $4 million and $5 million over the course of one year.

“We didn’t see these monster claims in the past,” she said.

The bills can stem from someone who has had a transplant with complications or uncontrolled hemophilia, cancer or a premature infant.

In addition to not having to cover people with pre-existing health problems, many health plans on the individual market had annual and lifetime limits on benefits before the Affordable Care Act.

The problem can be fixed — but at a cost.

“You need some external money for these high-cost claims,” Bender said.

That could lower premiums and, in turn, help draw more people into the market. But the money in all likelihood would have to come from a public contribution, meaning taxpayers pay.

Efforts aimed at stabilizing market

The latest health care reform bill passed by the House contains money to help stabilize the market for individual insurance, including $15 billion appropriated for 2018-2026 for a risk-sharing program that would provide payments to health insurers.

There also is $100 billion appropriated for nine years for a stability fund that could be used for a long list of purposes.

“That’s very important, and it is not getting much attention,” said Plesha of Quartz Health Solutions. A risk-sharing or reinsurance program to help offset high-cost claims, he said, would reduce the risk that insurers face and help stabilize the market.

Under the Affordable Care Act, for example, someone can be diagnosed with cancer in November, and can get insurance in January. That makes it difficult for insurers to estimate the costs they will incur, Plesha said.

The Republican House bill — the American Health Care Act — also would allow states to opt out of the requirement that insurers charge people with pre-existing health conditions the same rates as other people.

The option would be available only to states that set up so-called high-risk pools or some form of reinsurance to cover people with health problems and would apply only to people who have had a lapse in coverage.

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The Wisconsin Office of the Commissioner of Insurance — which supports the House bill — is interested in setting up a high-risk pool for the state, said J.P. Wieske, deputy commissioner.

That would take about 18 months after legislation was passed.

“There is a lot of steps you have to go through,” he said. “What form that would take, we’d have to see.”

The money appropriated in the House bill, Wieske said, is adequate to support a risk-sharing or reinsurance program that could help stabilize the market.

Others have questioned that.

Critics also note that millions of people, particularly older people and those in low-wage jobs that don't provide health benefits, are projected to lose their health insurance under the House bill.

RELATED: CBO predicts House bill will increase uninsured by 23 million 

But Wieske said the market for individual insurance is simply not working.

In Wisconsin, the market is in better shape than many states, in part because the state has a fair number of regional insurance companies. But state insurance executives also said that market is fragile, at best.

Nationally, about 8% of the people under 65 get health insurance through the individual market.

State of market varies between states

More insurance companies are expected to break even in the market this year, Deep Banerjee, a director with S&P Global Ratings, said at a briefing this month for the Alliance for Health Reform.

But he, too, said the market remains fragile. Most of the large national insurers have abandoned the market. And in some states, such as Arizona, Tennessee and now Iowa, the market is close to collapsing.

In California and other states, though, the market is working well overall, despite the challenges.

“There are many areas where things are going pretty good,” Brian Webb, assistant director for health policy and legislation for National Association of Insurance Commissioners, said at the Alliance for Health Reform briefing.

“The reality is, you look at one state, you see one state,” he said.

Still, insurance executives and actuaries see the need to spread the risk of very high medical claims.

Increasing the penalty for not having insurance and increasing the subsidies to offset the costs of insurance could bring more people into the market and help spread that risk, said Justin Sydnor, a professor of risk management and insurance at the University of Wisconsin-Madison.

Whether the Republican-controlled Senate, which now is working on its own version of a bill to replace the Affordable Care Act, would consider that is a unclear.

“Most analysts on both sides can agree that some form or risk sharing and reinsurance make a lot of sense,” Sydnor said.

Penalties vs. plan flexibility 

But Robert Laszewski of Health Policy and Strategy Associates, contends that reinsurance would just be subsidizing a failed program.

“That’s putting good money after bad,” said Laszewski, a former insurance executive who writes frequently about health care reform.

He sees the problem differently.

“We got the number of sick people we expected,” Laszewski said. “We expected to get just about all the sick people. What we did not get in the Obamacare exchanges are healthy people.”

They are not buying health insurance because the subsidies are minimal for people above a certain income threshold and because the health plans are too costly, he said.

They instead opted to pay the penalty or received an exemption.

The risk of covering people with high costs needs to be spread among more people, he said

“You can only do that if you create a plan that appeals to healthy people,” Laszewski said.

The key will be allowing more flexibility in how plans are designed.

“That’s what we have got to work on,” Laszewski said.

Bender agrees on the need for more flexibility to attract more people who are young or healthy or both. But she also said that the health plans have attracted more people with serious health problems — and high costs — than expected. And, ultimately, the cost of health insurance is tied to the cost of health care.

“We wouldn’t be having these discussions," she said, "if the cost of insurance was half of what it is now."