The Healthcare Rorschach Blot

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Part of Obamacare was a transitional "High Risk Pool" program to cover people who were unable to get insurance until the rest of the law's provisions kicked in in 2014.  The program allocated $5 billion.  Medicare's chief actuary assumed that it would attract 400,000 people; the CBO projected 200,000--but only because they assumed that HHS would use its authority to limit enrollment in order to keep the program below its budgetary cap.


The experience was not quite what had been expected.  By January 2011, 8,000 people had enrolled, a number that rose to 12,000 by April.  As of October 2011, by dramatically relaxing the requirements, lowering premiums, and paying brokers to enroll people, HHS had managed to get that number up to 41,000.  Where were all the people with pre-existing conditions who couldn't get insurance--the ones whose plight had been the impetus behind ObamaCare?  Like many observers, I was shocked by this development: I would have predicted the high-risk pools running over budget, but not that so few people would turn out to use them.

Well, it turns out I'd have been half right, anyway.  

Because nationwide enrollment has been far less than expected, federal funding for the program established under the health overhaul appears plentiful: $5 billion was set aside and less than $500 million has been spent in the first 16 months. The program is scheduled to end in 2014 when insurers can no longer deny people coverage for pre-existing health conditions.

But funding allotments for a few states are beginning to run low, largely because health costs have been higher than expected.

Officials in both California and New Hampshire feared they might start running out of funds by early next year. California, which was allotted $761 million initially, was given an additional $118 million.

New Hampshire, which was allotted $20 million, was given another $30 million. New Hampshire, which has 260 people enrolled in the program, had spent $12 million on the program through September. "The people who enrolled were sicker than anticipated," said Roland Lamy, assistant director of the New Hampshire Health Plan, a nonprofit group that is administering the high risk pool.

Given that half of the enrollment has come in the last 3-6 months, however, it's not all that comforting to hear that they haven't spent so much money--yet.


Sarah Kliff sees this as a problem of high cost patients:

This isn't exactly surprising: When the federal government created a new health insurance program catering to those who have had trouble obtaining insurance in the past, it makes sense that those who have very high medical costs would be first in line. It hasn't helped that the premiums have proved relatively pricey: In Montana, the monthly premium for the high risk pool is as high as $681. Anyone who enrolls in a plan with that kind of premium likely expects to have relatively expensive medical costs in the near future.

It's probably unsurprising, given that I opposed the law, that I am much more worried about what this means for the budget projections that were used to pass Obamacare.  Even after heroic efforts by HHS to boost enrollment, the headcount estimates seem to have been off by 80-90%.  But the cost estimates seem to have been off by much less: if we've already spent 10% of the money on 10-20% of the patients, and we still have two years to go, it's reasonable to assume that we're going to be spending at least twice as much as expected per patient, and probably much more.


This suggests a substantial risk of much higher cost for the law than we were promised by its authors.  The experience has not been salutory on this front: while the program certainly decreased the rate of uninsured by 50-60%, it did nothing to control costs.  Massachusetts premiums, which were already the highest in the nation, have soared even higher, as have the costs to the state.  So far, the state's answer to this has been to simply demand rate reductions by fiat--even though as far as I know, they never did find an actuary, not even one working for the state, to sign off on the changes.
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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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