High-risk health insurance pools

A high-risk health insurance pool is one you don't want to jump into — unless you have to. It's considered a last resort for people whose employers don't offer group coverage and who have been denied individual health insurance because of health conditions such as cancer, heart disease, HIV or stroke.

Health insurance risk pools are special programs created by state legislatures to provide a safety net for people who cannot buy health insurance. Each state operates its risk pool differently, although many share common features. The funding of each depends on how the state legislature allocates funds.

High-risk pools, when they're available in a state, generally cover middle-income people who have chronic and serious pre-existing medical conditions. The Common Wealth Fund says that 8 percent of Americans are "uninsurable" and meet the criteria for this type of insurance. This population usually falls between the cracks because they are ineligible for public health insurance like Medicaid (their income is too high) and their employers don't offer coverage.

High-risk health insurance pools can also cover individuals protected by the federal HIPAA law and those eligible for the health coverage tax credit (HCTC) provided by the federal government.

According to the National Conference of State Legislatures (NCSL), 35 states currently operate high-risk pools. A recent addition was North Carolina, which implemented a high-risk pool program in January 2009. Statewide, the National Association of State Comprehensive Health Insurance Plans (NASCHIP), an association of nonprofit agencies that run high-risk pools, reports that enrollment was 201,047 in 2007. NASCHIP has a list of contact information for state high-risk health insurance pools.

The state pools use private insurers to administer the programs, collect premiums and pay claims. Although the health insurance benefits vary, most are comparable to basic private market plans, except for cost. Typically, pools can charge you up 150 to 200 percent of the "average premium" for individual health insurance in the state. Most states cap one's cost at no more than 150 percent of average premiums. In addition, to be eligible for federal grants, high-risk pools must set premium caps below 200 percent of average premium costs. The most common risk-pool option is a PPO, according to the National Association of Health Underwriters.

Because high-risk pool premiums are based on average premiums for health insurance policies sold in a state, states with rate regulation that holds premiums down will also have lower premiums in their high-risk pools. Some states have employed "guaranteed issue" to prevent individual insurers from denying coverage to high-risk applicants, in addition to individuals who fall under HIPAA or HCTC. In those states, a "community rating" system sets rates based on risk across pool enrollees, notes the NCSL.

High-risk pools are subsidized in order to keep rates below the set caps, and pools rely primarily on funding from state legislatures. For example, according to NCSL, Florida has had a risk pool but closed new enrollment in 1991. California's pool caps participation time at three years, which cuts off those who need extended coverage. California had a coverage cap of $75,000 annually in 2008, the lowest cap of any state.

Despite the expense, there are waiting lists in some states to get into the pools. This is because the only other alternative for many people with costly medical conditions is to go uninsured.

Deductibles

Those in high-risk pools generally have a choice of deductibles, which can range anywhere from $500 to $10,000, depending on the state and the choices offered. High-risk pool policyholders can open tax-free Health Savings Accounts (HSAs) to pay for deductibles, co-pays and other out-of-pocket medical expenses, if they can afford the cost.

Are you eligible?

High-risk health insurance pools have strict eligibility guidelines, so not everyone who has a serious illness qualifies for coverage. You can't apply for health insurance through a high-risk pool if you're eligible for assistance from any other state or federal program such as COBRA, Medicaid or Medicare.

Typically, you must prove you can't obtain health coverage through private insurers. Acceptable forms of proof include copies of denial letters or involuntary-termination notices.

There might be waiting period

High-risk pools usually don't impose the pre-existing condition exclusions that private individual insurers do, but many pools do have mandatory waiting periods for coverage of pre-existing conditions. The average waiting period is six months; some are 12 months. That's because there's a fear that without waiting periods, people would wait until they are very sick before applying to the pool.

There is an exception to mandatory waiting periods: If you're eligible for the risk pool and have had continuous health insurance coverage, without a lapse in that coverage for more than 63 days, you can receive coverage without exclusions immediately. "Continuous coverage" can be from a group health plan, COBRA, an individual plan, Medicaid or other "creditable" coverage.

There might be a waiting list

Some state high-risk pools, such as California's, typically have a wait list of several months because the pools have reached their enrollment caps. Once you get in, the time you spent on the waiting list could be credited toward your pre-existing exclusion waiting period.