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The Individual Insurance Market

Experience with High-Risk Pools


Mary Jo O'Brien, Principal, Health Management Associates, St. Paul, MN.


Sally Stearns, Ph.D., Assistant Professor, University of North Carolina, Department of Health Policy Administration, Chapel Hill, NC.

Lynn R. Gruber, President, Minnesota Comprehensive Health Association, Chair, National Association of State Comprehensive Health Insurance Plans (NASCHIP), St. Louis Park, MN.

Sally Stearns discussed research she had conducted using data from eight high-risk pools. She provided an overview of how pools work. She noted that pools are oriented toward middle-income persons and are very small relative to the State's uninsured population, because they are more expensive than the standard individual market.

High-risk pools subsidize enrollees by capping pool premiums at a fixed percentage of standard risk, ranging from 125 to 250 percent of standard rates, with most pools charging premiums that are 135-175 percent of standard. Pools generally incur losses that exceed premiums collected and cover losses by assessing insurance carriers or drawing other State funds. Pool enrollment varies widely, but only 8 pools had more than 2,000 enrollees in 1997. Many pools grew quickly during the late 1980s, but most have become smaller in the 1990s, in part because of small-group reform.

Based on her work, Dr. Stearns noted that many enrollees join a high-risk pool for a short period of time and choose the lowest deductible available. A large proportion are between 55 and 65 years old. Many enrollees do not have any paid claims in a given year, while 5 percent of enrollees account for 64-90 percent of claims costs—a concentration of costs greater than that found in the general population. She reviewed research that suggests that at least some people disenroll to an insurance plan and those who disenroll tend to be healthier than those who remain. Also, the likelihood of disenrollment increases substantially with premium increases.

Dr. Stearns concluded by noting some policy implications of her findings:

  • Risk pools have played a traditional insurance function of spreading risk, with many enrollees having no utilization, substantially cross-subsidizing users.
  • A small percentage of enrollees incur high costs, and the State subsidy needed to offset pool losses may increase if low-risk persons leave the pool and high-risk persons continue to join.
  • Finally, the usual methods of financing losses (e.g., insurer assessments) may have negative effects, increasing the rate of employer self-insurance to escape assessment and worsening overall tax regressivity to finance, in effect, a middle-income subsidy.

Lynn Gruber provided a detailed look at the Minnesota Comprehensive Health Association (MCHA), the largest and one of the oldest high-risk pools in the country. She discussed the details of MCHA's organization, administration, regulation, and structure. Rates are capped at between 101 and 125 percent of the weighted average for comparable policies, and premium revenue covers approximately one-half of the plan's claims and administrative expenses.

Like many pools, MCHA funds pool losses through insurer assessments on accident and health premium volume. Ms. Gruber noted that the Employee Retirement Income Security Act (ERISA) prevents assessment of self-insured employers, and consequently, the assessment base is less than half of the Minnesota health benefit market. She reported that MCHA has initiated some cost-control and care-management activities, including use of preferred provider networks for some services, utilization review, limited case management, and more recently, a commitment to preventive health measures such as coverage for mammograms and smoking cessation.

Ms. Gruber provided details about MCHA's enrollees, enrollment levels, and costs. The average MCHA enrollee is between 50 and 54 years old, and 20 percent of enrollees are between the ages of 60 and 64. Enrollment at the end of 1998 was just under 25,000, down from its 1993 peak of more than 35,000. She attributed much of the decline in enrollment to the passage of small-group reforms in Minnesota in 1992. The rate of claims-to-premium (the loss ratio) has ranged from 179 percent in 1996 to an estimated 202 percent in 1999. Per member per month costs rose 19 percent from 1995 to 1997, an increase attributable in part to a sharp increase in pharmacy-related costs.

Ms. Gruber discussed several policy issues that MCHA and State policymakers are facing. Currently, the Department of Commerce, which regulates health insurers, takes a "hands-off" approach to insurers' underwriting practices. But some State legislators have expressed concern that underwriting standards are too stringent, pushing many relatively healthy people into MCHA.

Self-insured employers also present a policy challenge: Although they are not assessed for MCHA's costs, employees of self-insured firms can enroll in MCHA when they exhaust the lifetime limits on their employer plan or when self-insured firms go bankrupt. Thus MCHA and policymakers are searching for a more equitable, broad-based method of funding plan losses. MCHA officials are also exploring whether the risk pool should have an unlimited lifetime maximum benefit, how to increase affordability of premiums for lower income policyholders, and how to improve cost control for a population with chronic conditions.


Communicating for Agriculture. Comprehensive Health Insurance for High-risk Individuals: A State-by-State Analysis. 1998. Twelfth Edition.

Stearns SC, Slifkin RT. State Risk Pools and Mental Health Care Use. Health Aff 1995 Fall;14(3):185-96.

Stearns SC, Slifkin RT, Thorpe KE, et al. The Structure and Experience of State Risk Pools: 1988-1994. Medical Care Res Rev 1997 Jun;54(2):223-38.

Sumner B, Dowd B, Pheley AM, et al. Denial of Health Insurance Due to Preexisting Conditions: How Well Does One High-Risk Pool Work? Medical Care Res Rev 1997 Sep;54(3):357-71.

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