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Listener Loren Holmes from Anchorage, Alaska, asks:
Why do we allow insurance pools, especially in health insurance? Obviously it is a moneymaker for the insurance company, but it appears unique to the insurance industry. My neighbors and I don’t pay different prices for most other goods and services, but we do for health insurance. If we really want to drive down the cost of health care, putting every customer into the same pool seems like one way to approach the problem.
The U.S. is the only developed country without universal health care, leaving millions uninsured and enabling a system where insurance companies can charge drastically different rates for different patients.
A health insurance pool consists of a group of people whose collective characteristics dictate how much their health care will cost, said Sabrina Corlette, a research professor at Georgetown University’s Center on Health Insurance Reforms.
High-risk pools were common for those with pre-existing conditions before the Affordable Care Act was signed into law in 2010. But premiums were often double what healthier patients paid, and these pools didn’t even provide coverage for their pre-existing conditions for six to 12 months.
The ACA prohibits insurers from charging patients more (or from refusing to cover them) if they have a pre-existing condition. Those who buy plans through the ACA are in a single pool.
“Most insurers are looking for a risk pool where the majority of their enrollment is low cost, and a very small number of people are high cost,” Corlette said. “One of the things the ACA tried to do was prevent insurance companies from only chasing after healthy people.”
However, high-risk pools haven’t been completely eliminated. New Mexico, for example, has a program that provides insurance if you are denied coverage elsewhere.
Employer-sponsored plans, the most common form of health insurance, are another type of pool.
“At Georgetown University where I work, the people who are signed up for Georgetown’s health plan, plus our dependents who are enrolled, are the risk pool,” she explained.
Corlette said her health insurer looks at a variety of characteristics to determine how to price its coverage.
“They’re obviously looking at the past use of services for this group of people, but they’re also going to look at the mix of ages within the group, the mix of genders,” Corlette said.
Insurance pools are the natural consequence of a health care system where coverage is tied to employment, Corlette explained.
In 1942, during World War II, the National War Board prohibited all employers from raising worker salaries. But health insurance was exempt from this cap, so employers used health insurance to attract top employees. The IRS also made employer contributions to health insurance premiums tax-free.
By 1952, the economy was doing well and people “wanted new Fords, the best medical care and shiny everything,” Marketplace previously reported. That led to the explosion of employer-sponsored health insurance.
Following World War II, President Harry Truman endorsed a universal health care system, but it drew backlash from the American Medical Association, which had significantly more power back then.
Over the years, public policy efforts have tried to fill in the gaps to help those without access to employer-sponsored insurance, Corlette said.
Medicare was created to help older Americans, while Medicaid was intended to help those who were low-income. Even high-risk pools, despite their flaws, were aimed at helping those who couldn’t afford insurance.
“Then, of course, there was the ACA that tried to fill in the gaps even further,” Corlette said.
Would fewer pools lower costs?
Let’s say we combined everyone in the commercial market, i.e. those with employer-based insurance and those who have individual market insurance, which you can purchase on your own outside of government-run or employer-sponsored plans through the ACA Marketplace.
Costs would likely go up for people with employer-based insurance, while costs would likely go down for those with an individual market plan, Corlette said.
That’s because those in the individual market tend to be a bit sicker than those in the employer-based market, Corlette said.
“If you’re out there working, you’re probably pretty healthy. If you’re in the individual market, you may or may not be working, you may be less healthy,” Corlette said.
Then, if everyone on Medicare joined this risk pool, then the costs would probably go up for people in the commercial market since those on Medicare are generally people over the age of 65 or disabled, Corlette said.
But costs could go down for the federal government, which helps fund the program, she noted.
“By combining all these risk pools, you’re going to have winners and losers,” Corlette said.
But if you combined everyone, over time, you would probably see the cost of premiums stabilize, Corlette said.
“The bigger the pool of people, the more data that insurers have to figure out what their costs were,” Corlette said. “More data allows them to have more confidence in what they can project going forward, so you might see less volatility year over year in premiums.”
The simplest single-risk pool would be a Medicare-for-all type program where everyone is paying in, said Paul Shafer, an associate professor of health law, policy and management at the Boston University School of Public Health.
In that case, the federal government would have the ultimate leverage with doctors, hospitals and pharmaceutical companies to bring costs down, Shafer said.
Universal health care could lead to 13% in savings or more than $450 billion a year, according to a paper published in the medical journal The Lancet. Middle-income families who buy private insurance on the individual market would end up paying 14% less in health care costs, according to the Political Economy Research Institute at the University of Massachusetts.
A return to high-risk pools?
But in our current political environment, a single-risk pool like this would be a “nonstarter,” Shafer said.
“It was hard enough to get the Affordable Care Act passed. Who knows what the future will bring, but it doesn’t seem like in the near term that anything that expansive is in the cards,” he said.
While the ACA helped drive down the number of high-risk pools, Republicans like Vice President JD Vance have called for their return or advocated for policies that would result in pools that operate similarly to one.
“There are ongoing efforts to weaken provisions of the ACA so that insurers can continue to slice and dice the risk pool, so that they can figure out ways to hoard these healthy people to themselves and make the sick people go somewhere else,” Corlette said.