Benefits Of High Risk Pools

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Health insurance high risk pools have been mentioned by President Trump and Congressional Republicans as a potential element of their Obamacare replacement plans, but they are not a new idea. Past experience with high risk pools suggests that they can help to address issues of affordability, stability, and fairness in the individual health insurance market. However, to do so, they must be adequately publicly subsidized and have benefit designs and cost-sharing structures that are comparable to health insurance products available on the open market.

High risk pools were initially one of the options that states could adopt under the Health Insurance Portability and Accountability Act (HIPAA) for ensuring portability from the group health
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This arrangement works because the insurance company is able to pool risks from lots of different individuals or organizations. As long as the risks are uncorrelated, the likely cost associated with the pooled risk is much more predictable than for the un-pooled risk.

Many people in the U.S. receive health insurance through their employers, which operate as natural groups to gather individuals into pools. Since most people do not select jobs to get health insurance coverage, there is little reason to believe that the incidence of health care costs for the individuals in the groups established through employment arrangements will be correlated. The individual health insurance market, on the other hand, is referred to in industry jargon as the ‘non-group’ market for a reason. There is no natural group for aggregating individuals into a pool that is established for reasons other than purchasing insurance. There is also reason to believe that the set of individuals seeking to purchase individual/non-group health insurance does not represent a representative sample of the population with respect to health status.

The individual health insurance market is bedeviled by certain empirical realities about health care spending, and characteristics of health insurance markets – the distribution of health care spending is highly skewed, health insurance has a
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