The Tradeoffs of High-Risk Pools

Prior to the passage of the ACA, a majority of states operated “high-risk pools,” which was often the only source of insurance for people in the individual market whose pre-existing conditions made them likely to incur high costs.

Because of a lack of funding, premiums were often many times higher than in the lower-risk market, putting insurance out of reach for many people in less than perfect health.

However, as high risk pools are being considered again to replace portions of the ACA, it is worth revisiting the mathematics behind the concept. Separating out the small fraction of the population with extremely high costs does lower premiums for everyone else; the key is understanding the amount of funding needed to pay for these medical costs. This data visualization is interactive: users can choose the cutoff that defines a high-risk or high-cost person and see the total and average costs of medical care above and below that cutoff, based upon the 2013 Medical Expenditure Panel Survey. Hovering over the charts supplies additional information.

It is also worth noting that, because extremely high costs are relatively rare, the most efficient design would group all high-cost patients across states together, as assumed in this tool.  Otherwise, states with lower populations may have trouble predicting risk and cost adequately.

Finally, the visualization below includes employer-sponsored insurance and Medicaid data as well, because if the tradeoff is worthwhile for those in the individual market, it may be worth considering in these other categories as well.