Even though federal officials predict that funding could run out as early as 2011, North Carolina is one of 29 states announcing plans to operate a federal high-risk insurance pool.

The federal health care law passed this year appropriated $5 billion to set up temporary high-risk pools by July 1. These pools will cover individuals with pre-existing medical conditions who otherwise would have to wait until 2014 to be covered by the health insurance exchanges created by the law.

In April, U.S. Health and Human Services Secretary Kathleen Sebelius told state governments they had until the end of that month to decide whether to create a federal high-risk pool, operate a federal pool in conjunction with an existing state pool, or opt out entirely. North Carolina stands to collect $145 million of the $5 billion in federal funds allocated for the pools.

Governors from 18 states opted out. The governors cited as reasons not to participate their concerns that the program represents another unfunded federal mandate that would further strain state budgets and leave taxpayers liable to repay any resulting deficit, along with the complexity of establishing the pools and the lack of clear guidelines from HHS on how to operate them.

Among the states opting out were nearby South Carolina, Tennessee, Georgia, and Virginia.

Critics of the state’s decision wonder why North Carolina would choose to operate a federal pool and gamble on widening its existing budget gap when the state already has its own high-risk pool. Moreover, HHS has told governors the department will guarantee coverage in any state that opts out.

State says revenues will cover costs

Since Jan. 1, the North Carolina Health Insurance Risk Pool (NCHIRP) has been providing individual health insurance coverage to those who lack access to an employer health plan or who face higher premiums because of a pre-existing medical condition. Individuals also qualify if they have exhausted their COBRA continuation coverage, are eligible for the Health Coverage Tax Credit under the Trade Adjustment Assistance Program, or are at least 55 years old and receive benefits from the Pension Benefit Guaranty Corporation.

In a phone interview, Michael Keough, executive director of Inclusive Health, the nonprofit organization that administers the state’s high-risk pool, was asked about the decision to operate a federal high-risk pool alongside the state pool in the current fiscal climate.

“Actually, the state hasn’t decided to participate yet,” Keough said, but instead has sent a “letter of intent” to enter discussions with federal officials. In May, the state received guidelines and a Request for Proposal from HHS, asking officials to address how they plan to meet the federal requirements. Perdue has asked Keough’s organization to lead the state’s response.

Under the current state plan, Keough said, risk pool premiums range from 150 percent to 200 percent of the standard rates that individuals who do not have a pre-existing condition now pay. Enrollees pay an average monthly premium of $600. As of January 1, 2010, enrollees in the state pool face a one-year waiting period for a pre-existing condition, Keogh said, but 80 percent of individuals aren’t affected by that requirement because they had creditable coverage prior to enrolling in the pool.

To qualify for the federal pool, individuals must have been uninsured for at least 6 months and have a pre-existing medical condition, but they would pay almost the same rate as the standard one paid by individuals without a pre-existing condition. So enrollees in the federal pool would pay as much as 50 percent less than those in the state pool, and an individual’s out-of-pocket expenses would be capped at $5,950.

How would the state resolve these differences? “We don’t know yet,” Keough said, “but state enrollees may simply not be able to participate in the federal plan until the insurance exchanges are created in 2014.”

In a May 12 Forbes article, health care industry analyst Thomas Tobin projected the state high-risk pools would require roughly $40 billion rather than the $5 billion set aside by Washington. Joe Coletti, director of health and fiscal policy at the John Locke Foundation, said Tar Heel taxpayers would foot the bill should the expected shortfall occur.

Responding to critics’ concerns about a possible shortfall, Keough replied, “I don’t see that as an issue. We’ve instituted mechanisms to manage costs, for example, like reimbursing providers at Medicare rates and limiting coverage of specialty drugs to $100,000 a year.”

NCHIRP receives revenues from four main sources, Keough explained. The largest source is premiums paid by enrollees. Another 30 percent come from a portion of the annual increase in insurance premium taxes paid by providers, and $750,000 annually comes from the state health fund. The final source is a one-time, non-recurring $5 million grant provided by the tobacco settlement funds to set up a reserve fund.

Keough admitted that the ongoing recession has reduced tax collections from insurers. But he reiterated his assertion that a revenue gap would be unlikely. Should a shortfall occur, Keough said the pool would have to freeze enrollment, raise premiums, or require higher cost-sharing.

What would this mean to the groups in North Carolina who both lobbied for the state to establish its own high-risk pool and pushed for the federal health care law?

“Our concern all along has been to advocate for greater access for the disabled,” said Abby Carter Emanuelson, director of public policy for the Eastern North Carolina Chapter of the National Multiple Sclerosis Society. “The North Carolina plan will provide a single portal, and clients can make a choice between the two plans based on what is best for their situation.”

Paying for referrals

As of Jan. 1, Inclusive Health began offering a referral fee to insurance agents/brokers who provide information to individuals about the state’s high-risk pool. The fee, ranging from $150 and $200 per policy, is paid only if the applicant is approved for and maintains an active policy with Inclusive Health.

While agents would have to wait up to a year before collecting the referral fee, Coletti said he was concerned it could serve as an incentive for agents to push people from a private plan toward a government one, even though North Carolina law prohibits unfair referrals to the risk pool.

Karen McMahan is a contributor to Carolina Journal.