By Robert Laszewski

What do we do with people who are uninsurable because they have a pre-existing medical condition?

That is a particularly important question as both McCain and Obama propose reforming American health care by building on the private health insurance system.

One of the solutions being discussed–by McCain among others–is to use state-based risk pools. Under McCain’s plan heavily dependent on an individual platform, people who don’t have employer-based coverage and healthy enough to qualify for individual health insurance could get a private mainstream plan and people who do not qualify for a standard individual plan could buy into a state-run high risk pool for the uninsurable.

In today’s market, these state-run pools can be lifesavers for those who can’t otherwise get coverage. But of 47 million uninsured, only about 200,000 people are in these pools nationwide. Sometimes the pools are prohibitively expensive, sometimes they are full and taking no new members, sometimes their coverage is hardly worth it.

One of the states that proponents point to as doing a good job with its risk pool is Minnesota.

Minnesota does have one of the better pools for those who are uninsurable. It offers a wide range of plans with a maximum cost of 125 percent of comparable market plans that medically underwrite. A family of four can get an HSA-style plan for about $9,000 a year (parents age 35-39). A couple age-60 can get a $2,000 deductible, 80/20 plan for about $12,500 a year. Pre-existing conditions are excluded for six months if you do not have prior creditable coverage.

If you are uninsurable in Minnesota–and can afford those premiums–you are likely facing some pretty high medical costs to make it worth your while. These plans tend to be anti-selection magnets in our voluntary system.

In 2006, there were about 30,000 enrollees in the Minnesota high risk pool (out of 465,000 uninsured in the state). Minnesota had a total program cost of $236 million that year. Of that, $124 million–more than half the funding–came from state subsidies collected by an assessment on insurer premiums. The per enrollee subsidy coming from state government was $4,265. That family of four had a state subsidy of over $16,000 that was added to the $9,000 premium they paid.

So, how does a state-based risk pool work?

In Minnesota, if you are uninsurable you qualify only for the limited state plans, at a cost that is up to 25 percent more than in the mainstream market, and the state government has to come up with a subsidy of more than $4,000 per participant to make it work–and it still costs you a lot.

If the federal government were to pass a health care reform bill that required the states to set these pools up, as McCain proposes, wouldn’t that just be another unfunded state mandate?

I can’t figure out why John McCain wants to go to voters with the unappealing notion that those with pre-existing conditions are going to be shipped off to a risk pool like Minnesota’s when we could accomplish something better by putting them in mainstream health plans using proven market-based reinsurance principles and underwriting rules.

If assessing insurers for the cost of high risk consumers, as they do in MN, is a good idea why not do it through the front door and promise those with pre-existing conditions they can get into regular coverage? (See also: John McCain’s Health Care Plan and the Uninsurable–There Are Better Fixes Than the Ones He’s Proposed.)

If nothing else, the market ought to tell the McCain health care planners something–out of 465,000 uninsured in Minnesota, only 30,000 are buying the product.

I don’t think the voters are going to buy it either.