Spreading the risk

One of the greatest challenges in reforming the U.S. health system is how to make health insurance affordable and available for chronic-care patients, and anyone else who has expectedly high medical costs.

The current approach surely isn't working, given how it contributes to the rising number of people without health insurance.

In employer-based insurance, the low-risk patients subsidize high-risk patients; all pay similar premiums rather than being assessed charges based on their likelihood of using health services. That makes care more affordable and accessible for the high-risk patients.

But many low-risk patients, especially young adults and some lower-income workers, have joined the ranks of the uninsured rather than pay the high premiums insurers deem necessary to support all patients.

In the individual market, high-risk patients struggle to get any insurance at all. Insurers instead cherry-pick low-risk patients -- or, as recent cases in California have shown, kick some patients off the rolls the moment they are deemed to be high-risk.

The solution to solving both these problems is replacing the current market-regulation approach to high-risk patients.

Instead, risk-based subsidies -- paid out of general tax revenue -- should be used. Such an approach would ensure that high-risk patients get the care they need at an affordable price. At the same time, and equally welcome news, low-risk patients could see their insurance costs drop as their dollars are no longer required as a subsidy.

This approach, as outlined in a Council on Medical Service report approved by the House of Delegates during the AMA's Interim Meeting in November 2007, is consistent with the Association's plan for reducing the number of uninsured.

That plan has three pillars. First, it allows income-related, refundable tax credits or vouchers for the purchase of health insurance, which those with low incomes could receive in advance. Second, it lets individuals, rather than employers or governments, choose their coverage. Third -- and this is where risk-based subsidies come in -- it has fair rules of the game that include market regulations and protections for high-risk patients.

Risk-based subsidies would create incentives for insurers to cover high-risk patients by setting up high-risk pools, risk-adjustment funds or reinsurance arrangements that mitigate health plans' financial risk. Thus, plans wouldn't have an incentive to cherry-pick healthier patients, and could give high-risk patients lower rates as well.

The Council on Medical Services in 2003 had already stated that risk-based subsidies could be financed through general tax revenue, rather than premium surcharges. But their new report makes clear that those subsidies are preferred to existing ways of covering high-risk patients, and answers a question often raised about the AMA's individual-focused approach -- how would it address high-risk, high-cost patients?

Work is already under way to show that risk-based subsidies would make health coverage available to those patients. For example, at least 32 states operate high-risk pools, with at least five of those states operating demonstration projects funded through federal grants. The AMA has pledged its support to such projects.

Everyone, whatever their health situation, needs and deserves access to affordable health insurance. Risk-based subsidies, as part of the AMA's plan to cover the uninsured, will go a long way toward making sure that such access is secured.