In an effort to control mushrooming costs in its pre-existing conditions insurance plan, or PCIP, the Health and Human Services Department (HHS) had to cease offering the plan and curtail benefits almost one year early. The PCIP was established to provide insurance at subsidized rates to people with existing health care needs that were uninsured for 6 months prior to being eligible for the PCIP.
Congress funded the PCIP with $5 billion to cover patients with pre-existing conditions from 2010 to 2014. Less than a third of the people HHS projected would enroll in the plan actually signed up for the coverage.
Yet despite the low enrollment, the plan is broke. In fact, it started running out of money at the beginning of this year, which means it busted its budget a full year ahead of projections on 1/3 of the number of projected insured's.
In a 2012 report, HHS conceded that it had miscalculated (though not until page 11 of its 15-page report): "On average, the PCIP program has experienced claims costs 2.5 times higher than anticipated."
Now it's cutting off coverage. Here is the message on the PCIP.gov website:
"Beginning February 16, 2013, the federally-run Pre-Existing Condition Insurance Plan (PCIP) is suspending acceptance of new enrollment applications until further notice... Based on program experience and trends since the start of the program, PCIP enrollees have serious and expensive illnesses with significant and immediate health care needs...This suspension will help insure that funds are available through 2013 to continuously cover people currently enrolled in PCIP. Starting next year, the ACA guarantees that all Americans - regardless of their health status or pre-existing conditions - will finally have access to quality, affordable coverage."
Translation - even though Congress and the HHS were unable to budget for and manage the claims of 100,000 people with health care needs, they will transfer these and millions of more people with "immediate health care needs" from state insurance risk pools to the private insurance market in Jan. 2014, and hopefully between the new enrollee premiums and the re-insurance program they will have better luck.
The crisis at PCIP may be a harbinger of things to come for the rest of the Affordable Care Act.
The higher-than-expected costs from PCIP "could be an indication that other cost projections for ACA are also underestimated," the Heritage Foundation recently stated on its blog.
Another test will be the new $5 billion fund set up under the ACA for years 2014 -2016 to provide high-risk insurance pools in each state. The insurance pools were designed to spread the risk caused by eliminating pre-existing conditions, and are already running out of money a full year before projections. The high-risk pools will be funded with a Transitional Reinsurance Fee. HHS will require insurance companies and third party administrators to collect from each insured member between $5 and $6 per month. The insurance companies will collect the fee from employers and individuals through premium increases.
If Congress, HHS, and CBO miscalculated how much it would cost to fund 100,000 new applicants with pre-existing medical problems in the PCIP, could they also be underestimating the cost of subsidizing millions of Americans, through the federal high-risk insurance pools, who'll be immediately eligible for a generous array of "free" preventive-care and essential medical services?
How can they trust that the overall cost projections for the Affordable Care Act are accurate, when the initial projections are grossly underestimated?
In its first decade, the ACA is estimated to cost twice as much - more than $2 trillion - than first projected by the Congressional Budget Office.
What will happen if HHS runs out of funding for other provisions of ACA, will they suspend acceptance of new enrollees or limit claim reimbursements as they did with the PCIP?
