A high-risk health insurance pool is one you don't want to jump into — unless you have to. It's considered a last resort for people whose employers don't offer group coverage and who have been denied insurance in the individual health insurance marketplace because of health problems, such as cancer, stroke, chronic depression or heart disease.

High-risk pools aren't for those with very low incomes, either — they are taken care of by Medicaid programs. Thus, high-risk pools, when they're available in a state, generally cover middle-income people who have chronic conditions that lock them out of the individual health insurance market.

Health insurance risk pools are special programs created by state legislatures to provide a safety net for people with pre-existing medical conditions, so that the sickest folks can buy insurance. Each state operates its risk pool differently, although many share common features. The funding of each depends on how the state legislature allocates funds.

According to FamiliesUSA, 33 states currently operate high-risk pools. Minnesota's pool, the oldest in the nation, insures about 6 percent of its individually insured population. A few other states with pools that are effective at outreach cover 2 to 3 percent of their states’ individually insured populations, as of May 2006.

The state pools use private insurers to administer the programs, collect premiums and pay claims. Although the health benefits vary, most are comparable to basic private market plans except for the cost. Typically, pools can charge you up 130 to 200 percent of the the average premium for individual health insurance on the open market in the state. According to FamiliesUSA, most states cap premiums at no more than 150 percent of average premiums. In addition, to be eligible for federal grants, high-risk pools must set premium caps below 200 percent of average premium costs.

Because high-risk pool premiums are based on average premiums for health insurance policies sold in a state, states with rate regulation that holds premiums downs will also have lower premiums in their high-risk pools.

High-risk pools are subsidized in order to keep rates below the set caps, and pools rely primarily on funding from state legislatures. For example, according to the Council for Affordable Health Insurance (CAHI), Florida has had a risk pool for many years but never funded it, so it is of little use. California's pool caps enrollment time at three years, which cuts off those who need extended coverage.

Despite the expense, there are waiting lists in some states to get into the pools. This is because the only other alternative for many people with costly medical conditions is to go uninsured.

Deductibles

Those in high-risk pools generally have a choice of deductibles, which can range anywhere from $500 to $10,000, depending on the state and the choices offered. High-risk pool policyholders can open tax-free Health Savings Accounts (HSAs) to save for deductibles, co-pays and other out-of-pocket medical expenses, but generally those in the pool don't have the cash to fund an HSA.

Are you eligible?

High-risk health insurance pools have strict eligibility guidelines, so not everyone who has a serious illness qualifies for coverage. You can't apply for health insurance through a high-risk pool if you're eligible for assistance from any other state or federal program such as COBRA, Medicaid or Medicare. See Know your COBRA rights, Understanding Medicaid and Understanding Medicare.

Typically, you must prove you can't obtain health coverage through private insurers. Acceptable forms of proof include copies of denial letters or involuntary-termination notices.

There might be waiting period

High-risk pools usually don't impose the pre-existing condition exclusions that private individual insurers do, but many pools do have mandatory waiting periods for coverage of pre-existing conditions. The average waiting period is six months; some are 12 months. That's because there's a fear that without waiting periods, people would wait until they are very sick before applying to the pool.

There is an exception to mandatory waiting periods: If you're eligible for the risk pool and have had continuous health insurance coverage, without a lapse in that coverage for more than 63 days, you can receive coverage without exclusions immediately. "Continuous coverage" can be from a group health plan, COBRA, an individual plan, Medicaid or other "creditable" coverage (check with your state for rules).

There might be a wait list

Some state high-risk pools, such as California's, typically have a wait list of several months because the pools have reached their enrollment caps. Once you get in, your time on the wait list could be credited to your pre-existing exclusion waiting period. In California, for example, the time you spent waiting to get in is credited against your exclusion period if you were waiting longer than six months to get into the pool.

High-risk pools: Coming to save the day?

As public interest groups, insurance industry groups, elected officials and others propose ways to address the number of uninsured Americans, high-risk health insurance pools have been receiving renewed attention: Many reform proposals include the expansion of state high-risk pools in order to cover more of the uninsured population.