Maine Health Plan Creates Firestorm of Controversy

June 18, 2003
Conrad F. Meier



First-year Democratic Governor John Baldacci on June 19 signed a bill delivering something he asked for more than two months ago, in early May: universal health care.

Trish Riley, director of the Governor's Office of Health Policy and Finance explained to media representatives, "We propose the creation of Dirigo Health, an independent not-for-profit organization run by a five-person Board of Directors. It will contract with insurance carriers to provide a comprehensive benefit offered, at first, to individuals, self-employed persons, and small businesses with fewer than 50 employees."

In describing the administration's plan for financing the program, Riley said, "Subsidies will be provided on a sliding scale to those with incomes below 300 percent of the federal poverty level (FPL) or $55,000 for a family of four. We ask employers to cover 60 percent of the cost of coverage and to cover part-time workers who work more than 15 hours on a pro-rated basis. I hope we can find our way to make good on the promise of our state's motto for which this plan is named: Dirigo--Maine leads."



Dirigo Details

The bill is intended to provide an estimated 180,000 uninsured people with access to medical insurance in a sweeping health insurance plan mirroring similarly failed attempts in Kentucky, Tennessee, and Washington State. The vote to pass in the House was 105-38, and the Senate approved the measure 25-8, allowing the state to start organizing the program within 90 days.

The plan creates a quasi-public bureaucracy needed to help people secure medical coverage through private insurers. Under the plan, all Maine residents who cannot afford health insurance would have access to low-cost coverage by 2009. The plan is expected to go into effect next year even though Baldacci admitted publicly the bill is flawed. He has asked legislators to pass it and fix it later.

Participants would be charged subsidized premiums according to their ability to pay and the amount of coverage purchased. Funding would come from a patchwork of sources, including a tax on insurance companies and the estimated $80 million the state expects to save each year by eliminating unreimbursed medical expenses incurred by uninsured residents.



Critics at Home

Opponents portray the program as doomed to failure. "This bill is an illusion and a promise not fulfilled," Assistant House Minority Leader David Bowles (R) said before the final vote.

York Hospital President Jud Knox opposes the new state-run health care system. In a forum at the Greater York Region Chamber of Commerce, Knox called the concept laudable but added it will not work. The legislation aims to hold down medical care costs with voluntary price caps for providers, hospitals, and insurers, and a limit on medical care defined as 'non-hospital outpatient procedures.'

"If I put a plan like this before the York Hospital Board, I'd get nowhere," Knox said. "Is this plan going to cost small business more? I don't know if it will for coverage, but I am convinced it will cost more somehow, through tax dollars or some other way. The bill is fraught with unknowns."

What happens in years two and three no one, including the Baldacci administration, seems to know. The bill language reads it will depend on a reduction in bad debt and charity care, but contains no identification of how that will work. No plan has been outlined for long-term sustainability.

Arthur Levin, director of the New York-based Center for Medical Consumers, says calling the program "voluntary," in that businesses can choose to opt in or out, is misleading. "Small businesses are going to get pressure from their employees to do this if they don't have insurance now. This plan calls for small businesses to pick up 60 percent for employees who work over 20 hours, and for their families," said Levin adding, "As you know, this state is full of small businesses. This was a flawed plan from the get-go."

Levin also noted, "The governor has been convinced risk pools do not work, but they are working in 31 states who have cut insurance costs by 41 percent or more. There's a school of thought up here that people on charity care will all of a sudden step up and start paying for insurance. Even if it was made less expensive, we'd still be more expensive than any state around."

Knox also attacked the focus of all universal health care plans, saying they do not take into account the constant changes in health care. And Dirigo health calls for an expansion of Medicaid, another idea Knox said is faulty. "The state already pays health care providers less than the cost of care. We shift the cost elsewhere, expanding the cost-shifting. Medicaid today owes us $1.2 million, money the state hasn't been able to pay," said Knox.

"Maine is moving very fast toward government-run single-payer health insurance," warns Scott K. Fish, director of special projects for the Maine Public Policy Institute. "The revised Maine Rx program is part of that movement. Maine's new Dirigo Health Plan is another part."



Critics at Large

Greg Scandlen, director of The Galen Institute's Center for Consumer Driven Health Care, notes "The proposal includes tax-financed subsidies for everyone with incomes below 300 percent of the federal poverty level or $45,750 for a family of three. Yet the median household income in Maine is $37,240."

"The state" notes Scandlen, "seems to think it will pay for the subsidy by "recovering" $164 million in freed-up money from bad debts, now that the uninsured will be covered. But the subsidy isn't confined to the previously uninsured. It is available to everyone meeting the income threshold--well over half the state population."

"More importantly" suggests Scandlen, "The program is a huge billboard for adverse selection. It provides no incentive for people to sign up while they are young and healthy, but allows them to wait until they know they need services before enrolling. There is no waiting period for pre-existing conditions, and though the report doesn't specify premiums, it will presumably be community-rated, meaning everyone pays the same premium regardless of risk factors such as age."

Scandlen warns, "Healthy people can decline to get coverage, knowing that if they ever get sick they can be covered immediately at no extra cost. There is absolutely no advantage in pre-enrolling, especially not if the employer pays only 60 percent of the cost of coverage, leaving another 40 percent for the worker to pay. With the younger people out of the insurance pool, premiums will skyrocket, making coverage unaffordable for everybody."

Lee Tooman, vice president of government relations for Golden Rule Insurance Company, told Health Care News, "Say what you want about last year's effort in Oregon to pass universal health care--at least you knew what you were voting for. By contrast, Maine's bill represents an awesome delegation of discretionary authority to unelected agency bureaucrats. The bill empowers the government in an unprecedented way to manipulate both the health care delivery and health care financing systems in the state."

"Maine," Tooman says, "will contract with insurance carriers to sell subsidized health insurance to just about anyone. If the carriers do not materialize, the state will charter its own insurance company. Meanwhile, the state will impose a new 4.1 percent tax on all health insurance premiums to finance universal health care.

"A long time ago," Tooman confides, "an actuary told me that there are only two scenarios in which community rating works: either you force people to buy the insurance or you subsidize it so heavily that people would be foolish not to buy it. Maine is going to try subsidies first. My guess is that this will not work and the next step will be an employer mandate."

Tooman concluded, "One of my favorite provisions of the bill says that, to the extent necessary to formulate a proposed plan allocating costs and services, such collaboration must displace competition in affected health care markets. Sounds like command-and-control regulation to me. A mini-version of national health care."

Merrill Matthews, director of the Council for Affordable Health Care (CAHI), sees other potential consequences of the Dirigo Health Plan. He told Health Care News, "Even though Maine is next to Canada, and gets a lot of business from Canadians coming south of the border to get care they can't get in Canada, the governor and state legislature haven't learned a thing. Were the state to actually implement the plan, not only Canadians would be traveling south, but Mainers will be joining them--heading to New Hampshire."

Matthews predicts "The universal portion of the plan will never be implemented because it is unworkable and unaffordable, a fact Governor Baldacci will be admitting in a few years ... if he is still in office."



Bottom Line

Critics also point out the focus of the bill is wrong, but for a different reason. "The high cost of health care is not the problem," said Levin of the Center for Medical Consumers. "The problem is the high cost of health insurance. Maine's premiums are the highest, because we are an older population and so are more risky to insure. I would support a risk pool."

"The plan is not founded in a social value system," said York Hospital's Knox. "There is a 50-50 percent increase in health care costs in the United States, caused by increased utilization--we are using services more. If we want less care, it would reduce cost. I don't see Mainers saying we want less care. And, I don't know what health care will look like in five, ten years. No one does."


Conrad F. Meier is senior fellow in health policy and managing editor of Health Care News, a monthly publication of The Heartland Institute. His email address is meier@heartland.org.