Maine Health Insurance: Out of the Frying Pan, into the Fire

In June 2003, Maine Governor John Baldacci (D) signed the Dirigo Health Reform Act, creating a government-run, taxpayer-funded health insurance and medical care program for the state. Many have praised the initiative, which became effective in September of that year, as a bold effort to reform Maine’s health insurance market.

But the individual and small group insurance markets in Maine had been in turmoil for more than a decade because of previous “bold efforts” to reform health insurance in Maine.

In 1993, the Maine legislature imposed modified community rating (CR) and guaranteed issue (GI) mandates on the individual insurance market in an effort to increase access to health insurance for the uninsured population. Specifically,

• Insurance premiums were not permitted to vary by gender, health status, claims experience, or length of time with coverage. Insurers were permitted to adjust premiums by 20 percent more or less than the community rate for age, occupation, and geographic area, and premiums could be adjusted for smoking and family status.

• Insurers were required to issue coverage to any applicant who had resided in the state for at least 60 days.

High and Rising Premiums

The mandates failed to make health insurance more affordable and accessible in Maine. Individual insurance premiums are well above the national average, ranging from hundreds of dollars per month for singles to thousands of dollars per month for families for plans with moderate deductibles. (See accompanying table.)

“We know that Maine has the highest tax burden of all 50 states,” wrote State Senators Paul Davis (R-Sangerville) and Chandler Woodcock (R-Franklin) in a letter to the editor of the online newspaper, The Daily ME, on March 11, 2004. “But do you also know that Maine has some of the highest health insurance [premium] rates?

“A Maine family of four buying an individual insurance policy from Anthem must pay $1,395 per month. And that’s with a $1,000 deductible,” Davis and Woodcock wrote. “Yet, that same family living across the border in New Hampshire only pays $586 a month for the same Anthem policy. If they live in the similarly rural state of North Dakota, then they only pay a low $346 per month.

“The reason for this difference is not hard to understand,” the senators conclude. “It has to do with bad insurance regulation which drives up costs in Maine.”

Fewer, More Expensive Choices

By some counts, half as many insurance companies serve the state’s individual market as did so when the CR and GI mandates were passed. While five carriers–Aetna, Anthem (formerly Blue Cross Blue Shield), CIGNA, Harvard Pilgrim, and Maine Partners Health Plans–write individual policies in Maine, the state is a virtual monopoly for Anthem, which in 2001 had 97.3 percent of the market, according to the Maine Bureau of Insurance.

Dave Spellman, president of Pratt Financial Group, Inc. in Westbrook, Maine and past president and legislative chair for the Maine chapter of the National Association of Insurance and Financial Advisors, noted, “I have seen first-hand the negative impact of over-regulation on insurance markets over the past 22 years of my career.

“Just over 10 years ago,” he said, “we had well over 90,000 Maine consumers in the individual market. Today there are fewer than 30,000. From a competitive market with more than 10 carriers, we now have a monopolistic market with only one, Anthem, writing new individual policies.”

Spellman pointed out, “While all this regulation was part of a stated overall goal to reduce insurance rates and, thereby, help decrease the ranks of the uninsured–just the opposite has occurred. Maine health insurance rates are now among the highest in America (two or three times that of just about anywhere else) and we have a growing uninsured population.”

Adam Brackemyre, executive director of the Coalition Against Guaranteed Issue, agreed. “Guaranteed issue and community rating have combined to accelerate Maine’s health insurance costs above the national average,” he said.

Brackemyre cited a report issued in March by eHealthInsurance.com, a nationwide online health insurance business, which documented what its customers paid on average for individual coverage in 42 states representing 94 percent of the U.S. population. Maine was not included in the firm’s survey. But customers in two other CR and GI states, New Jersey and New York, paid an average $335 a month for individual coverage. For all states, the average was $151 a month.

By contrast, the accompanying table shows rates for a standard plan in Maine range between $526.59 (Anthem’s HealthChoice plan with a $1,000 deductible) and $1,368.99 per month for a single individual, and between $1,395.46 and $3,760.06 for a two-parent family.

R. Kenneth Lindell, a certified employee benefits specialist and Republican candidate for Maine House District 41, summed it all up when he wrote in the August 29 issue of the Waldo County Citizen, “Kentucky is a good case study because it made many of the same mistakes as Maine prior to enacting reforms in 2001.

“The result of these well-intended but misguided regulations,” wrote Lindell, “was to force premiums higher, causing many to drop coverage and insurance companies to leave the state. By 2001 Kentucky’s health insurance market was in chaos, with only one insurer [Anthem] left to cover the individual insurance market.

“If this story sounds familiar, it should. This is exactly what has happened in Maine in the last 10 years.”

Little Improvement for Uninsured

Despite the chaotic market conditions, the uninsured rate in Maine has improved slightly, going from 11.1 percent of the state’s population in 1993 to 10.4 percent in 2003, according to Census Bureau figures. But those figures mask a large movement of people from private insurance to public welfare programs.

While 16 percent of the state’s residents were covered by individual policies in 1994 (figures for 1993 are not available), just 11 percent were covered in the individual market in 2003.

In 2003, more than one-third of the state’s insured population, 35.8 percent, was covered by government insurance programs (Medicare and Medicaid), up from 28.5 percent in 1993. Little wonder, Spellman said, “why we have runaway income, sales, and property taxes and a budget deficit of over $1 billion.”

High-Risk Pool

In 1990, Maine adopted one of the market-oriented reforms that have proven successful in other states: a high-risk pool for expanding access to the uninsured population. But the measure was short-lived. “The high-risk pool failed because enrollment was capped and the legislature wouldn’t fund it appropriately,” Spellman said. “The pool was deemed a failure by the Democrat-controlled legislature, so they came up with a final solution that destroyed the insurance market and brought us all closer to a single-payer health care plan with guaranteed issue and community rating.”

Instead of a high-risk pool, the legislature increased Medicaid eligibility, again with the goal of reducing the ranks of the uninsured. “Well,” said Spellman, “that succeeded only in increasing the Medicaid population–from just under 10 percent to over 20 percent of all Maine citizens. And the new Dirigo legislation could grow that population to 25 percent.”

Voluntary Today … Mandatory Tomorrow?

The insurance component of the Dirigo health plan, DirigoChoice, is a voluntary program for Maine residents who do not have coverage. Dirigo expects to enroll 31,000 people in 2004 and all 140,000 uninsured Maine residents within five years.

DirigoChoice will be available to uninsured Maine residents under age 65 whose income does not exceed 300 percent of the federal poverty level (about $55,000 for a family of four, $27,000 for an individual). The unemployed and self-employed will enroll in the plan as individuals with the benefit of heretofore unavailable group rates.

DirigoChoice will also be available to employees of small businesses in Maine, who will sign up through their workplaces. Participation by small businesses will be voluntary, government officials say.

But Arthur Levin, director of the New York-based Center for Medical Consumers, says it is misleading to call participation in Dirigo “voluntary” for small businesses.

“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, “This state is full of small businesses. This was a flawed plan from the get-go.”

A Choice of One

Baldacci announced on August 23 that Anthem Blue Cross and Blue Shield of Maine–the insurer that already holds a near-monopoly on the individual insurance market in Maine–will administer DirigoChoice. The governor said marketing would begin October 1.

The DirigoChoice plan will be available at monthly community-rated premiums as low as $260 for a single adult and $780 for a family of four. The state will subsidize deductibles and out-of-pocket maximums and will discount by up to 40 percent the monthly premiums incurred by enrollees under 300 percent of Federal Poverty Level ($28,000 for a single adult and $56,500 for a family of four).

Lee Tooman, vice president of government relations for Golden Rule Insurance Company, said, “Maine has been trying to contract with insurance carriers to sell subsidized health insurance to just about anyone. If the carriers do not materialize–and that now appears to be the case–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.

In the first year, the plan will be paid for with $53 million in tax dollars set aside by the legislature in 2003. In future years, the plan will be funded through a complex system of employer and employee payments, Medicaid cost-shifting, and a fee charged to insurers.

“A long time ago,” Tooman said, “an actuary told me 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.”

“Maine is moving very fast toward government-run single-payer health insurance,” warned 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 Dirigo Health Plan is another part.”

“The governor and state legislature haven’t learned a thing,” said Merrill Matthews, director of the Council for Affordable Health Care. “Maine is next to Canada, and gets a lot of business from Canadians coming south of the border to get the medical care they can’t get in Canada. With Dirigo, Canadians will still be traveling south, and Mainers will be joining them–heading to New Hampshire.”

Conrad F. Meier ([email protected]) is a senior fellow in health care policy for The Heartland Institute.