Maine has made history by passing major health care reform legislation which addresses the state’s dysfunctional insurance market and provides an example of how a state can recover from failed regulations.
Maine had passed major health reform in 1993 guaranteeing health coverage for all and implementing community rating laws, under which insurers had to take all comers regardless of health status and rates could vary only minimally between applicants. Maine is one of just five states with similar laws, and had the most restrictive laws of them all.
The results have been disastrous. Maine’s individual insurance market was in a death spiral, with some of the highest insurance premiums in the nation.
The intent was noble: to ensure everyone could purchase health insurance and to lower rates for older residents. In reality, rates shot up substantially, especially for younger people, who stopped buying in droves. A shrinking pool of insured people—made up primarily of the older and sick—drove rates upward for everyone.
Maine’s individual insurance market went from covering approximately 100,000 people to only about 40,000 today. As rates rose, so did deductibles, to the point where the average deductible in Maine is now more than $7,500 compared to about $1,500 nationally.
If you compare Maine and New Hampshire Anthem premiums with a $5,000 deductible, you will find similar rates for a 60 year old adult ($528 in Maine, $517 in NH) yet significantly different monthly rates for a 20 year old ($352 in Maine, $136 in NH). Likewise, you will find Anthem insures just over 160 18-24 year olds in Maine’s individual market versus almost 2,000 in New Hampshire.
The new law passed in May, LD 1333, creates a reinsurance pool called the Maine Guaranteed Access Plan (GAP) to help ensure coverage for the highest-cost users in Maine’s individual market. Currently 11 percent of Anthem’s individual policyholders account for 95 percent of the claim costs. The GAP subsidizes claims for applicants with known high-cost conditions with a broad-based assessment on all privately insured people in Maine. This spreads the cost from the current 40,000 individual policyholders to more than 500,000 with private coverage.
The assessment begins as the Dirigo program—a failed attempt implemented by former Maine Governor John Baldacci to reduce Maine’s uninsured, the funding for which is being phased out by Maine’s new Governor, Paul LePage—winds down, and caps at about half of the Dirigo assessment. This represents a net savings for current policyholders, which means individual insurance rates will likely drop for everyone, whether healthy or ill.
Several Key Reforms
LD 1333 also adjusts the amount insurers can vary rates between applicants of different ages. Statistically, an older adult consumes five times the health care services of a young adult. Maine’s community rating laws forbid an insurer to vary rates for age by more than 150 percent. LD 1333 allows insurers to vary rates based on age by 300 percent, for both individual and small groups, phasing in over a period of years. The intent is to lower rates for younger applicants to draw them back into the insurance pool.
Another important provision of LD 1333 is the repeal of Rule 850, a unique Maine law that sets travel restrictions around provider networks. Many blame this rule for increasing premium rates in rural areas. Interestingly, the health plan for Maine state employees received an exemption from Rule 850 several years ago and has documented savings as a result.
Other important provisions in LD 1333 include the creation of a small business tax credit, new product innovations such as allowing small businesses to band together for the creation of larger pools and allowing for shopping across state lines. LD 1333 truly addresses health insurance cost drivers in Maine while staying compliant with Obama’s health care law to avoid turmoil in future years.
Maine residents have expressed hope insurance premiums will become more affordable and stable as a result of this new law. At a minimum, LD 1333 is a significant step in the right direction.
Joel Allumbaugh ([email protected]) is a member of the Board of Advisors of The Maine Heritage Policy Center and is president of the Maine Association of Health Underwriters.