Maine’s ‘Public Option’ an Expensive Failure

Published August 6, 2009

Many well-intentioned people across America are advocating a “public option,” or government-administered health insurance program for the general public, as part of the Washington-centered health care overhaul being proposed by the majority in Congress.

As they continue their campaign, proponents should examine what has happened in Maine, which has extensive experience with such a government option: the state’s Dirigo health plan.

Striking Similarities

Proponents of the government option claim the program will work alongside private insurance companies already in the market by offering health coverage plans that are competitive with those offered by existing private insurers. In theory, consumers will have a fair choice between the established private companies and a new government-run plan.

Government option proposals rely heavily on the assumption that a new government agency will be more efficient than private insurance companies. Proponents claim a new national bureaucracy will offer competitive, comprehensive health plans that cost consumers less than their private competition. Though a government option would require significant taxpayer dollars during the startup phase, advocates claim its popularity will cause it to reach a break-even point quickly.

Government option advocates also maintain that, because Washington-issued plans would cover so many previously uninsured people, the overall costs associated with health care will fall. These savings will be passed along to the government option policyholders or kept in the pockets of the for-profit private insurers.

In fact, proponents argue, the government option will be such a perfect combination of low prices and outstanding coverage that people currently uninsured by choice will see the benefit of buying this coverage and voluntarily do so.

The same arguments were made in Maine in 2003 when Dirigo Health was first enacted.

Model Failure

The Maine government established Dirigo Health in 2003 with the intention of creating a self-sustaining insurance agency that sold and operated its own health plans. Initially funded with a one-time federal grant of $53 million, Dirigo, which was expected to cover all 128,000 uninsured Mainers by 2009, was supposed to become a national model that would inspire other states to enact similar government programs.

Long-term funding would come from premiums paid by policyholders and through a so-called assessment on the savings realized by private insurance companies when providers’ costs fell as a result of the projected drop in uninsured Mainers. If those with lower incomes had trouble affording the monthly premiums, subsidies would be available. No new taxes would be imposed to pay for the government option.

Six years later, what are the results?

Crowd-Out, New Taxes

While Dirigo was intended as a program for the uninsured, it attracted two people who had been previously covered by private insurance for every one uninsured individual who signed up for the taxpayer-subsidized coverage. As a result, costs skyrocketed and the percentage of uninsured Mainers remained relatively static.

In September 2007, at its highest level of enrollment, only 15,000 of the 128,000 uninsured Mainers were enrolled in Dirigo. Today, only 9,630 Mainers are enrolled. Of those, just 3,467 were previously uninsured—less than 3 percent of the number proponents of this costly program claimed it would help.

The original funding regime for Dirigo—government confiscation of the savings expected to be realized by private insurers as a result of the miraculous drop in costs proponents inexplicably thought Dirigo would bring about—ended up being little more than a tax on private insurance policies.

When the program swelled beyond the means of this modest funding source, the state legislature imposed a tax on sodas and alcoholic beverages, which Maine voters soundly rejected at the polls last November. This spring, faced with no other options capable of gaining public approval, Gov. John Baldacci (D) persuaded the legislature to dump the “Savings Offset” method of funding in favor of a simple tax on health insurance claims.

Government-Centric Failures

Maine has been on the leading edge of government-centric health care “reform” for years. It greatly expanded eligibility for its Medicaid programs, doubling the population receiving this taxpayer-subsidized health insurance for low-income residents. This move had the unintended consequence of increasing all medical costs due to the cost-shifting by providers to compensate for the lower reimbursement rates, and it still left 12 percent of the state’s population uninsured.

Next, the state enacted guaranteed issue and community rating regulations. These rules drove away all but one competitor in the non-group market and caused insurance rates to skyrocket, especially for individual purchasers. Maine’s individual insurance rates used to be around the national average, but today Maine has the nation’s second-highest non-group rates, and guaranteed issue and community rating are the chief reasons why.

These mistakes pale in comparison with the costly failure the Dirigo experiment has been. Dirigo has covered less than 3 percent of the state’s uninsured while increasing the cost of insurance premiums for those who pay for their own coverage. It has resulted in a new tax on the hundreds of thousands of Mainers struggling to afford private coverage.

Dirigo is Maine’s motto and is Latin for “I lead.” With its failed Dirigo Care program, Maine leads the nation with its example of what not to do when it comes to health care reform.

Tarren Bragdon ([email protected]) is the chief executive officer of The Maine Heritage Policy Center. An earlier version of this article appeared in the Bangor Daily News. Reprinted with permission.