Maine’s State-Run Health Plan Faltering

Published January 1, 2006

Dirigo Health, the signature health reform initiative of Maine Gov. John Baldacci (D) launched in September 2003, is hemorrhaging money and faltering, according to figures released in November by Baldacci’s administration. Also in November, the program’s administrators placed a tax on all health insurance claims paid in the state to help pay for the state-run plan.

In May 2005, the Medicaid expansion effort under Dirigo Health began providing Medicaid coverage to parents earning between 150 percent and 200 percent of the federal poverty level. According to the Kaiser Family Foundation, Maine now has the largest Medicaid program in the country as measured by enrollment as a percentage of total population under 65 years old. In addition, almost all individuals 65 years and older in the state are on Medicare.

DirigoChoice Insurance

In addition to the Medicaid expansion, DirigoChoice–the state-designed and taxpayer-subsidized health insurance plan marketed to individuals, sole proprietors, and small businesses in Maine–is central to the Dirigo Health reform initiative. DirigoChoice provides taxpayer-financed subsidies to employees with household incomes under 300 percent of the federal poverty limit, to reduce employees’ costs for their share of employer-provided insurance premiums. DirigoChoice requires participating employers to pay 60 percent of the premiums for employee-only coverage; there is no minimum employer contribution for dependent coverage.

When the law passed in June 2003, Baldacci promised the Dirigo Health initiative would insure all 135,000 uninsured Maine residents within five years by expanding health insurance and Medicaid coverage, would require no new taxes, and would reduce health insurance premiums for all residents of Maine.

Reaches Few Uninsured

In November, the Baldacci administration admitted it had been neglecting to report the number of people who dropped out of DirigoChoice insurance after enrolling in it. According to information the administration provided in November to the legislature, since January 1, 2005, 8,500 people have enrolled in DirigoChoice. But 1,200 of those enrollees had discontinued their coverage by November, leaving just 7,300 people still with DirigoChoice coverage. One in seven people (14 percent) who signed up for DirigoChoice dropped the plan after being covered less than 10 months.

In 2004, 161,000 Maine residents received health insurance in the individual and small group markets. DirigoChoice’s 7,300 enrollees represent about 4.5 percent of that market.

The results of a survey of DirigoChoice enrollees released in August 2005 by the Muskie School of Public Service at the University of Southern Maine revealed just 22.4 percent of those with DirigoChoice were uninsured at the time they purchased the state-subsidized insurance. That suggests DirigoChoice has provided coverage to just 1,635 uninsured persons in 10 months.

Costly to Taxpayers

In October, the Dirigo Health Agency released to the Maine Legislature an accounting of funds spent through September 30, 2005. For the first nine months of 2005, the Dirigo Health Agency had a net cost to taxpayers, after contributions received from participating small business employers and employees, of $19.5 million. DirigoChoice costs Maine taxpayers a net $414 per member per month, or almost $5,000 per member per year. These costs include all premium payments from the state to Anthem Blue Cross and Blue Shield (which provides the Dirigo insurance coverage), administrative costs, and subsidies paid to individuals.

Given that only 1,635 uninsured individuals were covered by DirigoChoice in the first nine months of 2005, the estimated annual cost to Maine taxpayers for each uninsured person covered by DirigoChoice is more than $15,900. State taxpayers fund the majority of these costs, with federal matching dollars generally available only for the roughly 2 percent of DirigoChoice enrollees who are Medicaid eligible.

New Tax Imposed

On November 22, 2005, the Dirigo Health Board of Directors approved a new Dirigo tax of 2.408 percent on all health insurance claims paid in Maine. All individuals and companies, regardless of size–including large companies that are self-insured–must pay the tax, which is projected to raise almost $44 million in 2006 alone. The tax will be assessed against insurers as a percentage of the claims they pay out, and insurers will pass the tax along to their policyholders. For individuals with single coverage, the tax will be about $75 per year; it will reach about $200 per year for those with family coverage.

The new tax is in addition to a 2 percent health insurance premium tax paid on all non-HMO insurance plans in Maine, and also in addition to expected 2006 premium increases of 15 to 20 percent for private-sector small group and individual insurance plans.

Nationwide, paid medical claims total approximately 80 percent of health insurance premiums paid, and Maine requires by law that insurers pay in claims at least 80 percent of premiums they take in. Thus, the new medical claims tax combined with the existing premium tax will make Maine’s effective “premium tax” almost 4 percent–one of the highest premium taxes in the country.

A coalition of large companies and insurers has filed a lawsuit challenging the legality of the Dirigo tax.

Approval Rating Dropping

As he heads toward his November 2006 re-election campaign, Baldacci’s approval rating has dropped to 46 percent with a disapproval rating of 45 percent, according to a fall 2005 poll by Critical Insights of Portland, Maine. Also in that poll, 45 percent of those surveyed said the governor did not deserve re-election. Just 38 percent support him for another four-year term.

Since the Dirigo Health reform initiative was passed in June 2003, it has quickly changed from a model health reform of interest to other states to a cautionary tale of TennCare (Tennessee’s failed taxpayer-funded, state-run insurance program) proportions.

Those who oppose the program argue for its termination while urging a responsible approach in doing so. “The Dirigo Board has a fiduciary duty to Dirigo enrollees to phase out the program, rather than subject enrollees to an abrupt collapse,” said Daniel Bernier, lobbyist for the Maine chapter of the National Association of Insurance and Financial Advisors. “The legislature needs to see that Dirigo does no more harm to Maine consumers.”

Tarren Bragdon ([email protected]) is director of health reform initiatives for the Maine Heritage Policy Center. He authors the DirigoWatch report, available at