Maine: Implementation of Comprehensive Reforms

Maine enacted its Dirigo Health Reform in 2003. The legislation had three aims: to increase the rate of health coverage, to improve quality, and to control costs. This reform was the first of its kind in the nation.^[i] One piece of the Dirigo Health Reform is the DirigoChoice Health Plan, which is intended to provide an affordable health insurance option to small businesses, the self-employed, and eligible individuals who do not have access to employer-sponsored insurance. Using subsidies, DirigoChoice offers discounts on monthly premium payments and reductions in deductibles and out-of-pocket costs on a sliding scale to enrollees with incomes below 300 percent of the Federal Poverty Level (FPL).

The DirigoChoice subsidies have been funded through a Savings Offset Payment (SOP) mechanism that was designed to capture and redistribute savings in the health care system resulting from multiple cost containment strategies, including:

• The “Capital Investment Fund,” an annual limit on capital investment under the state’s Certificate of Need program;

• Rate regulation in the small-group insurance market;

• Voluntary targets on hospital expenditures;

• An increase in physician and hospital payments to reduce cost shifting; and

• Uncompensated care cost savings resulting from providing coverage to the previously uninsured.

While it was enacted with more than two-thirds legislative support in 2003, the SOP proved to be controversial in practice —especially regarding the methodology by which cost savings are calculated—resulting in a court challenge in 2007. Although Maine’s Supreme Court upheld the SOP, nearly all parties have agreed for some time that a new funding source was needed to ensure the continued viability of DirigoChoice.^[ii]

Further, the savings determined by the Superintendent of Insurance through the adjudicatory process each year has been lower than the DirigoHealth Agency’s estimates of savings, resulting in reduced revenue for the DirigoChoice subsidies.

In April, Maine Governor John E. Baldacci signed into law a bill aimed, among an array of other reforms, at changing the financing for DirigoChoice. Revenue would come from increased taxes on beer, wine, and soda, and a flat surcharge on insurers.^[iii] According to legislative fiscal analysis, malt beverage and wine taxes were expected to raise $7.5 million in the first year, while soda taxes were projected to provide $9.2 million.  The assessment on insurers would initially have raised $33 million, increasing to $37 million in 2010 and $38 million in 2011.^[iv] The new taxes were to fund both DirigoChoice and long-debated insurance market reforms, with close to 20 percent of the revenue to support a reinsurance plan to provide rate relief in the individual market.^[v] 

After Baldacci approved the new financing structure in April, a political action committee backed by beverage companies and the Maine State Chamber of Commerce, called Fed Up With Taxes, ran an aggressive campaign to repeal the taxes. The group gathered more than 90,000 signatures to get the tax repeal on the ballot as a people’s veto question, and spent an estimated $3.5 million on their campaign.  They focused their advocacy on taxes, not health coverage. The opposing coalition, Health Coverage for Maine, argued that a tax increase on beverages that can contribute to poor health was a sensible way to fund a health program and that it was necessary to help support the 18,000 people who have coverage through Dirigo. Baldacci urged Maine voters to oppose the repeal but Health Coverage for Maine had just $440,000 to support a campaign opposing the tax repeal. Voters opted, by a wide margin, to repeal the new taxes. This means that Dirigo will continue to be funded through the SOP system, although this funding mechanism for 2009 again has been challenged in court.^[vi]

Maine’s health care reform has encountered obstacles along the way. These include lower than expected revenues, which resulted in lower DirigoChoice enrollment numbers, a cap being placed on the program, and controversy over funding sources. Nonetheless, the state has made considerable progress in increasing its rate of insured residents, combating escalating health care costs, and creating the framework for a more cost-effective and efficient health care system.

Among the six New England states, Maine had the highest rate of uninsured residents prior to Dirigo, but by 2006 had the lowest rate among those states. Massachusetts then replaced Maine as the New England state with the lowest rate of uninsured after introducing its own health reform legislation, but the rate of uninsured Maine residents continues to fall. Similarly, Maine had the highest average annual growth in premiums of any state in New England before Dirigo, but has had the lowest in the region since enactment of their reforms.^[vii]

Maine has made significant progress in health reform but the positive developments have largely been overshadowed by conflict over program financing, and it appears that Maine will enter 2009 with continued controversy in this area.