Maine's Insurance Mess

If anyone knows exactly what is going on with health insurance in Maine today, they aren't talking. Not that the subject has brought anything close to silence in coffee shops or business offices, the State House or the courts. Private health insurance and its state-funded corollary, the Dirigo Health program, threaten to dominate legislative debate this winter and may well endanger Governor John Baldacci's chances for reelection in November.

On one hand, the health-insurance industry and its supporters claim the Baldacci administration is hell-bent on destroying and driving out the last faint remnants of what was once a thriving business in Maine in favor of ultimately imposing a single-payer, government-funded, universal health insurance that will bankrupt the state. On the other, the governor and his supporters say that the industry wants carte blanche to kick the poor, the sick, and the elderly off insurance rolls while reaping enormous profits by deregulating one of the most tightly controlled businesses in the state.

Meanwhile, Mainers are paying the second-highest health-insurance rates in the country after New Jersey, the state's taxpayer-funded Medicaid system is growing faster than almost any other state, and the battles over Dirigo Health have sparked some of the most vitriolic political infighting the state has seen in a decade and have resulted in several lawsuits.

So how did we get here?

While no one wants to predict where the health-insurance crisis is heading, just about everyone agrees when it started. "In 1993 eight states passed guaranteed-issue laws," explains David Spellman, a Westbrook insurance agent who has followed the topic since 1981 and frequently testifies before the legislature on insurance issues on behalf of the Maine chapter of the National Association of Insurance and Financial Advisers. "Maine was one of those states. It also passed a modified community-rating law."

The guaranteed-issue law meant that no one could be denied health-insurance coverage no matter what his or her physical condition. Prior to that, insurance carriers had been allowed to accept or reject applicants, just as they could with car or life insurance customers. Today drivers who can't get regular car insurance because of a history of tickets or accidents are put in a high-risk pool that offers coverage at higher rates. Prior to 1993 Maine had a similar, state-subsidized, high-risk pool for residents who couldn't otherwise buy health-insurance coverage, but it was limited to only 1,000 members and, because it was funded by the legislature, was subject to budget manipulations.

"Everyone agreed that Maine's high-risk pool for health insurance as it was then structured wasn't working," Spellman recalls. "But lots of other states, thirty-three in all right now, had and still have high-risk pools that operate very well indeed. Rather than fix it, though, the legislature chose to kill it and replace it with guaranteed issue."

With guaranteed issue came the community-rating law, which limits the amount an insurance carrier can charge for a health policy. A statewide average price for coverage is determined, and companies must limit their fees for individual policies to a range around that average, no matter what health problems the customer may have. Insurance premiums can't be affected by gender, health status, claims experience, or length of time without coverage.

When community rating was first instituted, insurance companies were allowed to charge rates within 40 percent above or below the average, based on age, occupation, and geographic area, as well as smoking and family status. The range has now been tightened to 20 percent. As a practical matter, it means that a healthy fifty-year-old man in Portland pays essentially the same rate as a fifty-year-old man living next door with heart disease and diabetes.

At the time, the proposals attracted little public attention. "I don't think they got much publicity at all," notes former Governor Angus King, who was elected in 1994 and who saw the health-insurance situation change dramatically during his eight-year tenure. "When I was campaigning in 1993 and 1994, I was in several forums with [then-State Senator] Dale McCormick, one of the major supporters of the legislation, and it just didn't come up. It wasn't terribly controversial at the time, and I don't think people appreciated the implications."

McCormick says she was motivated to work on the health-insurance reform measures because of personal experience. "I'd been denied insurance because of a prior claim," she explains. "I'd had a breast exam the insurer wanted and it went fine, but when I got my renewal it said I was covered for everything except diseases of the breast."

At the time, HIV and AIDS were also high-profile considerations, according to McCormick, who helped found and served as the first president of the Maine Lesbian/Gay Political Alliance in 1984. "There was a sense of unfairness that insurance companies were avoiding risk by cutting people with AIDS," she offers.

"We went to Augusta and told legislators that these bills would drive out carriers and send premiums up," Spellman recalls. "We were ignored."

Told that they had to accept all applicants and could charge rates only within a limited range despite costs, health insurers began leaving Maine. In 1993 the state had more than a dozen carriers in the individual health-insurance market. Today Anthem Blue Cross Blue Shield writes more than 97 percent of the individual policies in Maine. Anthem also dominates the small-group (under fifty members) market, while less than half a dozen companies are active in the large-group market, according to Spellman.

Defenders of the current system say that the loss of insurance carriers is due to other factors, including mergers, the state's older and sicker population, and a lack of interest in serving a market as small as Maine. Yet other small markets, Spellman notes, don't seem to have the same problem. For example, New Hampshire, with a population about the same size as Maine, and North Dakota, with demographics remarkably similar to Maine, each have a dozen or more companies competing to offer coverage.

since 1993 efforts to amend the guaranteed-issue law and establish some sort of high-risk pool have been uniformly rejected. King recalls that his commissioner for the Department of Professional and Financial Regulation, S. Catherine Longley, worked for more than a year on a bill to stimulate competition in the health-insurance market and loosen rate restrictions to slow the exodus of insurance carriers from the state.

The measure was introduced in April of 2001 and "lasted eight or nine minutes," King says. "It was the most work for the least results I ever saw. Joe Ditre [leader of Consumers for Affordable Health Care and widely considered one of the most influential lobbyists in the state] and others said this bill would shift costs and hurt low-income and elderly people. It wasn't true, but that's what was said."

The effects that Spellman predicted mostly came true, although there's considerable debate over the reasons. Insurance carriers raised their rates as competition decreased and costs increased. Each time rates rose, healthy Mainers who rarely used their health insurance policies decided to drop their coverage. With fewer healthy people contributing their premiums to the overall costs, that left older and sicker Mainers as a larger group within the overall pool of insured residents, pushing costs and thus rates up even higher.

And as costs increased and more Mainers found private insurance unaffordable, pressure mounted on state government to include more low-income residents in Medicaid coverage. In 1987 only 9.9 percent of Maine's residents were on Medicaid. In 2004 some 21.4 percent of the state's residents were, according to the U.S. Census Bureau.

"It has turned into a death spiral," King explains. "You can't force someone to buy health insurance, and as the price goes up the people who think they don't need it stop buying it, and each time the rates go up another few thousand Mainers find they can't afford it. So the number of uninsured goes up."

Even McCormick, a long-time proponent of universal health care, admits, "Anybody who could self-insure was opting out of the market, leaving the community pool older and sicker. No one was managing the market to be fair," which she says means "bringing everyone into the tent and making the community pool universal."

in the years since guaranteed issue and community rating were adopted as health insurance standards the uninsured population in Maine has remained relatively stable at around 10 percent, but Medicaid enrollments grew from 9 percent in 1993 to 21.4 percent in 2004. In fiscal year 2003 Maine spent $535 million to fund its Medicaid program.

"If you're a family of four with parents fifty years old living in Kittery and you want a policy with a $1,000 deductible, it will cost $1,712 a month," Spellman explains, "and the proposed 2006 rate increase from Anthem will push that to $2,200 a month.

"If you move your family across the river to Portsmouth, New Hampshire, you can get the same policy from the same carrier for $950 a month. In other words, move to New Hampshire and you can save enough on health insurance to cover your mortgage payment."

And a twenty-five-year-old man in Maine pays $496 a month for an individual health insurance plan that costs less than $130 a month in Connecticut, Spellman adds.

Where is Maine heading? To court, among other places. In late November insurance carriers and industry groups filed suit over the funding mechanism and methods used to finance the Dirigo plan. The legislature will likely see a flurry of proposals for health-insurance reform this year, many of them aimed at amending some of the current restrictions.

Another idea gaining currency is the so-called "individual mandate," which would require every resident to buy a health insurance policy, just as every driver needs car insurance. The concept is untested so far, but both California and Massachusetts have considered implementing the idea.

Of the original eight states that passed guaranteed-issue laws in 1993, only five are left: Maine, Massachusetts, New Jersey, New York, and Vermont. Colorado, Maryland, and Kansas have repealed the measure after disappointing results. Kentucky, for example, saw the number of insurance carriers there drop from forty-three to two under guaranteed issue. That number has now climbed to five.

Spellman says he would like to see the law amended to create a high-risk pool funded with a dedicated income stream the legislature can't touch. New Hampshire, for example, levies a tiny fee on every health policy. That would go a long way toward easing pressure on policy premiums, he believes.

But many in the health-care industry are convinced that the advocates of universal health care are actively working to stymie efforts to improve the current situation because they want it to fail and lead to a single-payer system where the state is the sole provider of health insurance. "I think they want it to collapse in favor of a single-payer [system]," King concludes. "I've said that publicly and they've never jumped down my throat about it, so I assume it's true."

McCormick, a founder of Consumers for Affordable Health Care, has a long history of supporting universal health care, but she insists that there's room for both state and private insurance coverage. The Family Security Act she pushed in the legislature in the early 1990s, she says, would have "properly managed competition between private insurers and a [state-managed] single-payer program." The Dirigo program is simply an extension of that idea, she says.

For the moment, though, Mainers will have to get through the current confusion surrounding health insurance and hope that whatever waits on the other side of the controversy is better than what they have today.