State's Dirigo Health plan suffers from many serious flaws

About the Author

Tarren Bragdon (e-mail: tbragdon@mainepolicy.org) is director of health reform initiatives for the Maine Heritage Policy Center.

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Earlier this month, Maine's superintendent of insurance, Alessandro Iuppa, quietly announced that Dirigo Health will "save" the Maine health care system $34 million this year.

Unlike traditional savings, this does not mean money in your pocket. Instead, it means $34 million in increased taxes on premiums in order to pay for the Dirigo Health initiative.

All the debate about these "savings" and the resulting tax - in political jargon, the benign-sounding "Savings Offset Payment" - distracts from the harsh reality: Dirigo is a costly, ineffective failure that makes health insurance more expensive for Maine families. Consider these facts:

n Dirigo spends $19.2 million to save $2.5 million. The most visible part of the Dirigo Health initiative is the DirigoChoice insurance product provided through Anthem Blue Cross-Blue Shield.

DirigoChoice was supposed to reach the uninsured. Thereby, it would reduce health costs associated with uncompensated care - the free care hospitals and physicians provide to those without insurance.

Yet, the superintendent's own findings show that the failure to reach the uninsured is the most costly aspect of the Dirigo Health initiative.

According to the Dirigo Health Agency's own financial statements, for the 11 months through May 2006, the agency spent $19.2 million on DirigoChoice (this is true net costs, after employer and net employee payments).

The superintendent stated that Dirigo only reduced uncompensated care by about $2.5 million over 11 months.

Put another way, for every taxpayer dollar spent on the DirigoChoice product, uncompensated care was reduced by just 13 cents. Not a good return on investment by any measure.

The agency spends more on administration than Anthem. In less than one year, Dirigo Health has spent more than $3 million in that area to oversee a handful of agency workers, and that figure includes almost $1.9 million spent on consultants.

Maine Bureau of Insurance data show that Anthem, on the other hand, spends just 11 percent of premiums, less than $2.9 million, to administer DirigoChoice to 10,000 people.

DirigoChoice is losing small-business members. As the Baldacci administration heralds that DirigoChoice now covers over 10,000 people, coverage at small businesses - Dirigo's primary target market - has dropped.

Today, DirigoChoice provides coverage to fewer small-business employees than it did at the end of last year. DirigoChoice is being rejected as a viable small-business health benefit.

Dirigo means more expensive health insurance. In 2004, before the Savings Offset Payment began, Maine's three largest health insurers paid just over $13 million in state and local taxes. Now that figure is more than $23 million.

Before Dirigo Health, Maine's large companies paid no tax on their health benefit. Now, Dirigo charges them a Savings Offset Payment, which is essentially a 2.4 percent health claims tax.

Dirigo has made health insurance and health benefits more expensive, giving businesses yet another reminder of Maine's harsh business climate.

DirigoChoice is not reaching the uninsured. Dirigo Health claimed that 39 percent of DirigoChoice enrollees were previously uninsured. Yet, the superintendent noted that this 39 percent claim was not "reasonably supported by the evidence."

In politics, rhetoric is cheap, but facts seem more difficult to document. The only publicly released DirigoChoice survey was done by the Muskie School last August. That showed just 22 percent of DirigoChoice enrollees were uninsured at time of purchase.

The reality is that Dirigo Health is a costly failure. Dirigo Health is being rejected by small businesses, is raising health care costs and is not reaching the uninsured.

Instead of expending so much time and money trying to find questionable "savings," Mainers would be better served emulating the efforts of other states with lower health insurance costs.

For example, Maine has three insurance carriers selling to small businesses. New Hampshire has 13. Maine has one carrier selling to individuals. New Hampshire has eight.

In Maine, a $2,600 deductible individual Anthem plan costs $290 a month for a 30-year-old male. In New Hampshire, the Anthem plan with just a $1,250 deductible - less than many DirigoChoice plans - costs just $140 a month.

Maine policymakers should focus their efforts on reforming those state insurance laws and regulations that drive up costs and limit options.

If we could give Maine people the same affordable health insurance options that people in New Hampshire have, then we could all calculate our own savings.

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