Our Current Issues

The MEAHP's present focus is helping to improve the state's Dirigo Health reform program.

Our members include some of the most knowledgeable health care experts in Maine and have been involved in the program since its inception.

The following materials provide background on the issue and explain the position of the MEAHP:

• Fact Sheet


• Backgrounder re: Funding Mechanism


• Backgrounder re: Dirigo Enrollment


• Backgrounder re: Impact on Maine Businesses


• News Release re: LD 1935


• Testimony Opposing LD 1935 by Robert Downs of Harvard Pilgrim Health Care


• Testimony Opposing LD 1935 by Erin Hoeflinger, General Manager, Anthem BC & BS


• Testimony Opposing LD 1935 by Daniel R. Fishbein, MD, Head of Health Plan Alliances and Student Health, Aetna

Emphasizing that they continue to support the goals of the Dirigo Health Reform Legislation of 2003, the Maine State Chamber of Commerce, the Maine Hospital Association of Health Plans has released a proposal to ensure the long-term viability of the Dirigo Health Program.

• News Release re: Coalition Proposes Changes to Dirigo


• Text of Coalition's Dirigo Proposal

FACT SHEET ON DIRIGOCHOICE

• The goals of the State's Dirigo Health reform effort - to insure the uninsured, to control the growth in health care costs, and to improve the quality of health care in Maine - are laudable and deserve support.


• However, it's deeply flawed funding mechanism is hurting the program and could lead to increased costs and less choice for Maine businesses and consumers.


• Beginning in 2006, Dirigo Health is assessing a new fee, called the Savings Offset Payment, on insurance companies and third-party administrators that is supposed to capture "savings" in the health care system created by Dirigo.


• The State claims $43.7 million in "savings." But that number reflects savings to the entire health care system - including those with publicly-funded health care. Savings to those with private insurers have been far less than that.


• The Maine State Chamber of Commerce and other employer groups, including insurance carriers, have filed lawsuits appealing a fee they say is arbitrary, unscientific and excessive. They want a sound methodology that measures actual savings to those who are responsible for paying the assessment.


• To the extent that the Savings Offset Payment is greater than actual savings to Maine's privately insured, the $43.7 million Dirigo assessment will mean higher premiums for the many thousands of working Mainers and their employers who purchase health insurance outside the Dirigo system.


• Rather than resolve - or even address - the problems with Dirigo Choice, Gov. Baldacci and some lawmakers are supporting legislation that would break the compromise that was carefully negotiated in 2003. LD 1935, "An Act to Protect Health Insurance Consumers" would prohibit insurers from recovering a cost of doing business in their products. The bill is punitive, discriminatory and sets a terrible precedent for businesses operating in Maine.


• Insurers already reflect savings in their rates. Requiring them to swallow the savings offset payments effectively makes them pay it twice. The Governor admits it. In his State of the State speech he said, "Dirigo saves money. Rate increases for small business are half what they cost last year."


• Passage of LD 1935 could force insurance companies to reconsider their participation in the Maine market. Besides driving up costs, this would greatly reduce the choices for businesses when considering health insurance options for their employees.


• Another bill, LD 1845, permits the state to set up its own insurance company without legislative approval. Perhaps that is the plan. Drive out insurers with a confiscatory tax that must be absorbed and establish a state-run system.


• The Governor has promoted Dirigo as a public-private partnership. But if he continues to ignore the concerns of the business community and private insurers, support will dwindle and the program will become far less private and much more public.


• The insurance companies operating in Maine want to support Dirigo, but the DirigoChoice program is broken and needs to be fixed. It needs a realistic and reliable funding source and more affordable products to be more widely available in the market with subsidies targeted to those who need it most.


• Business and insurance leaders have offered to sit down with the Governor, lawmakers, and Dirigo representatives to find solutions, but so far the overtures have been rebuffed. The offer stands.

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Article published in the Portland Press Herald, February 2006

Flawed DirigoChoice Needs to be Fixed, not Politicized

DirigoChoice is broken and needs to be fixed, not politicized.

Its funding mechanism is deeply flawed and efforts to enroll uninsured Mainers are falling far short. Without modifications, DirigoChoice will cause health care costs for Maine employers and workers to go up, not down.

The Maine Association of Health Plans (MEAHP), a non-profit trade organization that represents the state's four major health insurers, supports the goals of the state-sponsored Dirigo Health program - to insure the uninsured, contain health care costs and improve the quality of care.

That's why we were dismayed by a recent column in the Portland Press Herald written by Pat Colwell, the chairman of the Maine Democratic Party. Colwell used exaggerations and blatant mischaracterizations to demonize Maine's insurance industry and imply that partisanship is at the root of opposition to DirigoChoice.

But this issue is too important to the working people of Maine to get bogged down in political finger pointing and posturing. The focus needs to stay on doing what is right and what is in the best interest of Maine citizens.

DirigoChoice requires major changes to its funding or it will not reach any of its goals.

To continue to fund the program now and into the future, the Dirigo law permits the State to assess a new fee on insurance companies and third-party administrators. The fee, called the Savings Offset Payment or SOP, seeks to capture "savings" in the health care system created by Dirigo. The State has set that assessment at $43.7 million for 2006.

But the mechanism used to calculate the so-called savings is unscientific, arbitrary and subjective. This is why we and others are challenging the savings calculations in court..

From our vantage point on the ground, indications are that the actual savings experienced by those with private health insurance are much smaller

The State already has spent more than $30 million on a program that is providing health coverage to fewer than 4,000 Mainers who were previously uninsured. The total number enrolled is about 9,000, well below the State's original projections.

The reality is that Dirigo is not generating enough savings, its product offerings are very limited, the benefits are not flexible and the products cost employers no less than those currently available from other carriers. As a result, Dirigo's expenses are very high and the State is trying to impose a new business tax to keep it afloat.

To the extent that savings to the private market are less than the SOP, the $43.7 million assessment will mean higher premiums for the many thousands of working Mainers and their employers who purchase health insurance outside the DirigoChoice program. Health insurers cannot absorb the fee because any savings they see in expenses are already passed on to customers as part of the regulated rate setting process.

So this burden falls squarely on the shoulders of Maine's business community and working men and women.

Additionally, the savings identified by the Superintendent of Insurance apply to the whole market even though roughly half of the market is covered by public payors. Basically, the State is asking half of the population to pay for 100 percent of the questionable savings. That's not right.

Some legislators are trying to disguise the failings of the program by pushing new legislation, LD 1935, that would prohibit insurers from passing on the assessment to policy holders. This bill would set a bad precedent by creating a new tax on health insurers. In turn, it could end up driving up costs while reducing health insurance options.

We want to help find solutions. We understand the issues. The program needs a credible, reliable funding mechanism that is more broad-based and fair. The benefit plan needs to be more competitive with existing products. The enrollment processes can be streamlined.

We have a vested interest in seeing Dirigo Health succeed. We provide health insurance to 665,000 Maine workers, and employ thousands of Maine people who would be hurt by a failed program.

Working together, we can fix DirigoChoice.

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Article published in the Lewiston Sun Journal, Sunday, Feb. 12, 2006

DirigoChoice Enrollment Falls Short, Need for Overhaul Looms Large

DirigoChoice, the insurance component of the state-sponsored Dirigo Health program, is sputtering and in need of an overhaul.

One of the primary goals of Dirigo Health is to insure the previously uninsured by providing Maine small businesses and individuals with an affordable, high-quality option for health coverage.

A laudable aim, to be sure, and one that we support. But DirigoChoice is failing far short.

Enrollment projections are way off, small business owners are staying away in droves, and the vast majority of those who have signed up already had private health insurance.

DirigoChoice was created to cover uninsured Mainers. State officials originally claimed that Dirigo would provide health insurance to 130,000 uninsured Mainers in five years. Officials also projected that 57,000 residents would be enrolled after the first year. Those projections were later modified to 31,000 first-year enrollees, then to 21,000 signed up by the end of 2006.

In truth, with the program's first year now in the books, the total number enrolled is about 9,000 - about 70 percent below projections - with fewer than 4,000 of those being Mainers who were previously uninsured. (And DirigoChoice has not been completely forthcoming with its numbers; the published enrollment amount includes more than 1,200 who enrolled and then dropped out in the first year.)

Dirigo is not helping the uninsured in the numbers once projected. But it is spending a lot of money trying.

The Dirigo Health Agency already has spent more than $30 million to launch the program and provide subsidies in the first year. Now, the State is seeking $43.7 million in "recovered" health system savings, called the Savings Offset Payment, from private insurance companies and third-party administrators to fund the ailing program for 2006.

The numbers certainly paint a bleak picture.

DirigoChoice is falling so far short because its product offerings are very limited, the benefits are not flexible and the products cost employers no less than those currently available from other carriers.

Small businesses have been reluctant to buy DirigoChoice coverage for their employees because even with the subsidies, the program still costs too much. The difference in premium costs between private insurers and DirigoChoice is minimal.

And for small businesses that do offer coverage to employees, DirigoChoice just isn't that appealing. The health plan offers only two choices, one with a $1,250 deductible and the other at $1750, while private carriers offer far more extensive and flexible options.

Still, privately insured individuals and small businesses have been the best customers. But since most dropped their private coverage for DirigoChoice, the program is exhausting its budget while doing little to help the previously uninsured.

As a result, Dirigo's expenses remain very high and the State is trying to impose a new $43.7 million business tax to keep it afloat.

Clearly, DirigoChoice is not measuring up. The domino effect of Its failings are at the root of the ongoing controversy over funding that threatens to doom the entire Dirigo Health reform effort.

DirigoChoice is not attracting customers, so savings are not getting generated as projected. And to the extent that savings to the private market are less than the Savings Offset Payment, the difference will get passed on to the many thousands of working Mainers and their employers who purchase health insurance outside the DirigoChoice program.

So this burden falls squarely on the shoulders of Maine's business community and working men and women.

Additionally, since the $43.7 million in purported "savings" to Maine citizens is to be collected only from the 55 percent or so of Mainers who are privately insured, the State is asking roughly half of Maine's population to pay for 100 percent of the savings.

That's not right. As a result, the State's actions have triggered legal battles and led to questionable new legislation that is creating even more acrimony and ill will.

The Maine Association of Health Plans (MEAHP), a non-profit trade organization that represents the state's four major health insurers, supports the goals of the state-sponsored Dirigo Health program - to insure the uninsured, contain health care costs and improve the quality of care.

But we recognize that the effort will fail without an overhaul of DirigoChoice.

We understand the issues and want to help find solutions. The benefit plan needs to be more competitive with existing products. The enrollment process can be streamlined, and the focus should be shifted to target the uninsured. Also, the program needs a credible, reliable funding mechanism that is more broad-based and fair.

Working together, we can fix DirigoChoice.

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Article describing the impact on business and employees

Burden of Financing of Dirigo Health Program Falls on Shoulders of Maine Workers and Business Owners

Without a significant overhaul, the burden of financing the Dirigo Health program will fall squarely on the shoulders of Maine's working men and women and their employers.

That is why it is vitally important for Maine's business community to continue to push for fundamental changes in the way Dirigo is funded, and to oppose pending legislation, LD 1935, that would make the problem go from bad to worse.

Dirigo can be fixed by working together. The goals of the State's Dirigo Health reform effort are laudable and deserve support - to insure the uninsured, to control the growth in health care costs; and to improve the quality of health care for all Mainers.

The problem has been the way the program is funded. Simply put, Dirigo's financing mechanism is broken and needs fundamental redesign.

When initially crafted, the Dirigo funding "stool" was to be supported by three "legs":

$50 million in federal startup funds for the first-year launch and initial subsidies.

Federal Medicaid matching funds.

The savings offset payment (SOP), an assessment on private insurance carriers and third-party administrators designed to "offset" the savings in health care costs from Dirigo.

But with the second year of Dirigo now underway, the initial funding is running out and the federal government has given no indication that it will match employer contributions with Medicaid funds.

Dirigo is teetering, and the burden is now on the SOP to prevent it from crashing down.

When the Maine Legislature adopted the Dirigo Health Act, it was agreed that any savings resulting from Dirigo and the related offset payments would be included together in premium rates.

In other words, insurance carriers are required to pass the Dirigo savings through to customers, and also are permitted to pass through the offset payment. The net result was intended to be "a wash" - savings would equal or exceed the cost of the SOP, so there would be no net cost to businesses.

It hasn't turned out that way. In reality, savings attributable to Dirigo among those with private insurers have been far, far less than the $43.7 million "savings" assessment imposed by the State.

As a result, to the extent that the SOP is greater than actual savings to Maine's privately insured, the $43.7 Dirigo assessment equates to a tax that will mean higher premiums for the many thousands of working Mainers and their employers who purchase health insurance outside the Dirigo system.

Look a little deeper at who will be responsible for paying this new tax, and the unfairness of the present flawed funding mechanism becomes even more glaring.

Only privately insured individual and small group policyholders and large Maine-based companies using a third-party administrator, an outside person or firm administering insurance claims, are assessed the savings offset payment. Those parameters represents less than half of Mainers.

Businesses that issue their policies out of state are exempt, as are employers who have chosen not to cover their employees.

The end result is that fewer than half of all Mainers are responsible for funding a Dirigo Health program that benefits all Maine residents. Also, consider that Dirigo is adding to the costs of insurance for the employers who offer private coverage, while charging nothing to those who don't.

The Maine State Chamber of Commerce and other employer groups, including insurance carriers, have filed lawsuits appealing an assessment they say is arbitrary, unscientific and excessive. They want a sound methodology that measures actual savings to those who are responsible for paying the assessment.

Compounding the funding dilemma is the fact that the Dirigo insurance product, DirigoChoice, which was created to cover uninsured Mainers, is sputtering. Enrollment projections are way off, small business owners are staying away in droves, and the vast majority of those who have signed up already had private health insurance.

DirigoChoice is falling so far short because its product offerings are very limited, the benefits are not flexible and the products cost employers no less than those currently available from other carriers.

But rather than try to fix the problems with the funding mechanism and DirigoChoice, some lawmakers are supporting LD 1935, which would prohibit private insurers from recovering a cost of doing business - the SOP tax - in their products. The bill is punitive, discriminatory and sets a terrible precedent for all business operating in Maine.

The bill breaks a negotiated compromise reached between businesses, carriers, providers and the Governor's office while crafting Dirigo in 2003. They agreed that both savings and the SOP would be passed through in premiums, and built in other safeguards to ensure that carriers would not profit from the savings.

LD 1935 violates that reasonable agreement. It would require insurers to continue to pass the Dirigo savings through to customers, but prohibit insurers from passing on the SOP in premiums. In other words, insurers would be asked to pay the SOP like a tax, and not recoup it as a cost of doing business.

The impact of this bill would rumble through the business community and Maine's economy. Saddled with the new tax, carriers, who employ thousands of Maine workers, would inevitably need to reassess their continuation in the state's health insurance market.

Less competition in the insurance market would result in higher costs and less choice for Maine's business owners and individual customers.

Passage of the bill could also set the stage for the state to set up its own insurance company, which could lead to an unleveled playing field in which the state subsidizes the purchase of its own product by taxing its competitors and pays providers lower reimbursement rates.

These are disturbing scenarios. For Dirigo Health to succeed, LD 1935 needs to be defeated, and Dirigo's funding mechanism and DirigoChoice need to be repaired.

This is a vital issue for Maine's business community and working men and women. It comes down to a matter of fairness and doing what is right for Maine. But working together and with cooperation from all parties, Dirigo can be fixed.

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News Release re: LD 1935

LD 1935 is Unfair, Punitive, Counterproductive and Bad for Maine Businesses, Group Says

Maine Association of Health Plans urges Opposition to LD 1935

AUGUSTA, Maine - The Maine Association of Health Plans (MEAHP) is calling for the Legislature to reject LD 1935, saying the pending bill is unfair, sets a terrible precedent and is bad for Maine businesses and working men and women.

The MEAHP is urging opposition to LD 1935 at a public hearing on Tuesday, February 14, before the Insurance and Financial Services Committee in Augusta. The hearing is scheduled for 2:30 p.m. in Room 208 of the Cross Office Building.

The bill would require insurance companies to continue to pass any savings from the Dirigo Health reform program through to customers, but prohibit insurers from recouping the cost of funding Dirigo.

The state has imposed a $43.7 million assessment, called the 'savings offset payment', on private insurers and third-party administrators to finance Dirigo, including its shaky insurance component, DirigoChoice.

If passed, LD 1935 would force insurers to "eat" what is essentially a tax without allowing them to build it into the price of their product, setting a bad precedent for Maine businesses.

The bill also violates a negotiated compromise between businesses, carriers, providers and the Governor's office in 2003 that permitted both savings and the cost of Dirigo to be passed through in premiums, creating a "wash."

"We agree that insurance carriers should not profit from any savings that result from Dirigo; that is why any savings are built into premiums and directly benefit premium payers," said Katherine Pelletreau, executive director of MEAHP, a non-profit trade organization that represents the state's four major health insurers.

"But at the same time, everyone agreed in the original Dirigo legislation that the savings offset payment could be recouped," she added. "LD 1935 breaks that promise and must be defeated."

If passed, Pelletreau said, the financial impact of LD 1935 could prompt insurance carriers to reassess their continuation in the state's health insurance market

Less competition would result in higher costs and less choice for Maine's business owners and individual customers.

That is why a host of trade and Chamber associations - and business of all sizes across Maine - are lined up against LD 1935.

Passage of the bill also could set the stage for the state to set up its own insurance company, which could lead to an unlevel competitive playing field, she said.

The MEAHP supports the goals of the Dirigo Health reform effort - to insure the uninsured, to control the growth in health care costs, and to improve the quality of heath care in Maine.

At the same time, she said, the MEAHP recognizes that the funding mechanism for Dirigo is broken, and has called for all parties to work together to fix Dirigo.

LD 1935 is counterproductive to finding a solution and getting Dirigo on track, she said.

"This bill is unnecessary and unfair, and does nothing to address the underlying problem with the funding mechanism for Dirigo," Pelletreau said. "We stand ready to work with the state to find a solution to the concerns about Dirigo. LD 1935 will only serve to undermine that effort."

About the Maine Association of Health Plans
The MEAHP is a non-profit trade organization that represents the state's four major health insurers - Aetna, Inc., Anthem Blue Cross and Blue Shield, CIGNA HealthCare of Maine, Inc. and Harvard Pilgrim Health Care. Collectively, the members provide health insurance coverage for roughly 665,000 Maine people.

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TESTIMONY OF ROBERT K. DOWNS
DIRECTOR, MAINE OPERATIONS AND DEVELOPMENT
HARVARD PILGRIM HEALTH CARE
BEFORE THE INSURANCE AND FINANCIAL SERVICES COMMITTEE
REGARDING LD 1935
February 14, 2006

Good afternoon. My name is Robert Downs. I am the Director of Maine Operations and Development for Harvard Pilgrim Health Care. Thank you for the opportunity to explain Harvard Pilgrim’s opposition to LD 1935.

As many of you are aware, Harvard Pilgrim is a not-for-profit health plan serving Maine, New Hampshire and Massachusetts. We are proud to have been recently named America’s best health plan by U.S. News and World Report. We currently serve over 25,000 Maine residents and are committed to the Maine market. Consistent with that commitment and in response to market demands, we recently launched a PPO plan in Maine. Last year, we acquired Health Plans, Inc., a third party administrator, allowing us to better meet the needs of employers seeking self-funded options.

Proponents of LD 1935 argue that this legislation is needed because health plans are keeping the savings attributable to Dirigo instead of passing them onto to their customers. This is simply not the case. Any savings due to Dirigo — or any other factor — are reflected in the claim trends we use to set premiums. As such, in order for the premium rates we charge to be actuarially sound, it is necessary for us to include the Savings Offset Payment in those rates. In the end, Harvard Pilgrim will neither make nor lose any money as a result of the Dirigo and the SOP. We will pass through any savings that have resulted from Dirigo and we will pass through the SOP. This was the understanding that existed at the time the original Dirigo law was enacted.

By requiring us to pass through the savings, but not the SOP, LD 1935 would essentially require us to operate at loss in Maine. As a result, we would need to use reserves to pay the SOP. While we support the goals of the Dirigo Health Program, we do not believe that it would be wise to fund the program using reserves that exist to protect members and providers in the event of a sharp and unexpected increase in health care expenses, which could occur if, for example, there were to be a flu pandemic.

While Harvard Pilgrim continues to support the goals of the Dirigo program, the Savings Offset Payment is a severely flawed funding mechanism. Enactment of LD 1935 would only make matters worse. We urge this Committee to reject it. Instead, we respectfully ask that the Committee work with interested parties to identify appropriate and sustainable funding streams for Dirigo, including ways that the State can generate federal matching funds for the program as was originally envisioned. Harvard Pilgrim would welcome the opportunity to be part of this effort. Thank you for your time and attention.

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Testimony of Erin Hoeflinger, President
Anthem Blue Cross and Blue Shield of Maine
in Strong Opposition to LD 1935
"An Act to Protect Health Insurance Consumers."
February 14, 2006

Senator Sullivan, Representative Perry and Distinguished Members of the Joint Standing Committee on Insurance and Financial Services, I am Erin Hoeflinger, President of Anthem Blue Cross and Blue Shield of Maine, and I am here to testify in strong opposition to LD 1935, "An Act to Protect Health Insurance Consumers."

First, let me start by saying how proud I am that Anthem Blue Cross and Blue Shield offers DirigoChoice. The relationship between Anthem Blue Cross Blue Shield and the Dirigo Health Agency is a unique public/private partnership. I continue to believe that a public-private partnership is the best way to achieve Dirigo Health’s goals: to provide access to health insurance for the uninsured; to improve the quality of health care; and, very importantly, to improve the affordability of health care for Maine people. Our support for these goals is unwavering.

That is not to say that there have not been challenges along the way. Foremost among them is DirigoChoice’s funding mechanism, known as the Savings Offset Payment (SOP). It has become evident that the funding mechanism is broken and this bill will not solve that problem. In fact, this bill will exacerbate the need to find a sustainable funding structure that supports the goals of reaching the uninsured and addressing the cost and quality of health care and health insurance — not just for DirigoChoice members but for all Mainers purchasing insurance. We must ensure an equitable and just solution to the problem. We also must stop assessing blame and bring all the stakeholders together to find a resolution.

The rhetoric surrounding this bill has created several important misperceptions. I hope to clarify the issues and to give you a better understanding of the consequences that could result from passage of this legislation.

Misperception: If this bill passes, the problems surrounding the Savings Offset Payment will disappear

As a practical matter, if carriers are required to absorb their portion of the SOP, the program will not be sustainable. As the program grows, the "savings" will increase to the point where carriers and TPA’s will be assessed the full 4% of paid claims as allowed by law. Should carriers be forced to absorb the SOP this year, it will likely have a very negative impact on the private insurance market in Maine. And should that amount increase over time, you can be certain that you will have very little, if any, competition left in the private health insurance market which covers over 60% of Maine’s population.

Furthermore, if DirigoChoice becomes more successful in reaching its target audience and signing people up for coverage, the maximum assessment of 4% of paid claims will not come close to providing the funds necessary to cover significantly increased enrollment in the program.

That would be a disastrous outcome for Maine’s citizens, Maine businesses and Maine’s economy.

Misperception: Insurance companies are profiting from Dirigo Health created savings

In much of the rhetoric that has characterized the public debate surrounding this bill, I have repeatedly heard the assertion that health insurance companies should not profit from Dirigo Health created savings. As President of Maine’s largest health insurer, I am here to tell you that I couldn’t agree more! Dirigo Health related savings belong to Maine employers and employees who are investing in health insurance coverage. That is why Anthem Blue Cross Blue Shield’s 2006 premium rates include all savings that we have realized in our hospital and provider contracts — those related to Dirigo Health initiatives as well as all other savings. I have attached a chart showing the significant decline in Anthem Blue Cross and Blue Shield’s small group rate increases over the last 5 years. Those numbers clearly demonstrate that all savings — whether from Dirigo initiatives or general market forces — are being passed along in our premiums.

And this process is memorialized in the Dirigo Health Act itself. It was the original intent of the Savings Offset Payment — and the reason that the assessment could legitimately be called a savings offset payment instead of a tax. Any savings that resulted from Dirigo Health initiatives were intended to offset this payment. The law further added the protections of small group rate regulation for carriers and requirements that carriers and hospitals make their "best efforts" to capture savings that result from Dirigo. We are fully complying with both provisions.

In fact, in his 2005 Decision and Order on Anthem Blue Cross and Blue Shield’s individual product rate filing, Maine’s chief insurance regulator, the Superintendent of Insurance, concluded that "Anthem has made best efforts to ensure recovery of the savings offset payment through negotiated reimbursement rates with health care providers that reflect the health care providers’ savings as a result of Dirigo health care initiatives. Therefore, Anthem may include a charge in its rates for the actual savings offset payment."

LD 1935 would require any recovered savings to be included in customers’ rates, yet prohibit the related offset payment from being included. In essence, this bill would require the insurer to pay twice: by including projected savings and by paying the offset payment. Businesses, insurers included, cannot afford to stay in business and employ Maine people if they can’t recover their costs in their products.

Misperception: Insurance companies make exorbitant profits that could be used to fund Dirigo Health

Maine’s commercial health insurance market is small, and its regulations strict. And no company — for profit or not for profit — can survive if it can not cover its costs and make a reasonable return at the end of the day. Insurers are no different. We must make a reasonable rate of return if we are going to stay in business. As the attached graph shows, Anthem Blue Cross Blue Shield’s rate of increase in small group premiums has been trending downward — a reflection of increased efficiencies including lower administrative costs and the overall cost of medical care. Over 80 cents of every premium dollar pays directly for members’ health care claims. And I am proud to tell you that our administrative costs -- the portion of premiums that we do fully control — have been reduced by approximately 20% in the last two years. As member’s claims expense moderates and administrative costs decrease, so do the rate of increase in premiums.

What does a reasonable rate for return mean for Maine people?

• It means that Anthem Blue Cross Blue Shield can employ 1100 Maine people in good jobs with excellent benefits.
• It means that Anthem can afford to bring several hundred jobs to Maine that support other lines of business in other states.
• It means that Anthem Blue Cross Blue Shield continues to actively sell policies in a very challenging individual market — despite losses of over $3 million in 2005 in this line of business.
• It means that we can invest in our communities for health related programs and other worthy causes. In 2005, we had the resources to invest over $2 million dollars to improve the health of Maine’s communities.
• And it means that we have the capital to take risks on new ideas — one of the largest risks that Anthem Blue Cross and Blue Shield has funded in the last few years was our partnership with the Dirigo Health Agency to provide DirigoChoice. Anthem Blue Cross and Blue Shield invested over $1 million dollars in starting DirigoChoice — that’s one million dollars in a risky two year contract. We could not afford to make that kind of investment if we did not make a reasonable rate of return.

If this bill passes, it will severely limit our ability to take these kinds of risks and make investments that benefit the people of Maine.

Misperception: Insurance companies have bloated administrative bureaucracies - the State could do a better job for lower cost

There is a great deal of misinformation comparing the administrative costs of private carriers to Medicaid and Medicare, with the implication that carriers can afford to pay this tax by becoming more efficient. The reality is, we operate in a highly competitive market in which reducing our administrative costs is the only component of the premium our customers pay that we directly control. We have every incentive to be as efficient as possible.

There are several major differences between state-operated programs and private carriers:

Medicaid is not a state-operated insurance company:

• It doesn’t take risk;
• It doesn’t negotiate contracts with providers;
• It doesn’t collect insurance premiums from customers;
• It doesn’t work with a producer community or pay commissions;
• And it doesn’t operate in a competitive environment.
• When the State runs out of money, it prolongs its payments to providers or cuts benefits.

Can you imagine a scenario in which carriers owed hospitals hundreds of millions of dollars in back payments? In fact, carriers are charged interest if they pay a claim more than 30 days after it was submitted!

While we are always working to create greater efficiency, I do not believe that the comparison between private carriers and government programs is fair or accurate. I have attached a graph that demonstrates that our administrative costs have actually been decreasing over the last several years.

The bill before you assumes that insurance carriers could absorb this new tax without significant ramifications to Maine’s private insurance market.

I am here to tell you that that simply is not true.

The assumptions behind this bill are dangerously inaccurate.

If this bill passes, it is not just insurance companies who will be forced to pay, but also Maine’s employers and employees.

I firmly believe that the state should be actively encouraging greater competition among insurers — not between the State and the market

I join many others when I say that Dirigo’s house is clearly in need of repairs. We stand ready to work together with other stakeholders — including the Maine Hospital Association, the Maine Association of Health Plans and the State Chamber -- to make the repairs. Please don’t burn down the town in an effort to fix Dirigo’s house without attempting to repair the problems.

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Memo in Opposition to LD 1935
Testimony of Daniel R. Fishbein, MD
Head of Health Plan Alliances and Student Health, Aetna

Senators, Representatives and members of the Insurance and Financial Services Committee, thank you for the opportunity to speak with you today on L.D. 1935. My name is Dr. Dan Fishbein, and I am the Head of the Health Plan Alliances and Student Health businesses for Aetna. I live in Maine and have worked in Portland for 10 years. Aetna has 205 employees working in Maine, 127 retirees living here, and we are proud to say we just built a brand new office in South Portland. The new building houses our East Region disability services center, and services for our health plan enrollees in Maine. Aetna covers close to 100,000 people in Maine. We have contracts with 39 hospitals and over 2500 physicians. In 2004-2005, Aetna paid $8 million in salary and wages to Maine employees, about $610,000 in employee taxes, and approximately $400 million in benefits.

I am here today to testify on behalf of Aetna in opposition to LD 1935.

Today you are hearing from a number of people who are making claims that I need to set the record straight on.

First, you are hearing from some that insurance companies are keeping the savings generated by Dirigo, and that L.D. 1935 is needed to keep them from holding on to those savings. They may not understand how premiums are determined, or perhaps they have other motives, but this is simply not true. Let me state it clearly, upfront - any savings created by Dirigo are being returned, and will be returned, to customers in the form of lower insurance premiums. Insurance companies do not and cannot keep those savings. Premiums are based on the medical costs that occur. If Dirigo has made those costs lower, then the premiums reflect those lower costs. This is not only standard industry practice, but it is the law in Maine. The method used to create premiums in Maine is regulated by the Bureau of Insurance, and must reflect actual costs. Period. No new law is needed to ensure this.

Second, you are hearing that insurance companies somehow are violating a deal that was reached when Dirigo was first passed. Unlike many of the people talking to you today, I was there. The deal was that the Savings Offset Payment was to be included in premiums, along with the savings. But you don't have to take my word for it - it's written clearly right in the Dirigo law. What would break that deal is L.D. 1935- it would continue to require that savings be passed along to customers (as they should be), but it would then require that insurance companies pay the Savings Offset Payment from their own funds. This completely breaks both the deal that led to the passage of Dirigo, but more importantly, the whole concept of the Savings Offset. Since the savings are passed on to customers, it was always intended that the customers would also pay the Savings Offset. By having the customers receive the savings, and someone else make the payment, it turns from an offset payment into a punitive tax.

Let's also look at what L.D. 1935 actually says. Its supporters claim that all that L.D. 1935 does is require insurance companies to pay the Savings Offset. They say that insurers will be keeping the savings, and imply that this is ok as long as the insurers pay the Savings Offset. But a reading of L.D. 1935's actual language reveals that it says something entirely different- it requires insurers to pay the Savings Offset and it also explicitly requires insurers to return all savings to customers. Effectively it requires insurers to pay twice.

Think about what is being said here - if you are a big company, the state should just seize money from that company, because it will go to a good cause. In reality, the $43.7 Million Savings Offset Payment exceeds the total profits of the health insurance industry in Maine during most of the past 10 years. But beyond that, imagine the precedent that would be set by imposing a tax that a business is legally prevented from recovering in any way. How would this be different from telling a business that it must pay sales taxes, but can't charge the sales taxes to its customers? This seems to run directly counter to all that the legislature is trying to accomplish in economic development, attracting businesses here to Maine. If you were thinking of relocating a business to Maine, wouldn't this give you pause?

Covering the uninsured presents tremendous challenges. Aetna is addressing those challenges by offering solutions of our own for the uninsured. For the past two years I have been in a national role for Aetna, leading businesses that are heavily involved in bringing new products to the market that are designed for uninsured populations. What we have learned is that the uninsured are not a uniform group of people, with a single set of needs that can be met by a single product. The uninsured consist of a number of separate groups- college students, young people who can buy insurance but choose not to, working families, some of whom have access to insurance, and some who don't, and early retirees. We also have found that the uninsured cut across all income levels. We have developed unique product offerings designed to appeal to each of these groups. We have introduced unique products for college students, for recent graduates in a number of states, for part-time and hourly workers, who are almost always uninsured, for sole proprietors, for those who work for small businesses and for early retirees. In Maine, since Dirigo began, we have introduced 16 new small group products, expanded our college student market, and introduced part-time and hourly worker and early retiree products. During that time we have added thousands of new members in the same categories that Dirigo is targeting. There is much we are doing and have to offer in helping to address this issue, and we stand ready to do more.

Let me close by telling you a bit about our industry and our people. Right now Maine has 4 strong health insurers, that cover over 665,000 people. The insurance industry is one of Maine's largest industries, employing nearly 10,000 people- your friends, your neighbors, your constituents. Thousands of those people are involved in health insurance. We contribute about $2 billion a year to the Maine economy in wages, taxes, benefits and investments. This is an important industry in Maine's economy that provides a critical set of services to our fellow citizens. This is an industry right here in Maine, that employs Maine people.

And let me share something with you about our people. At our new office in South Portland we now have over 200 people. They are outstanding people who do great things for Maine people everyday- they help patients get the care they need, they help doctors and nurses provide care and get it paid for, they work with families in dealing with illness, they help injured workers recover and return to making a living, and they help businesses to select and receive the best possible employee benefits. I am proud of them- and you should be too.

We would like the opportunity to offer our expertise and experience to you, to answer your questions and provide assistance as you continue to work toward covering Maine's uninsured. It's time for real solutions. Thank you again for your time today. If you have any questions, I'd be happy to answer them.

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News Release re: Coalition Proposal

Coalition Proposes Changes to Dirigo

Proposal would ensure long-term viability of insurance program

AUGUSTA, Maine (March 9, 2006) – Emphasizing that they continue to support the goals of the Dirigo Health Reform Legislation of 2003, the Maine State Chamber of Commerce, the Maine Hospital Association and the Maine Association of Health Plans today released a proposal to ensure the long-term viability of the Dirigo Health Program.

"Our three organizations have formed this partnership because of our shared commitment to ensure that the people of Maine have access to health care coverage and services," said Dana Connors, President of the Maine State Chamber of Commerce. "As major players in Maine's business and health care communities, we offer this proposal as a constructive alternative to LD 1935, and as a means of ensuring the long-term viability of the Dirigo Health Program. We want to reduce the number of uninsured and improve the health of Maine citizens. We believe strongly that only through such a collaborative effort can success be achieved."

The three associations propose to:

• Replace the flawed and legally challenged savings offset payment with existing and new funding to provide immediate financial stability to Dirigo Health;
  
• Create an Independent Commission to focus on improving the Dirigo Health program's ability to meet the needs of Maine's uninsured and to identify other public and private initiatives that would further our mutual goals of improving the affordability of health insurance and reducing the number of uninsured in Maine.

"We believe that fundamental changes to both the funding of the Dirigo Health program and to the DirigoChoice product itself would improve the Dirigo Program's ability to achieve its goals of reduced cost, increased access and improved quality," said Erin Hoeflinger, Chair of the Maine Association of Health Plans. "We also believe these changes will make the Dirigo Program more viable and sustainable into the future."

In the short-term, the coalition has identified a one-time funding solution to replace the 2006 Savings Offset Payment with no reduction in DirigoChoice enrollment and no new taxes to carry the program through March of 2007, at which time a sustainable, long-term funding mechanism will be in place.

The proposed Independent Commission would be charged with recommending a more sustainable and reliable approach to funding the Dirigo Health Program. In addition, the Commission would evaluate a number of components, including the structure and benefit design of DirigoChoice and the subsidy program, as well as recommendations on market reforms that could improve the affordability of health insurance for all people.

The proposal is, in part, a response to LD 1935 "An Act to Protect Health Insurance Consumers" which would prohibit health insurance companies from including the cost of the Savings Offset Payment in their premiums. The Savings Offset Payment is the primary means of funding Dirigo and has been the subject of much controversy.

"As noted in our proposal, the Savings Offset Payment is flawed, fraught with uncertainty, and, ultimately, counter productive," said Steven Michaud, President of the Maine Hospital Association. "It places the burden of financing the program on those employers and individuals who struggle to afford their own health insurance coverage."

"Dirigo has not reached enough of its target populations—uninsured small businesses and uninsured individuals -- to significantly reduce the cost of bad debt and charity care of hospitals," Michaud stated, adding "The reductions in bad debt and charity care were the premise behind the original Savings Offset Payment proposal."

The three groups emphasized that they want to improve DirigoChoice by refocusing the program to better enable it to achieve the goals of reducing cost, increasing access and improving quality.

"The Dirigo Health Program has already made significant progress in the area of quality and we believe that there is much potential to be realized in the program's cost containment efforts," said Dana Connors. "We support the goals of this program and stand ready to work with the Legislature, the executive branch, and other stakeholders to improve affordability and expand access to health insurance for uninsured Maine people."

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Dirigo Health Proposal

March 9, 2006

Introduction

As we testified at the February 14, 2006 public hearing on L.D. 1935, "An Act to Protect Health Insurance Consumers," the Maine State Chamber of Commerce, the Maine Hospital Association and the Maine Association of Health Plans continue to support the goals of the Dirigo Health Reform Legislation of 2003. However, we believe that fundamental changes to both the funding of the Dirigo Health program and to the DirigoChoice product itself would substantially improve the Dirigo Health program's ability to achieve its goals of reduced cost, increased access and improved quality and be viable and sustainable into the future. We offer this proposal as a constructive alternative to LD 1935, and as a means of ensuring the long-term viability of the Dirigo Health Program.

The Dirigo Health program has already achieved great strides in the area of quality and we believe that there is much potential to be realized in the program's cost containment efforts. We support this progress, and stand ready to work with the Legislature, the Executive branch and other stakeholders to improve efforts to expand access to health insurance for uninsured Maine people, as well.

Though we often represent different interests, our members are united around this issue because, ultimately, all three associations represent Maine businesses and Maine employers. We have a vested interest in increasing the number of Mainers covered by health insurance and reducing health care costs in this State. If we can increase access and reduce the cost of health care, we benefit all Mainers by improving the health of Maine people, our business climate and the cost of living and working here.

Working Together, We Can Improve the Dirigo Health Program

Our associations have identified two primary opportunities to improve the Dirigo health insurance program, DirigoChoice:

• The program's funding mechanism (the Savings Offset Payment or "SOP") is flawed, controversial, fraught with uncertainty and, ultimately, counterproductive; it places the burden of financing the program on those employers and individuals who struggle to afford their own health insurance coverage;The program has failed to reach enough of its target populations—uninsured small businesses and uninsured individuals. As a result, the program has not attracted the uninsured in the numbers that are necessary to successfully effect a significant reduction in the cost of bad debt and charity care.
  
  
• Though we have identified these key areas in need of improvement, we continue to support the goals of the Dirigo Health program. We believe, however, that adjustments to the program must be made if it is going to survive and be effective.
  

Proposal

Improvements to DirigoChoice must be made in a thoughtful and thorough manner, must be based on data, and must involve the input and support of key stakeholders. We believe that a well-constructed process for identifying such improvements will take time, so we have developed a two-part proposal that addresses both the short-term funding needs of the subsidy program and the longer-term programmatic improvements needed to ensure the long-term sustainability of DirigoChoice.

Short-Term Funding Proposal: We have identified a short-term (15 month), one-time funding solution to replace the 2006 Savings Offset Payment without requiring any reductions in enrollment and carry the program through March of 2007, at which time a sustainable, long-term funding mechanism will be in place. Details of the short-term proposal are listed below.

Identification of Long-Term Improvements to DirigoChoice:

An independent Commission must be established to review the following components of DirigoChoice and identify recommended solutions where needed. The Commission would be independently staffed and report back to the 123rd Maine Legislature, including any recommended legislative changes.

We propose that the Commission be charged with evaluating and addressing the following areas and recommending necessary improvements that will help DirigoChoice achieve its goals of insuring the uninsured and improving the affordability of coverage for all Maine people:

• The structure of the DirigoChoice insurance product and benefit design and ways to make the product more affordable for and attractive to small businesses and the uninsured;
  
• The design of the DirigoChoice subsidy program, including employer subsidies, employee subsidies and subsidies for the uninsured;
  
• Specific recommendations to improve outreach to and enrollment of uninsured Maine businesses and individuals in health insurance;
  
• Evaluating the MaineCare expansion in Dirigo, including its funding source, enrollment of the uninsured, and the potential impact on private payors and on providers;
  
• Recommendations to increase the number of health insurance carriers participating in the Dirigo Health program;
  
• A more sustainable, reliable approach to funding the Dirigo Health Program and its subsidies that is equitable, fair and broadly distributed;
  
• Recommendations on market reforms that could improve the affordability of health insurance for all Maine people;
  
• Mechanisms for building quality incentives into the DirigoChoice insurance program.
  
• Improving and simplifying the administrative processes within the Dirigo Health Program.
  

Short-term Funding Proposal to Replace the 2006 Savings Offset Payment

The budget and funding of the Dirigo Health Agency through March 2007 is based upon a savings offset payment of $43.7 million. This proposal would:

• Repeal the SOP as a funding mechanism for the Dirigo Health Agency and provide one-time alternative funding for 2006.
  
• Require the independent Commission to develop, for implementation in 2007, a long-term funding mechanism that is sustainable and reliable as well as equitable, fair and broadly distributed.

The Dirigo Health Agency has established a 2006 SOP of $43.7 million. Not all parties agree this assessment is in keeping with existing law; in fact, the assessment is currently the subject of litigation. However, we believe the amount sought by the Dirigo Health Agency can be funded in full on a one-time basis as follows:

• The MaineCare expansion to cover parents of eligible children must be covered by general fund monies. This is a total of $11,200,000--$4,000,000 for 2005 and $7,200,000 for 2006.
  
• The administrative expenses of the agency must be reduced by $1,600,000—from $6,926,693 (approximately 12% of the program cost of services) to $5,326,693 (approximately 9%). This is a reasonable target, as the Agency's operating expenses in 2005 were less than half of the current projections, which calls for $6,926,693 in operating expenses.
  
• In an effort to improve DirigoChoice, including finding a fair and equitable long-term funding solution, Anthem Blue Cross and Blue Shield would agree to take the full risk on DirigoChoice group enrollment in 2006. Specifically, the DirigoChoice group Experience Modification Program for 2006 would be eliminated. This would free up $11 million set aside to pay Anthem BCBS in 2006 for the Experience Modification Program included in the DirigoChoice contract. Anthem BCBS has already returned $7.5 million to the Dirigo Health Agency for the 2005 EMP.
  
• A one-time assessment of $2,700,000, representing reductions in uncompensated care, would be assessed against health insurance carriers and third-party administrators.

Summary of $43,700,000 in one-time funding:

Benefits

This proposal allows the DirigoChoice program to continue its efforts to provide health insurance to Maine's uninsured without requiring any reductions in enrollment, while key stakeholders take the time needed to appropriately evaluate the DirigoChoice program and determine how best to ensure that it can continue to work towards the worthy goals of reduced costs, increased access and improved quality for Maine people. We recognize that there is a degree of uncertainty in the proposal, and that it requires all stakeholders to "take a leap of faith." However, this program would not be in existence today if we had not been willing to do so in 2003.

For additional information please feel free to contact:

Maine State Chamber of Commerce
Kristine M. Ossenfort
207-623-4568, ext. 21
kossenfort@mainechamber.org

Maine Hospital Association
Mary Mayhew
207-622-4794
mmayhew@themha.org

Maine Association of Health Plans
Katie Fullam Harris
207-822-7260
Katie.harris@anthem.com