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Maine Rejects Beverage Tax for Replacing Dirigo's 'SOP' Funding

Maine voters rejected a beverage tax in November designed to replace the current funding mechanism that supports the Dirigo Health Program.

The Dirigo Health program was established in 2005 to offer an affordable health plan to small businesses and low-income uninsured workers and their families. Through a public–private collaboration between the state and Harvard Pilgrim Health Care, eligible enrollees receive discounts on the monthly premiums and reductions in deductibles and out-of-pocket expenses based on income and family size.

Dirigo has been funded by a controversial 'savings offset payment' (SOP), a fee on insurance carriers of up to 4 percent of paid health claims per year (on average 2.1%). The SOP is determined annually by the Dirigo Health Agency Board of Directors, based on a determination by the Superintendent of Insurance verifying the savings that have accrued from the wide array of Dirigo Health reform strategies. Such strategies include hospital voluntary targets on costs, rate regulation in the small group market, constraints on capital expenditures, and savings to the health care system resulting from fewer uninsured and underinsured residents. In December, the Dirigo Health Agency recommended the year four SOP to be $42.1 million, which translates into a 2.14 percent assessment on paid claims; by law it cannot exceed the savings from Dirigo initiatives or 4 percent of paid claims, whichever is less. But Dirigo enrollment is frozen, and the SOP is regularly challenged in court by the insurance industry. [4]

The referendum rejects legislation that would have charged a tax on beer, wine and soft drinks and converted the SOP into a fixed 1.8 percent assessment on insurance claims. [5] As a result, Maine will retain its current 'contentious' SOP funding mechanism for Dirigo Health and the state cannot move forward with a planned reinsurance program for the individual insurance market, according to Trish Riley, director of the Maine Governor's Office of Health Policy and Finance.

Governor John Baldacci hopes, however, that under the incoming Obama administration, Maine could get federal Medicaid dollars to match Dirigo premiums paid by employers and individuals, which would help sustain and expand the program. This federal match was originally intended for the program but was rejected by the Centers for Medicare and Medicaid Service (CMS) and is now under appeal.

According to Riley, the November referendum rejecting the new beverage tax was less a message about health care than about taxes. 'After a $4 million campaign by the beverage industry called 'Fed Up with Taxes,' and at a time when gas prices were at their highest and the economy was falling, the ballot was an opportunity to vote ‘Yes, I'm fed up with taxes!' Riley says.

For More Information

Leading the Way? Maine's Initial Experience in Expanding Coverage Through Dirigo Health Reforms, The Commonwealth Fund, December 2007.

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