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The Lessons of DirigoChoice


IMPORTED: www_commonwealthfund_org__usr_img_James_Verdier96x96.jpg IMPORTED: www_commonwealthfund_org__usr_img_Debra_Lipson96x96.jpg



As the race for the 2008 presidency heats up, health care reform has once again become a leading issue for candidates and voters. Although a comprehensive national solution to the problems plaguing our health care system is not likely to emerge any time soon, a growing number of states are taking matters into their own hands. One of the first states to undertake major reform was Maine, which is implementing a number of initiatives to make quality, affordable health coverage available to all residents while also slowing growth in costs. The centerpiece of Maine's reform is DirigoChoice, a subsidized health insurance plan for businesses with 50 or fewer employees, the self-employed, and individuals. With support from The Commonwealth Fund and the Robert Wood Johnson Foundation's Health Care Financing and Organization program, analysts James Verdier and Debra Lipson of Mathematica Policy Research have been conducting a formal evaluation of the program. We talked with Verdier and Lipson about the program's successes and challenges and what lessons they hold for other states.



How are you getting the information you need to evaluate the impact of DirigoChoice?
Debra Lipson: We're using a number of different data collection methods and sources. We've just finished field work on a survey of small businesses in Maine. We've done secondary analysis on some administrative data on the enrollees in DirigoChoice and interviewed some of the key stakeholders. We're also collecting information from publicly available databases to compare Maine to other states on a variety of economic, health system, and health insurance variables.


How many people and businesses are participating in DirigoChoice?
Lipson: Approximately 11,000 people were enrolled as of September 2006, and since the program began in January 2005, about 15,000 have been enrolled at one time or another. It breaks down to approximately 30 percent small employer members, 28 percent sole proprietors, and 42 percent individuals.

Are these numbers in line with projections?
James Verdier: There was an overall projection of about 30,000 enrollees in the first year, which almost everybody now acknowledges, in retrospect, was not realistic. Initially, it was expected that there would be more small-group enrollment and less individual enrollment than was actually the case. There is very substantial demand among individuals for this kind of coverage, but they tend to be expensive to insure because of higher health care needs. Because everyone is in the same risk pool, the small-employer groups, in effect, cross-subsidize the high-cost individuals. In order to keep the risk pool stable, the state can periodically close the program to individual enrollment.

Lipson: The Blue Ribbon Commission [created in May 2006 to make recommendations about long-term funding and cost-containment methods] recognized that there are limits to the voluntary approach to enrollment and have recommended exploring the idea of mandating participation by individuals and employers. One needs incentives or mandates to make the pool big enough to achieve economies of scale and also include high-and low-risk individuals. The Massachusetts plan has made it possible to talk about mandates—this is a huge change from previous health reform initiatives.

Since employees of small businesses make up half of all uninsured people in Maine, the participation of the small business community in this program is critical. How have small businesses responded to DirigoChoice?

Lipson: So far, DirigoChoice is not enrolling as many small firms as state officials had hoped. Those that are enrolled tend to be tiny, with an average of three employees. These are firms that can't get good rates on the small-group market. They also may not have the administrative wherewithal to find insurance easily or deal with brokers.

Verdier: The rates small employers have to pay are pretty much the same, whether they offer Dirigo or another option. What makes Dirigo attractive for employers is the low-income employee subsidy. However, employers don't know whether their employees are eligible until after they have submitted their own applications. As a result, there are some administrative steps that employers have to go through with DirigoChoice that they don't with private insurance. But it may be worth it, if they can get more of their low-income employees insured.

Dirigo's financing formula, which includes a fee assessed on all private insurance companies, has been somewhat controversial, hasn't it?

Verdier: There are two main financing sources to subsidize lower-income employees and individuals. First, there was an expectation that, for Medicaid-covered employees of small businesses, the employer's share would serve as the state match for Medicaid purposes. There's some uncertainty whether that will happen, but it's not a large amount of money in any case. Not that many Medicaid-eligible people work for small businesses that have enrolled in Dirigo.

The second source is the savings offset payment, which has been calculated for the second year (2007) at $34.3 million, down from around $43.7 million for the first year. It's an estimate of the amount Dirigo as a whole would save for insurers and providers, which is then imposed as an assessment on all private insurance companies and third-party administrators in Maine.

What has made it so controversial is that the savings are really a projection of several fairly abstract concepts. For instance, how much lower are the costs due to reduced bad debt and charity care because more people are insured? How much savings should be attributed to voluntary hospital cost containment efforts? How much less do insurance companies have to pay because hospitals get extra payments from the state? Nobody knows for sure what the actual savings are. It's been challenged in court by the Maine Association of Health Plans, the state Chamber of Commerce, and other employer groups. The Blue Ribbon Commission has suggested some alternative financing sources that the governor and legislature are considering.

What are the options the Commission is considering?

Verdier: One set of options would be some form of general revenue financing, whether a tax on income or on tobacco, alcohol, snacks, and the like. In Maine, though, there are limitations on the extent to which taxes can be earmarked for specific purposes. So it wouldn't be that easy to have a tax on cigarettes, for example, and have the proceeds go directly to Dirigo.

Lipson: Some interest groups have presented these other funding sources as alternatives to the offset payment, while others want the new taxes to be in addition to the savings offset payment. They could come to a compromise that could retain some vestiges of the offset payment supplemented by other kinds of tax revenue. It's all going to be part of the debate. The Commission has also recommended an option to consider a self-insured product [in which the state, not the insurer, assumes the risk for all insurance claims], as a way to potentially contain costs. That idea was proposed last year and almost adopted. It'll be back on the legislative agenda this session.

Are there any early lessons to be learned from Dirigo that could help other states that are designing their own health reforms?

Lipson: It's becoming clear that when you group small firms and individuals into the same pool for insurance premium purposes it can cause problems. If the individuals have a higher risk profile—as in Maine where they appear to be older—then you have cross-subsidies that drive up the costs of premiums to small firms and makes them more unaffordable. In Massachusetts, the legislature also authorized merging the two groups, but doing so runs the risk that you're going to be raising premium rates for small firms.

Verdier: There's not a lot of extra money floating around in most states. Massachusetts had advantages—fewer uninsured people and $385 million in Medicaid money that it had to use to broaden coverage in some way. Maine, on the other hand, has a fairly expansive Medicaid program already and not a lot of extra Medicaid money. Any state that's thinking of going down this road has to look fairly carefully at potential funding sources, whether it's Medicaid, tax increases, or anything else. All of the money needed to expand insurance coverage can't come from reducing administrative inefficiencies or substantially reducing provider reimbursement.

When we interviewed people in Maine, we heard from a lot of different players—insurers, hospitals, providers, consumers—that Dirigo has really sparked a dialogue about how to address the problem of the uninsured and has really highlighted the underlying health care cost problems in Maine. It's been an object lesson in how difficult it is to deal with the uninsured without, at the same time, dealing with the underlying drivers of costs.

February 2007

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