Financing Maine’s Dirigo Health Plan “ Savings Offset Payment” Minnesota Senate Health and Human Services Budget Division February 27, 2008 Lynn A. Blewett, Ph.D. Associate Professor University of Minnesota, School of Public Health Supported by a grant from The Robert Wood Johnson Foundation

Maine Dirigo Health First Comprehensive Reform – 2003 with goal of universal coverage by 2009 DirigoChoice - Private Health insurance product Small employers access to subsidized health insurance through one large private insurer – Anthem Sliding scale subsidies for enrollees < 300% FPL - Affordable premiums for those > 300%

First Comprehensive Reform – 2003 with goal of universal coverage by 2009

DirigoChoice

- Private Health insurance product

Small employers access to subsidized health insurance through one large private insurer – Anthem

Sliding scale subsidies for enrollees

< 300% FPL

- Affordable premiums for those > 300%

Source: AcademyHealth State Coverage Initiatives, Sept 2006

Maine Dirigo Health Financing “ Savings offset payment” – recovery of reductions in charity care and voluntary savings targets from insurance carriers and TPAs 1.85-2.41% of paid claims from insurers and TPAs Employer and individual contributions General Fund Contributions Federal match for Medicaid/SCHIP premium subsidies for eligible who buy-in to DirigoHealth Choice

Financing

“ Savings offset payment” – recovery of reductions in charity care and voluntary savings targets from insurance carriers and TPAs

1.85-2.41% of paid claims from insurers and TPAs

Employer and individual contributions

General Fund Contributions

Federal match for Medicaid/SCHIP premium subsidies for eligible who buy-in to DirigoHealth Choice

Financing: Savings Offset Payment - Estimated savings from reform initiatives to reduce the rate of growth in the health care system - Savings used to finance Dirigo Health Plan Estimated savings from reductions in current spending -Reductions in bad debt/charity care due to fewer Uninsured (more covered/paying patients) - Voluntary growth gaps apx 4.0% - Lower rate of hospital growth via voluntary cost controls - Limits on CON and Capital Investment Fund Savings - Less cost shifting to other payers via increased Medicaid rates for providers - Increased physician and provider fees

- Estimated savings from reform initiatives to reduce the rate of growth in the health care system

- Savings used to finance Dirigo Health Plan

Estimated savings from reductions in current spending

-Reductions in bad debt/charity care due to fewer Uninsured (more covered/paying patients)

- Voluntary growth gaps apx 4.0%

- Lower rate of hospital growth via voluntary cost controls

- Limits on CON and Capital Investment Fund Savings

- Less cost shifting to other payers via increased Medicaid rates for providers

- Increased physician and provider fees

Savings Off-Set Payment -Theory Maine Health Service Costs Dirigo Reforms Reduction In Health Service Costs Premiums Savings Offset Payment Funding for DirigoChoice

Devil is in the Details “Aggregate Measurable Cost Savings” How to calculate; what data to use Hired Mercer to do calculations Board of Maine DirigoHealth approves each component Mercer estimated total savings of $136.8 million Board approved $43.7 that will be the target for the Offset Payment

“Aggregate Measurable Cost Savings”

How to calculate; what data to use

Hired Mercer to do calculations

Board of Maine DirigoHealth approves each component

Mercer estimated total savings of $136.8 million

Board approved $43.7 that will be the target for the Offset Payment

The Offset Payment is not a Tax “Savings offset payments are mechanisms created to fund the administration of Dirigo subsidy program. The Act specifically states that savings offset payments may not fund general administration costs. As such, the SOPs are appropriately characterized as costs of administering a program under the police power of government, not a tax.” Source: Summary of Justice Cole’s Decision, August 7, 2006

“Savings offset payments are mechanisms created to fund the administration of Dirigo subsidy program. The Act specifically states that savings offset payments may not fund general administration costs. As such, the SOPs are appropriately characterized as costs of administering a program under the police power of government, not a tax.”

Savings Offset Payment (SOP) $43.7 million (yr1); $34.3 million (yr2) SOPs apply to claims paid for plan years beginning on or after January 1, 2006. The SOP is a percentage of claims paid during the relevant year. The 2006 SOP was: For health insurance carriers, 2.408 % of annual paid claims for health care policies For 3rd party administrators, 2.408 % of annual paid claims for health care for residents of this State For employee benefit excess insurance carriers, 2.408 % of annual paid claims on employee benefit excess insurance carriers

$43.7 million (yr1); $34.3 million (yr2)

SOPs apply to claims paid for plan years beginning on or after January 1, 2006. The SOP is a percentage of claims paid during the relevant year.

The 2006 SOP was:

For health insurance carriers, 2.408 % of annual paid claims for health care policies

For 3rd party administrators, 2.408 % of annual paid claims for health care for residents of this State

For employee benefit excess insurance carriers, 2.408 % of annual paid claims on employee benefit excess insurance carriers

SOP Court Challenge Maine Association of Health Plans et al. v. Superintendent of Insurance et al. Unsuccessful challenge to the method of calculating SOPs 2006: Cumberland County Superior Court 2007: Maine Supreme Court (5-1 ruling) Both upheld methodology of calculating SOPs Found statute creating Dirigo Health constitutional

Maine Association of Health Plans et al. v. Superintendent of Insurance et al.

Unsuccessful challenge to the method of calculating SOPs

2006: Cumberland County Superior Court

2007: Maine Supreme Court (5-1 ruling)

Both upheld methodology of calculating SOPs

Found statute creating Dirigo Health constitutional

Summary Maine has unique approach to financing health care coverage for working uninsured Challenged every step of the way but currently upheld by courts Maine is currently looking for additional sources of financing including provider assessments similar to Minnesota

Maine has unique approach to financing health care coverage for working uninsured

Challenged every step of the way but currently upheld by courts

Maine is currently looking for additional sources of financing including provider assessments similar to Minnesota

SHADAC contact information www.shadac.org 2221 University Avenue, Suite 345 Minneapolis Minnesota 55414 (612) 624-4802 Principal Investigator: Lynn Blewett, Ph.D. (blewe001@umn.edu) Research Director: Michael Davern, Ph.D. (daver004@umn.edu) Investigator: Kathleen Call, Ph.D. (callx001@umn.edu) Center Director: Kelli Johnson, M.B.A. (johns706@umn.edu) SRE Deputy Director: Elizabeth Lukanen, MPH (elukanen@umn.edu)