In 1991, Maine's workers' compensation insurance market had all but collapsed. Over the years, the system had been hijacked by lawyers and unions through the political process. The last of the insurance companies was ready to pull out and employers, who were paying astronomically high insurance premiums, were ready to revolt, go under or leave.
Governor John McKernan decided to hold the state budget hostage to ensure workers' compensation reform would be undertaken by the Legislature. It worked. In the light of day and bi-partisan leadership, a Blue Ribbon Commission crafted a sustainable solution that included getting lawyers substantially out of the process.
It also mandated the formation of a private non-profit mutual insurance company that would accept all comers. If an employer couldn't find insurance among competing insurance companies, then Maine Employers' Mutual Insurance Company (
MEMIC)
would have to issue a policy. It was the guaranteed market. The company now has been in business for 16 years and insures 65% of all employers in Maine. It has an "A" (Excellent) rating from A.M. Best, the nation's leading insurance rating service.
(Disclaimer: I served as Vice President of Corporate Affairs then as Vice President of Underwriting & Marketing at MEMIC from 1993-2001.)
Fast forward about ten years. Another public policy initiative by the governor and Legislature put the State of Maine directly into the health insurance business. Its goal was to provide coverage for 130,000 uninsured Maine people by the end of this year, 2009, funded by sliding scale insurance premiums and savings to be realized by efficiencies in the health care system.
Currently, fewer than 10,000 people are covered through the state's Dirigo Health program. Many of them already had insurance but switched to the taxpayer-subsidized coverage. Despite failing to meet expectations, tens of millions of tax dollars have been spent. To keep the program alive, a majority of the Legislature recently passed a 2.14% tax on health care services - a tax that will annually raise approximately $42 million from those who already have insurance. An $8.5 million grant from one-time federal stimulus money also has been allocated to add caregivers, seasonal workers and others to the rolls.
Over the past four years, the Dirigo Health Agency has claimed more than $611 million in savings. These consistently inflated savings estimates provided by Dirigo routinely have been rejected by Maine's Bureau of Insurance which approved only $159.5 million - a difference of more than $451 million.
So what's different between the two and what have we learned?
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Workers' compensation insurance in Maine is not optional. Employers must have insurance coverage and the benefits are prescribed in state law. If an injury is work-related, the health bills get paid and, if time is lost from work, a portion of weekly wages is paid to the injured worker.
Health insurance coverage, on the other hand is optional. People who can't afford health insurance or choose not to buy it can walk into the emergency room and be guaranteed care. They may be billed for that care but they haven't paid anything up to that point - and good luck to the hospital trying to collect what they are owed.
Lesson #1: Health insurance must be mandatory, not optional. Everyone should pay something based on their income.
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MEMIC was formed as a private, non-profit mutual insurance company run by insurance professionals and owned by the policy-holders. Its board of directors include two members appointed by the Governor in the public interest. The rest are Maine employers who have a policy with the company. The company is not an instrumentality of state government.
Dirigo is a state-run insurance plan funded by premiums and taxpayer subsidies. It is a public entity and its twelve-member board of directors are political appointees.
Two members of the Dirigo board are doctors one of whom is the state's medical examiner; five more members are state employees; two more are former government employees; one member is the political and legislative director for the Maine State Employees Association; another is the executive director of Maine Equal Justice Partners; and one is a business owner and former state legislator. No board members, we believe, are covered by the Dirigo plan. State employees and state legislators are covered by their own insurance plan which is generously subsidized by the state (also known as Maine taxpayers).
Lesson #2: If a guaranteed health insurance market is to be offered, it should be a private non-profit mutual company run by insurance professionals and governed by a majority of those who are covered by the plan. It should not be political or state-run.
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MEMIC is based on the success of the self-insured workers' compensation market in which groups of employers pledge the assets of their companies to pay claims when they occur. Their motivation is do everything reasonably possible to prevent workplace injuries and, when injuries do occur, to get those employees back to work as soon as appropriate. Workplace safety is the key to lower costs. Workers who are persistently unsafe can be fired. It's about accountability and good behavior.
The key to lower health care claims is healthier lifestyles and preventive care. When people don't have any skin in the game, however, they tend to let their health slide at least until something goes wrong. Other than feeling better and looking better, most of us behave poorly when it comes to our health. No one has any leverage on our well-being.
Lesson #3: Self-interest influences behavior. A private mutual insurance company could offer monetary rewards for people who tend to their wellness and higher prices for those who don't. There needs to be accountability if public funds are allocated to an insurance solution.
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As a private insurance company, MEMIC competes with other companies for customers. The best opportunity to make money is to take a company with bad claims experience, charge them a lot of money and make them safer so their insurance premiums will drop over time. Everyone wins - injury-free workers, lower premiums, bigger dividends for policyholders paid out of "profits".
In Maine, there is no real competition for health care insurance. State mandated health benefits, community rating restrictions and a requirement that all insurance companies must issue a policy to anyone who applies have chased companies out of Maine. Ten companies compete for business in New Hampshire where insurance rates for individuals are less than half the cost of those in Maine.
Lesson #4: All health insurance policies should have the same basic coverage. Options for adding more services should cost more. A guaranteed market for health insurance would ensure people access to basic coverage including those with public subsidies. Basic coverage for all would encourage competition for the add-ons.
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Our national health care solution should look more like the MEMIC model and not Dirigo. We should create five or ten regional private mutual insurance companies offering identical benefits. To continue being subsidized by the government, however, these companies would be required to measurably improve wellness and health outcomes as well as cost containment. They should be governed by people who pay insurance premiums which would help provide both the accountability and outcomes we all desire - lower costs and universal access to coverage.
Accordingly, any solution that does not perform as promised should be modified or eliminated. Perhaps that is a reasonable prescription for Dirigo.
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