Probing Politics: MEMIC & Dirigo: Lessons for the nation from Maine
This may seem presumptuous, but I believe Maine offers the nation some stark lessons when it comes to insurance reform.
In 1991, Maine's workers' compensation insurance market had all but collapsed. Many employers ignored workplace safety while plaintiffs' lawyers and unions were allowed to hijack the system for their own benefit. Maine employers were paying the highest premiums in the entire country and Maine workers were paying the price in unnecessary injuries, lower wages and lost jobs. The last remaining insurance company threatened to leave.
Former Gov. John McKernan decided to hold the state budget hostage to ensure that workers' compensation reform would be undertaken by the Legislature. It was ugly, but it worked.
In a landmark reform passed in 1992, employers and employees replaced the lawyers and their union cohorts as the central beneficiaries of the system. It also mandated the formation of Maine Employers' Mutual Insurance Co., a private company that would guarantee employers could get coverage. As a matter of disclosure, I served as vice president of corporate affairs and later as vice president of underwriting and marketing at MEMIC from 1993-2001.
Modeled on the success of group self-insurance, MEMIC empowered employers to provide safe workplaces and rewarded them with lower costs if they succeeded. The company now insures 20,000 employers and about 200,000 workers and has returned $67 million to their policyholders in the form of dividends. Statewide, injuries and the cost of insurance have been reduced by about 40 percent.
Fast forward about 10 years. With rising costs and thousands of people without health-care coverage, Gov. Baldacci and the Legislature decided to put state government directly into the insurance business. The Dirigo health plan's stated goal was to provide subsidized coverage for 130,000 uninsured Maine people by the end of 2009, using savings expected to be realized through efficiencies in the health-care system. So, how's it going?
Fewer than 10,000 people are covered through the Dirigo plan. Many of them actually had insurance already, but switched to the new taxpayer-subsidized company. Today, 92 percent of the 130,000 remain uninsured.
Over the past four years, the Dirigo Health Agency has claimed the reforms have produced more than $611 million in savings. However, for every three dollars Dirigo claims to have saved, only one dollar has been approved by the Maine Bureau of Insurance.
First lesson for the nation: the government doesn't do well when it comes to projecting or producing credible savings or results.
In the absence of credible "savings," a majority of the current Legislature recently jettisoned the "savings" formula and voted to increase taxes by $43 million to fund Dirigo.
Second lesson for the nation: it's easier for politicians to add taxes than to control costs or end a non-performing program.
There also are key differences that drive these two companies. MEMIC is privately owned and governed by employers who are policy holders. As customers, MEMIC board members have a direct stake in the company's performance. In addition, policy holders recognize that being safe at work is the path to long-term savings, which changes how people behave.
In contrast, Dirigo is government-run with a 12-member board of directors who are political appointees, eight of which are current or former government employees. To the best of my knowledge, no one on their board is covered by Dirigo's health plan. Also, there is little financial incentive for policy holders to improve their health or change how they access health care.
Third lesson for the nation: we have to build a transparent system in which consumer ownership and behavior can help control the cost of their health care.
The free market has a solution that already is working in Maine. Healthcare Savings Accounts and Healthcare Reimbursement Accounts are producing dramatic savings and healthier outcomes. A case study of one employer shows a 30 percent reduction in premium costs and a 77 percent reduction in maximum out-of-pocket costs for their employees. Those are real savings. If we encouraged appropriately regulated competition in Maine for both insurers and health-care providers, we could realize even greater savings and have better educated and healthier consumers.
We also should look to New Hampshire, where 10 health insurance companies compete for business and where rates for individuals are less than half the cost of those in Maine. In addition, the state of New Hampshire offers residents affordable guaranteed coverage at about half of what a policy in Maine costs. Premiums are discounted for low-income people.
Final lesson for the nation: Transparency and competition lowers costs and improves outcomes.
The people of Maine and America want health-care cost reform. Change the incentives, regulate appropriately, remove the predators and we can afford to cover those not on Medicaid without the added cost of government. What do you think?