Evaluation of Maine’s Dirigo Health Reform: Initial Experience and Lessons for other States

1. Evaluation ofMaine’s Dirigo Health Reform: Initial Experience and Lessons for other States February 1, 2008 Debra J. Lipson and James M. Verdier Mathematica Policy Research, Inc.

2. Acknowledgments • Our co-authors • Lynn Quincy, Shanna Shulman, Elizabeth Seif, Matt Sloan, Bob Hurley • Sponsors • The Commonwealth Fund • The Robert Wood Johnson Foundation, Changes in Health Care Financing and Organization Initiative

3. Overview of Presentation • Background on Dirigo Health Reform • Evaluation questions & study design • Major findings • Financing subsidies from savings in overall health system • Lessons for states

4. Background on Dirigo Health Reform and Its Coverage Expansions

5. Dirigo Health Reform Goals • Make affordable health care coverage available to every Maine citizen by 2009 (about 140,000 uninsured in 2003) • Slow the growth of health care costs through cost containment • Improve quality of care—for example, by comparing provider performance using quality measures

6. Dirigo Health Coverage Expansion Initiatives • DirigoChoice – subsidized insurance product for small groups, self-employed, and individuals • Increased Medicaid eligibility for parents of dependent children – from prior max. of 150% FPL to 200% FPL

7. DirigoChoice Features • Individuals • could be previously insured • Small Firms: • 50 or fewer eligible employees • could have offered health benefits to employees previously • Subsidies for premiums and deductibles for individuals with family income < 300% FPL • Comprehensive benefits – MH, preventive care, annual OOP cost limits • Jointly operated by state and private health plan

8. Illustrative Dirigo EnrolleeJohn, age 58, self-employed • Annual income: • DirigoChoice premium • Before subsidy: • After subsidy: • Major Surgery • Total Costs: • John’s costs: • Deductible: • Co-pays: • Max OOP $10,000

9. Evaluation Questions and Design

10. Research Questions • Are low-income uninsured people gaining coverage under DirigoChoice or Medicaid? • How have small employers responded to the availability of DirigoChoice? • Are the DirigoChoice subsidy financing sources adequate and sustainable enough to cover many more low-income uninsured? • Which aspects of Maine’s approach to health coverage expansion are relevant elsewhere? What can other states learn from its experience?

11. Study Design Qualitative & Quantitative Methods • Analysis of DirigoChoice & Medicaid administrative data on enrolled firms and individuals • Survey of small businesses in Maine • Key stakeholder interviews • Comparison of Maine to other states vis-a-vis: • health insurance coverage • small group and individual market regulations • health care delivery system • Medicaid policies

12. MAJOR FINDINGS

13. Cumulative Net Enrollment in DirigoChoice,January 2005–September 2006 Sole proprietor/Individual enrollment cap reached Sole proprietor/Individualenrollment cap lifted Individual enrollment begins

14. Jul-03 Jul-04 Jul-05 Jul-06 Jan-03 Jan-04 Jan-05 Jan-06 Sep-02 Sep-03 Sep-04 Sep-05 Sep-06 Nov-02 Mar-03 Nov-03 Mar-04 Nov-04 Mar-05 Nov-05 Mar-06 May-03 May-04 May-05 May-06 Nov-06 Date Childless Adults Medicaid Expansion to Parents Enrollment in Dirigo HealthMedicaid Expansion Groups 30000 March 05: Childless adult freeze instituted January 05: DirigoChoice began 25000 20000 July 06: Childless adult freeze lifted Monthly Caseload 15000 10000 April 05: Parent Expansion (150-200%FPL) 5000 0

15. 54% 67% 68% 65% Uninsured 37% 30% 28% 31% 9% 3% 4% 4% Previous Health Coverage Among DirigoChoice Members Enrolling in 2006 Small firm members Sole proprietors All Members Individuals Prior coverage Responses not usable Source: MPR tabulation of Dirigo Health Agency Administrative Data

16. More Low-income Enrollees Qualified for Higher Subsidies than Expected

17. Fewer Small Firm Workers Comprised Dirigo Members Than Expected

18. All firms DirigoChoice Another plan None Firmcharacteristics 773 (100%) 509 (66%) 121 (16%) 143 (18%) 8.1 6.7 17.7** 5.0** Mean percent who earn less than $12 per hour 44% 45% 26%** 55%** Mean percent who earn $12 to $18 per hour 38% 39% 43%** 33%* Mean percent who earn more than $18 per hour 18% 17% 32%** 12%* Small Employer SurveyFirm Characteristics by Offer Type Coverage offered All firms Mean number of employees Average wage *p < .05 ** or ++ p < .01

19. Average Change in Employer ContributionUnder DirigoChoice Compared to Prior Coverage

20. Too costly or not affordable Benefits offered do not fit employees’ needs Did not qualify for DirigoChoice Other reasons 45 (58%) Why Firms That Considered DirigoChoice Did Not Enroll • 8 (10%) • 6 (8%) • 19 (25%) n = 78 of 773

21. DirigoChoice Subsidy Financingand the The Savings Offset Payment

22. DirigoChoice Financing Sources - 2006 Savings Offset Payment 31% DirigoChoice Member Contribution 40% State General Funds (carryover from 2005) 29% Sources: 2007 Dirigo Health Agency allocation request to the Maine legislature;Dirigo Health Agency, 2006, Annual Report: Program Overview 2005 & 2006.

23. Savings Offset Payment • SOP assessments on insurers and 3rd-party administrators equal to estimated “aggregate measurable cost savings” • Potential Savings Sources • Fewer uninsured due to Dirigo Health expansions leading to reduction in bad debt/charity care • Hospital savings from voluntary cost controls • CON and capital fund savings from lower capital investments • “Provider fee savings”: less cost shifting to other payers due to increased Medicaid provider rates

24. Savings Offset Payment Issues • Type of savings to count • Assumptions, data and methods used to estimate savings • Method for capturing provider savings • Insurers expected to recover SOP by reducing provider payments and passing on savings to consumers via lower premiums, but did not • Insurers & employers filed legal challenge to SOP

25. Estimated v. Actual Savings2006-2008

26. Lessons for Other States

27. POLICY GOALS & FOCUSCoverage expansionCost containmentQuality MARKET & REGULATORY CONTEXTInsurance marketsHC delivery systemInsurance regulation FINANCING SOURCESFMAPState tax policiesUncomp. care pool Translating Lessons to Other States PROBLEMCharacteristics of Uninsured Design of coverage strategies Implementation

28. Maine Health Insurance Coverage and Costs • Medicaid coverage very high; most low-income groups covered, limiting potential to expand public coverage • Focus on small employers, which comprise higher share of all employers than US average • Stringent small group/individual insurance regulations already enacted • Second highest health insurance premiums in the country • Limited competition among health plans or providers

29. What Can Other States Learn? • State-sponsored plans that compete with private plans • Risk of adverse selection if benefits are better • Limited potential to raise insurance rates/attract firms & individuals if benefits lower and enrollment is voluntary • Maintaining or expanding small employer offer rate is hard in high-cost states

30. Financing Coverage Expansions • Medicaid eligibility expansions effective in increasing coverage, but politically controversial in many states (taxes) • Capturing cost savings from reduced bad debt/charity care and other cost containment efforts can be just as hard as raising taxes • Coverage expansions without forceful cost control will confront affordability problems

31. Caveats & Limitations • Data Limitations • Annual CPS data for Maine are too imprecise to measure declines in uninsured at state level • No state household survey since 2002 • Evolution of Dirigo Health Coverage Reforms • Changes to DirigoChoice benefits, administration, marketing • Impact of Dirigo cost containment and quality improvement initiatives not yet known

32. Concluding Comments • Incremental, voluntary coverage expansions can help many people, but unlikely to achieve universal coverage • Financing insurance subsidies for low- and middle-income people from savings in the private health system is vulnerable to opposition from those expected to pay for subsidies