Evaluation of Maine’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. 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 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 Background on Dirigo Health Reform Evaluation questions & study design Evaluation questions & study design Major findings Major findings Financing subsidies from savings in overall health system Financing subsidies from savings in overall health system Lessons for states Lessons for states Background on Dirigo Health Reform Background on Dirigo Health Reform Evaluation questions & study design Evaluation questions & study design Major findings Major findings Financing subsidies from savings in overall health system Financing subsidies from savings in overall health system Lessons for states 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) 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 Slow the growth of health care costs through cost containment Improve quality of care—for example, by comparing provider performance using quality measures Improve quality of care—for example, by comparing provider performance using quality measures Make affordable health care coverage available to every Maine citizen by 2009 (about 140,000 uninsured in 2003) 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 Slow the growth of health care costs through cost containment Improve quality of care—for example, by comparing provider performance using quality measures 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 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 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 Enrollee John, 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? Are low-income uninsured people gaining coverage under DirigoChoice or Medicaid? How have small employers responded to the availability of DirigoChoice? 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? 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? Which aspects of Maine’s approach to health coverage expansion are relevant elsewhere? What can other states learn from its experience? Are low-income uninsured people gaining coverage under DirigoChoice or Medicaid? Are low-income uninsured people gaining coverage under DirigoChoice or Medicaid? How have small employers responded to the availability of DirigoChoice? 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? 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? 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 Analysis of DirigoChoice & Medicaid administrative data on enrolled firms and individuals Survey of small businesses in Maine Survey of small businesses in Maine Key stakeholder interviews Key stakeholder interviews Comparison of Maine to other states vis-a-vis: Comparison of Maine to other states vis-a-vis: –health insurance coverage –small group and individual market regulations –health care delivery system –Medicaid policies Analysis of DirigoChoice & Medicaid administrative data on enrolled firms and individuals Analysis of DirigoChoice & Medicaid administrative data on enrolled firms and individuals Survey of small businesses in Maine Survey of small businesses in Maine Key stakeholder interviews Key stakeholder interviews Comparison of Maine to other states vis-a-vis: 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 Individual enrollment begins Sole proprietor/Individual enrollment cap reached Sole proprietor/Individual enrollment cap lifted

14 Enrollment in Dirigo Health Medicaid Expansion Groups Sep-02 Nov-02 Jan-03 Mar-03 May-03 Jul-03 Sep-03 Nov-03 Jan-04 Mar-04 May-04 Jul-04 Sep-04 Nov-04 Jan-05 Mar-05 May-05 Jul-05 Sep-05 Nov-05 Jan-06 Mar-06 May-06 Jul-06 Sep-06 Nov-06 Date Monthly Caseload Childless AdultsMedicaid Expansion to Parents January 05: DirigoChoice began March 05: Childless adult freeze instituted July 06: Childless adult freeze lifted April 05: Parent Expansion ( %FPL) 20000

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

16 More Low-income Enrollees Qualified for Higher Subsidies than Expected Income LevelProjected Enrollment Enrollees as of 9/07 Ever Enrolled as of 9/07 Medicaid-eligible11%1% <150% FPL % FPL % FPL % FPL2645 > 300% FPL Total100

17 Fewer Small Firm Workers Comprised Dirigo Members Than Expected Projected Enrollment Enrollment as of 9/07 Ever Enrolled as of 9/97 Small group members 90%30%35% Sole proprietors 10% 28%26% Individuals42%38% All members100%

18 Small Employer Survey Firm Characteristics by Offer Type Average wage 12%* 32%**17%18% Mean percent who earn more than $18 per hour 33%*43%**39%38% Mean percent who earn $12 to $18 per hour 55%**26%**45%44% Mean percent who earn less than $12 per hour 5.0**17.7** Mean number of employees 143 (18%) 121 (16%) 509 (66%) 773 (100%) All firms Coverage offered NoneAnother planDirigoChoice All firms Firm characteristics *p <.05 ** or ++ p <.01

19 Average Change in Employer Contribution Under DirigoChoice Compared to Prior Coverage

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

21 DirigoChoice Subsidy Financing and the The Savings Offset Payment

22 DirigoChoice Financing Sources 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 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 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 Savings Dirigo Health Board Estimate Approved by Insurance Superintendent 2006 $110.6 M$43.7 M 2007 $41.8 M$34.3 M 2008 $78.1 M$32.8 M

26 Lessons for Other States

27 Translating Lessons to Other States PROBLEM Characteristics of Uninsured Design of coverage strategies Implementation POLICY GOALS & FOCUS Coverage expansion Cost containment Quality MARKET & REGULATORY CONTEXT Insurance markets HC delivery system Insurance regulation FINANCING SOURCES FMAP State tax policies Uncomp. care pool

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 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 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 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 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 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