🔒Maine’s first health insurance captive launches with Hutchins Trucking in the driver’s seat

Last month, Maine chartered its first captive insurance company offering health insurance, a development that will be closely watched as states continue to experiment with health care under the umbrella of the federal Affordable Care Act.

A “captive” insurer does not offer policies to the public, but to a group of members, explains Joseph Edwards, who heads the Maine Wellness Association, the nonprofit employer group that chartered the captive insurer. Edwards, a former state insurance superintendent under Gov. John McKernan, has since specialized in a variety of self-insured workers’ compensation arrangements.

The Maine Wellness Association has been “highly successful” in controlling costs for its members by improving workplace safety, and, Edwards says, “they’ve been asking for years whether we could do the same thing for health insurance.” The answer, until recently, was no — both federal and state regulation discouraged it. Self-insurance, mostly for larger companies, was possible, but small businesses can rarely afford that option.

When Edwards looked into a 2008 law passed during the Baldacci administration to encourage national companies to register captive insurers in Maine, he saw possibilities. “Under our reading of the law, it could apply to health insurance,” he says.

The Bureau of Insurance didn’t agree, however, and the Maine Wellness Association’s application to establish a charter for the state’s first health insurance captive remained pending at the start of the 2011 legislative session, the first in 44 years in which Republicans controlled both houses of the Legislature and the governor’s office.

It was in that environment that LD 783, a bill to specifically allow health insurance through captives, “got a lot of support from small businesses,” recalls Rep. Wesley Richardson, R-Warren, House chair of the Insurance and Financial Services Committee. “They really saw it as responding to their needs.”

The measure was ultimately folded into LD 1333, a much broader health reform measure backed by Republicans and opposed by Democrats. The captive provisions, however, were not controversial and elicited no floor debate.

Edwards says the language could have been even more favorable to the wellness association’s proposal, because “We had the votes. But we listened to the bureau’s concerns, and came to an agreement that worked for both sides.”

Mila Kofman, the insurance superintendent who resigned in June citing policy differences with Gov. Paul LePage, was critical of the idea of captives offering health insurance, saying it could “destabilize” the private insurance market.

Her successor, Superintendent Eric Cioppa, is more measured in his approach, but says businesses thinking of joining a captive insurer “should think very, very carefully” about the risks. “This is joint and several liability,” he says, meaning all members could be financially threatened by other members’ inability to pay claims.

Vermont charters many captives for other insurance purposes, but not health insurance, and its captive program director, Sandy Bigglestone, calls “providing insurance to people’s lives” through captives offering health insurance “scary stuff.”

Steve Hutchins, of Hutchins Trucking and Atlantic-Great Dane in Portland, does not find it scary. The companies, with about 120 employees, are guinea pigs in the new captive, what Edwards calls “the beta client,” signing up on Aug. 1. Other members of the Maine Wellness Association, about 30 companies representing about 5,000 “insured lives,” are expected to come on board by year’s end.

Hutchins says the joint-and-several provisions don’t worry him because “these are people who know each other well. They’re family companies that have worked together successfully for years. This is just a new aspect of that relationship.”

While many companies have tried to make wellness a component of health care for employees, it’s central in the new captive model. Every company has to have a wellness committee — Hutchins Trucking is setting one up — with an emphasis on including and empowering employees.

Edwards says to make health insurance reform in Maine as successful as workers’ comp reform, the system has to change. “An employee can really control the risks within the workplace. But health insurance has traditionally been offered without any controls. Whether your employees smoked, or ate right, or saw a doctor regularly was completely outside your control.” As a result, most small employers paid ever-increasing bills to insurers, without having much input, he says.

Edwards is confident the Maine Wellness Association policies can save money, eventually, for its members. No one is predicting a level of savings yet, since that will depend on claims history and other factors. It will likely be a year or two before there’s an opportunity to evaluate costs and savings, says Edwards. He points to the association’s unusual partnership with Martin’s Point, a health care provider based in Portland that has a statewide network emphasizing primary and preventive care, as a more sensible way to deliver health care.

Dr. David Howes, CEO of Martin’s Point, is a primary care physician, and his experience practicing in southern Maine convinced him there are better ways to provide care than the standard fee-for-service.

Edwards says he approached Howes just over two years ago to inquire about a partnership and Howes was intrigued. “To be able to redesign the care and payment system from the ground up was really attractive,” Howes says.

Howes says the approaches of participating companies will vary, but each employee will have a primary care physician acting as a gatekeeper to the system. Employers, meanwhile, will be able to “shop” for non-emergency procedures from a variety of providers.

“When we’ve looked at the quality of care and the cost of care, we’ve often found there’s not much relationship,” Howes says. “You can have a low-cost, high-quality provider as well as high costs and low quality.” The idea is that, where quality standards are met, employees ought to be able to choose a lower-cost option, and be rewarded with a portion of the savings, either through a health savings account or lower deductibles and co-pays.

While aligning incentives for both employers and employees would seem to make sense, it is rarely done comprehensively, Howes says.

Are there really big differences in price and quality? Edwards says yes. One of his favorite stories involves a workers’ comp case where an injured worker needed an MRI. Edwards asked about the charges at an imaging center in southern Maine and discovered that when a hospital leased the facility in the morning, the MRI cost $2,250. When another provider used it in the afternoon, the charge was $750. “This was the same facility, using exactly the same equipment,” he says.

The problem, Edwards says, is cost-shifting. “The hospital would have said this was a way of covering its costs, that it makes up for shortfalls in its critical care unit,” he says. “But we’ve got to find a way to take on costs there, too, and not let the MRIs get out of hand.”

Rep. Richardson has his own story, based on testimony before the Legislature’s  insurance committee this year. An employee of a small company needed non-emergency heart surgery. The employer discovered the cost was $55,000 at a northern Maine hospital, $25,000 in southern Maine and $15,000 in Boston, he says.

Shopping for health care has not been common in Maine, Richardson says, but it may have to become more common.

An experiment in the making

How popular captive insurers will be is unknown. Nationally, there is no central repository for data. Here is Maine, just 200 lives are being covered for the “beta” client, Hutchins Trucking.

At the Bureau of Insurance, Cioppa says no other applications are pending, and Richardson says he hasn’t heard of anyone interested in using the new law, which was tailored to the Maine Wellness Association. The association reported expenses of $11,781 in lobbying for the legislation.

Nor have captives multiplied in other employment categories. There is now one captive that offers coverage for excess workers’ comp costs, First Maine Captive, based in Yarmouth. Cioppa points out that, in their structure, captives closely resemble the Multiple Employer Welfare Arrangement, which allows a group of employers to pool contributions in a self-contributing benefits plan, of which there are now two in Maine.

Edwards says the 5,000 employees and family members represented by the wellness association are a reasonable start. “The numbers are large enough to provide some stability in costs, and enough to give us some real experience data going forward,” he says.

Howes thinks the potential is considerable. “Do I think the concept could really take off and grow rapidly? I do,” he says. “But we want to do this right. This is an experiment, and we’ll have to continually redesign the program based on what works, and what doesn’t. But eventually, it could really change the way health care is delivered in Maine.”

Something so new has potential for good and bad results, which is why Steve Hutchins was pleased when he got his first monthly statement, covering claims and payments in August. “It was pretty much exactly what we expected,” he says. “It was nice not to be surprised.”