Running the numbers | Two years on, the Dirigo debate focuses on the plan's enrollment figures and long-term financing

When Karynlee Harrington came on board at the Dirigo Health Agency in December 2003 she expected to be there only a few months, assisting Thomas Dunn, the agency's first executive director. Dunn, who had come out of retirement from Accenture, a national marketing consulting firm, to take the job, had little direct experience with the Maine health insurance market, while Harrington had been in the marketing departments of several major insurers for more than a dozen years, most recently at Cigna in Maine and New Hampshire.

Then Dunn decided to leave in September 2004 and Harrington agreed to stay on as his successor. A year later, she finds her work of supervising the state's first public-private health insurance partnership challenging, but she is more concerned by debates that have little to do with the work of designing and marketing insurance policies, or with increasing access to health care.

"I don't think I was prepared for the level of political conflict that has developed around Dirigo. I'm not really a political person," Harrington said. "Initially, I was attracted because health care is in my blood, and this program seemed to have bipartisan support, with people coming together and saying, 'We've got a problem, and we're going to address it.'"

Indeed, the Dirigo legislation passed in 2003 with nearly two-thirds majorities in both houses of the Legislature. Its ambitious mix of a new insurance plan, cost containment for hospitals and other health care providers, and quality assurance through a state health care blueprint began taking shape later that year.

By 2004, though, the fledgling agency had become embroiled in partisan disagreement that surfaced over the program's funding in that year's supplemental budget. The argument has continued to flare during debate over nearly every subsequent budget bill and at least two bond packages.

With both the House and Senate almost evenly divided, minority Republicans and majority Democrats seem to disagree about almost everything related to Dirigo. The 2004 supplemental budget impasse, which resulted in a majority budget supported only by Democrats, turned in large part on Republican proposals to remove some of Dirigo's $53 million in startup funds, something Democrats refused to consider.

Since then, the conflict has only intensified. The Maine Heritage Policy Center has been terming Dirigo, and the DirigoChoice insurance program, "a failure" ever since the first policies were marketed. Republican legislators have been more circumspect, urging "reform" or "rethinking" of Dirigo, but many Republicans who voted for the original legislation have made it clear they are deeply disappointed with the way it's turned out.

Now, two years after Dirigo's inception, the state still faces a number of key questions about program ˆ— namely, how it will work financially, how the state will fund it and how large the market really is for its DirigoChoice insurance policies.

Who's on first?
One of the most substantive disagreements has dogged the program's goal of bringing health insurance to substantially all of Maine's uninsured citizens, an estimated 136,000 people, or about 10% of the state's population. Like every other state, Maine has thousands of working people who aren't covered by private, employer-based insurance and do not qualify for Medicare or Medicaid coverage.

Based on Gov. John Baldacci's original pledge to cover the uninsured within five years, Dirigo planners set a first-year target of 31,000 enrollees in DirigoChoice, the insurance plan offered under contract with the state's largest private insurer, Anthem Blue Cross and Blue Shield of Maine.

As of Sept. 1, nine months after the first policies were issued, there are 8,100 DirigoChoice members, including 652 small businesses that have 3,500 employees. The other members are individuals and sole proprietors ˆ— the self-employed. An additional 3,000 individuals and sole proprietors are on a waiting list until Jan. 1, when all will be offered policies. (Anthem spokesman Mark Ishkanian explains that the company wanted to "balance" the risks between individuals and small business members in the first year. After Jan. 1, there will be no caps and all individuals will be able to buy policies.)

Dirigo critics focus intensively on the numbers from its original budget. They say that because 31,000 people haven't purchased policies, DirigoChoice isn't working, since the program's long-term viability depends on people paying premiums as well as the drawing down of federal Medicaid money. To its supporters, DirigoChoice has made a promising start because it has signed up thousands of previously uninsured individuals and employees at a time when, nationally, the uninsured population is growing. They say it also benefits many more "underinsured" people ˆ— those who are reluctant to use health services because they have high deductibles.

Karynlee Harrington wasn't around when the original goals were set, but she said that for a private insurer, reaching 10% of the target audience is "an extremely ambitious goal." Under that scenario, DirigoChoice would reach 13,000 people ˆ— a number it has a chance of hitting early next year.

Likewise, Sharon Roberts, director of stakeholder relations at Anthem, says the company is "extremely pleased" with the reception of DirigoChoice. She calls it "the most successful launch of a private insurance product" in Maine history. "If you designed any insurance plan to bring in new business, you'd say this level of signups in the first year was extraordinary," she added.

Balancing the ledger
The next big controversy surrounds just how much money is being spent on the initial enrollees, and on the Dirigo Health plan in general. Some accounts had the program "running through money," a charge Harrington finds ridiculous. In fact, since the program was initially budgeted to cover 31,000 members, the Dirigo Health Agency has actually spent relatively little of its startup funding.

As of the end of fiscal 2005, in June, there was still a balance of $42 million from Dirigo's original $53 million in startup funds. Reports of much larger sums being spent neglect to recognize that Dirigo takes in premium dollars, makes payments to Anthem, and then applies discounts for some of its members. Individual budget lines have, in effect, been taken out of context, Harrington said.

A somewhat knottier situation involves exactly who has signed up for policies. Dirigo uses five categories to calculate the discount subsidies that are offered to qualifying subscribers. The major discrepancy is that relatively few subscribers fall into Category A, which offers a 100% discount based on gaining federal Medicaid funding. Many more fall into Category B, an 80% discount which is, however, entirely state funded, as are the lower-level discounts. As a result, the state is paying more for the program while its federal funding has been less than expected.

Harrington offers two main reasons for the shift away from expectations. The first is that planned expansions in state Medicaid coverage were delayed or cancelled. For example, an expansion in the number of parents of children covered through MaineCare, the state's Medicaid program, was delayed from Jan. 1 of this year to May 1.

The second reason is more subtle. To qualify for the 100% discount in Category A, subscribers must disclose not only household income but assets. The other categories require only income disclosure. "We believe some subscribers in Category B actually qualify for Category A," Harrington said ˆ— even though they are paying more by staying in Category B.

She explained that people may be deterred from applying for the full discount because they are wary of disclosing information for the asset test, even though their income qualifies them for it. But if an asset statement were required for all applicants, then it would become routine for Anthem and the agents who write policies to collect that information, Harrington said, and applicants would be placed in the proper discount categories. That's why the Dirigo Health board is considering requiring asset disclosure for lower-discount applicants.

Still, Harrington is adamant that the plan's per-subscriber costs are only "slightly higher" than expected and that any changes in application conditions will amount only to fine tuning.

Destination unknown
For the short term, then, DirigoChoice is not in any apparent financial difficulty. Agents who sell the plan, along with other health insurance, praise it as "appropriately priced" and say Anthem has been conservative in pricing policies and staying away from situations that would offer lower initial rates and then produce big increases at renewal time.

But the agents' enthusiasm for DirigoChoice is muted, and some question whether the product can be successful enough to truly "insure the uninsured." Mike Deschaine, a manager in Augusta for Cross Employee Benefits, says he welcomed DirigoChoice precisely for its potential to bridge the gap between employers and uninsured employees. In practice, however, he's found it better for individuals and sole proprietors, which was an even more "drastically underserved" market than Maine's small businesses, he said. "It's another option," he said, "but it's certainly not blowing other programs out of the water."

John Condon of Acadia Benefits concurs. He said that he's quoted DirigoChoice to numerous small business customers, but that the program doesn't work for most of them. "We have roughly 250 customers [with] under 50 employees," he said. "Only one of our customers, a manufacturing company with 11 employees in the midcoast area, has chosen DirigoChoice. The average wages of this company made the Dirigo subsidy work."

Condon cited quotes he's making for fall business comparing DirigoChoice with other Anthem plans and plans from Aetna and Harvard Pilgrim. While DirigoChoice offers comparable rates and provides full preventive care, it has higher deductibles and greater out-of-pocket expense limits than the other plans.

Sherree Craig of the Allen/Van Alstine Agency in Camden may have solved the small-business dilemma for DirigoChoice prospects. She says that while her existing clients don't usually want the plan, it has proven very attractive to employers who currently don't offer health insurance to employees, but would like to. "It's great for getting into the market," she said. "For businesses with lower wages, this can really work."

Craig's observation, however, is undercut by a Muskie School survey of DirigoChoice policyholders showing that while many were recently uninsured, more were "underinsured," with high deductible policies that cover only major accidents and illnesses. Such results seem to indicate that it may be exactly the underinsured population for which the product is best suited.

Sharon Roberts at Anthem paints a more positive picture of DirigoChoice's future prospects, saying that presenting it to small businesses is more complex than for individuals, and it may take time ˆ— and a couple of renewal cycles ˆ— for it to reach its potential. In the meantime, the small group market seems to have become more competitive, indicating ˆ— possibly ˆ— that DirigoChoice is having an effect on the overall small group market. If relief from recent double-digit premium increases results, it could be an accomplishment for DirigoChoice apart from how many policyholders are enrolled.

Yet while Dirigo seems to be weathering the immediate political storm, its prospects in the future are exactly what seems to be weighing on the minds of those who designed it, and those who offer the insurance plan. Roberts said that criticism is "a concern," and may be scaring away some customers who are considering signing up, but wonder how long DirigoChoice will be available. Sherree Craig added that employers whose employees count on the discounts available only through DirigoChoice may worry about what would happen if the program ends.

Ultimately, the $53 million startup funding must be replenished from another source. That's currently supposed to be a "savings offset payment" ˆ— an assessment of privately paid health care claims that is supposed to represent the savings the program has generated through its cost-containment provisions. But like nearly every other aspect of Dirigo, the specifics of that funding have sparked controversy (See "No consensus," p. 24).

As the intensity of the debate and disagreement show, the stakes surrounding Dirigo remain high, and estimates of its success or failure are all over the map. But insurance agent Mike Deschaine said the concept behind Dirigo ˆ— expanding the market and including far more of the uninsured ˆ— remains compelling. "I've been around the business since 1975, and I've never seen anything like this. I was thrilled to death when the governor announced the program," he said. "My fear is that we may not stick with it long enough to find out what it can do. And that would be a big loss."