The Governor’s Office of Health Policy and Finance has floated a 3 percent tax on private health insurance premiums as a way to pay for the state-subsidized Dirigo health insurance for the poor and uninsured.

The premium tax wouldn’t be collected until January of 2006, but Trish Riley, director of the governor’s health policy office, met with insurance carriers on Friday to give them a heads-up.

It’s a “pretty safe” estimate, Riley said. “Insurers need some sense,” of where the state is going in order to plan ahead.

There is nothing in the law to prevent insurance companies from simply passing on the tax to their policyholders.

“We hope they won’t,” she said, but it really depends on employers buying private insurance to “push back” and demand no rate increases based on the tax.

The premium tax, being called a “savings offset payment,” is supposed to reflect savings in health care costs as a result of the legislation that created Dirigo health insurance in 2003. That law allows a premium tax of up to 4 percent. It would be calculated annually.


Those savings are supposed to come from a reduction in bad debt and charity care as more uninsured Mainers get health insurance under Dirigo. The state also will limit the amount of new health-care related construction and has asked hospitals to voluntarily cap their profit growth and patient costs – all savings that would come into the formula.

Riley said she did not have a specific dollar amount of how much those savings would total, but said she expected the savings would exceed the amount collected in the premium tax.

The tax would apply to health insurance carriers in the state – the largest being Anthem – and to the self-insured, including large employers like Bath Iron Works. In the case of the self-insured, the tax likely will be on the claims paid out, Riley said. It’s possible the tax could be applied only on paid claims for both the self-insured and regular insurance companies, she said.

That methodology and some language changes, largely to clean up technical errors in the original Dirigo Health bill, will come before the Legislature this session, after they are first reviewed by the Dirigo Health Board in a couple of weeks, Riley said.

The tax collected would be used to keep the Dirigo health program going long term. The agency was started with $53 million that initially came to the state from the federal government as supplemental Medicaid dollars.

The Dirigo Health Agency has spent $7.2 million to date to set up and administer the subsidized health insurance program and set up systems and funds in the Department of Health and Human Services to cover those enrollees who also are eligible for Medicaid. The agency also houses the Maine Quality Forum, a program designed to cut health care costs by arming residents with cost and quality comparisons. Its Web site can be reached by going to and clicking on Maine Quality Forum.


Dana Connors, president of the Maine State Chamber and a member of the Dirigo board, said Friday it was “premature” to comment on the 3 percent tax because it is just preliminary.

“We need to determine if the savings were there and how they determined the savings,” Connors said. “I think it’s probably something the staff has arrived at through the process that they developed. It has to be approved by the Dirigo Health Board before it becomes official.”

At Friday’s meeting, Riley and her staff discussed several ways that health care costs in the state were being reduced under Dirigo.

Riley said more than 5,000 people since the start of the year have signed up for DirigoChoice health insurance, which is subsidized by the state and offered through Anthem agents.

Her office is estimating that $87 per month per person in bad debt and charity care is avoided by insuring the uninsured. It is unclear, however, how many of those currently signed up for DirigoChoice were insured by another policy before. The DirigoChoice form doesn’t ask for previous insurance information, and now the state has commissioned a study to figure that out.

Businesses have complained the insurance is no cheaper than other policies on the market. The enticement is the employee’s share – 40 percent of the premium price – is subsidized by the state for those earning less than 300 percent of the federal poverty level.

Given the relatively low enrollment numbers to date, the state is more likely to rely on savings at hospitals to justify the premium tax.

The Dirigo Health law asked hospitals to voluntarily limit their operating margins or profits to 3 percent and their increases in per patient costs to 3.5 percent.

The law also calls for limiting the number of capital projects for hospitals and health care affiliates to cut down on unnecessary new construction. This will be accomplished through the Certificate of Need or state permitting process and by capping the dollar amount of projects approved by the state each year.

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