AUGUSTA, Maine — On May 17, Gov. Paul LePage signed into law a controversial and complex bill that profoundly alters health insurance regulation in Maine. The overarching goal of the changes is to reduce the cost of health insurance for younger and healthier Mainers, expand the risk pool and encourage competition in Maine’s stagnant health insurance market.
Changes in insurance regulation eventually will affect all Mainers, but those likely to feel its impacts soonest are people who purchase individual, non-group policies and employees of small businesses that provide health coverage for their workers.
The law itself will take effect in September. But certain elements of the overhaul will unroll in 2012, 2013 and 2014. Some will require a certain amount of finessing in order to align with the phase-in of the federal Affordable Care Act.
Staff at the Bureau of Insurance are working to analyze and prioritize the technicalities and implications of the new law. Their work is in the preliminary stages, but it is clear that extensive rule-making will be required to fill in the details of the broad-based law.
In broad terms, here are some of the changes that will most directly affect Maine consumers:
• Reinsurance pool — The creation of a new reinsurance pool is linked to many other elements of the law. The pool is a special fund that insurance companies will tap into to help them pay for policyholders who use a lot of health care services. The reinsurance pool will be funded by a new assessment on existing policies covering every man, woman and child in Maine, regardless of how much they use their health care coverage. It is expected that the per-person assessment will be between $4 and $6 each month.
The law excludes all state employees and lawmakers from the assessment because their coverage is paid from the state’s general fund. Additional legislation has been drafted to require lawmakers to participate.
With about 512,000 Mainers covered by private companies, a $4 assessment would contribute an annual flow of about $25 million to the reinsurance pool.
• Maine Guaranteed Access Reinsurance Association — The reinsurance pool will be administered by a new nonprofit quasi-governmental entity known as the Maine Guaranteed Access Reinsurance Association.
The association will be governed by an 11-member board of directors. Six board members will be appointed by the superintendent of insurance and will include two members of the general public, two members representing medical providers such as hospitals or physician groups, one member representing small businesses and one member representing insurance companies. Since Insurance Superintendent Mila Kofman has announced her resignation effective June 1, her as-yet-unnamed successor, who must be nominated by Gov. Paul LePage and endorsed by the Maine Senate, will make these appointments.
The remaining five board members will represent insurance companies doing business in Maine. Board members will serve three years and may not be compensated for their services other than being reimbursed by the fund for expenses related to its governance.
The Maine Guaranteed Access Reinsurance Association will be responsible for all operations of the reinsurance pool, including setting the amount of the monthly assessment on policyholders, the amount of the reserve fund, and reimbursement levels to insurance companies.
• Rating bands — The new law allows insurers greater variation in what they can charge different individuals and small-group members for the same coverage. In a series of phased-in steps beginning in 2012, insurers will be able to charge adults who are older, who smoke, who are employed in high-risk occupations or who live in rural areas up to five times more than they charge younger, healthier residents of urban areas. Current regulations only allow insurers to charge half again as much for their most high-risk patients and do not allow smoking, occupation or geography as factors.
• Closed book of business — Beginning this year for small groups and next year for individuals, insurers may stop enrolling Maine people in existing policies and open a new book of business under the new regulations. Mainers enrolling in new policies will be asked to fill out a survey indicating any pre-existing conditions so those who are sickest can be referred to the reinsurance pool. In theory, opening the new book of business will allow insurers to offer less expensive coverage to younger, healthier Mainers, decreasing average risk across the entire pool. Mainers who choose to stay in their existing plans will be able to transition to the new book of business in the future.
• Pre-approval of rate increases — The law does away with the requirement that the Bureau of Insurance pre-approve rate increases in the individual market. Insurers who wish to bypass the approval process must demonstrate that they spend 80 cents of every premium dollar on direct health care services. Maine now requires that 65 cents of every dollar be spent on health care, but the Affordable Care Act requires the 80-cent level for individuals and small groups and 85 cents for large groups beginning in 2014. Failure to meet these “medical loss ratio” standards may result in rebates from insurers to policyholders.
• Rule 850 — Insurance companies still must provide “reasonable access” to primary and specialty health care services for all policyholders, but the new law strips out a provision that defines that access. This means that Maine residents in rural areas may have to travel long distances in order to take advantage of unspecified “incentives” to seek care at hospitals or medical practices outside their communities.
More detailed information about the impact of Maine’s new insurance law will be available in the future. The law can be read online at http://www.mainelegislature.org/legis/bills/bills_125th/chappdfs/PUBLIC90.pdf.