Blue Cross and Blue Shield

Anthem Blue Cross and Blue Shield and Maine's Dirigo Health Agency Fail to Reach Agreement for 2008, Go Their Separate Ways

Reprinted from The AIS Report on Blue Cross and Blue Shield Plans, a hard-hitting independent monthly newsletter on business strategies, products and markets, mergers and alliances, and financing of BC/BS plans.

Anthem Blue Cross and Blue Shield of Maine and Maine's Dirigo Health Agency could not come to a financial agreement for 2008 that would allow the insurer to continue covering the state's 15,000 DirigoChoice enrollees, a number considerably lower than Maine had projected. While Anthem was the only health plan in the state to insure the "universal coverage" Dirigo members, Massachusetts-based Harvard Pilgrim Health Care agreed on Sept. 6 to assume the Dirigo contract as of Jan. 1, 2008. The turn of events reveals some pitfalls for health plans as more states set out to expand coverage for their residents.

Dirigo offers subsidized DirigoChoice health plans to those individuals who have annual gross incomes up to $28,000 and families with annual gross incomes up to $56,500 (for a family of four). Anthem of Maine, a WellPoint, Inc. unit, has been the sole contracted health plan for the state-subsidized program, which began enrolling state residents in 2005.

Dirigo says its goal is to offer coverage to all of Maine's residents by 2009. The program is the first effort by a state to offer universal coverage to residents. The agency expected to have up to 31,000 members by the end of 2005 and 110,000 members by 2009.

"The state's projections on enrolling and who would qualify were off significantly," says Anthem spokesperson Mark Ishkanian. "They expected to have closer to 70,000 to 80,000 people" by now, he explains.

"Out of fairness, because we were going down a new path, nobody knew [what would happen]. Any projections made were going to be wrong because no one had done this before. Anything was, in retrospect, optimistic," Ishkanian tells The AIS Report.

Anthem has "a different mission, and that's perfectly fine," says Trish Riley, director of the Governor's Office of Health Policy and Finance (GOHPF), which was created by Maine Gov. John Baldacci (D) to develop and oversee Dirigo. "They had financial expectations beyond our budget, and we couldn't meet it," she explains during an interview. The decision to end the contract "was related to that," she says. During the first two years of the program, GOHPF offered experience modification payments (EMPs) to ensure that Anthem made a profit on the program. Riley says that the state legislature "made clear that it didn't like the arrangement. And we couldn't afford to do it again this year."

Anthem Identifies Several Dirigo Issues

For 2008, "we couldn't come to agreement" on the risk-sharing arrangement, Ishkanian says. He says that for its DirigoChoice members, the plan spent about 82 cents per premium dollar on health care costs in 2005 and 2006, and made a 3% profit on the business. For 2007, the state allowed Anthem to raise DirigoChoice rates by about 10% from 2006 levels, which has allowed the plan to meet year-to-date earnings expectations on the product without the existence of the EMPs, but Ishkanian cautions that it is too early to tell if the program will meet projections for the year. He adds that Anthem used EMPs in both 2005 and 2006 to meet its earnings expectations for the product.

Of those individuals who chose to enroll in DirigoChoice, only about 25% were previously uninsured, says Ishkanian. "In reality, the majority of [enrollees] needed the subsidy," and the 75% of enrollees who previously had other forms of health insurance did "an economically rational thing and most of [those members] qualified for a premium subsidy from the state." But since the intent of the program was to cover Maine's uninsured, the subsidy money did not go as far to reduce the uninsured as the state anticipated it going, he contends.

"The state's ability to subsidize premiums is limited by the financial ability to raise additional funds.…They're basically in a capped mode now for people who qualify for the premium. Until they resolve that issue, it's unlikely they'll expand coverage," Ishkanian tells The AIS Report. The program is funded based on the reductions in bad debt and charity care that Dirigo achieves, a mechanism that it says results in less cost shifting to premium payers. The agency identifies the savings achieved through the program, and then assesses "savings offset fees" to health plans. The fees then fund the DirigoChoice subsidy.

Plans Dispute State's Savings Figures

This year, the agency says it saved plans $78.6 million. However, plans adamantly dispute this figure and contested previous savings figures that Dirigo has reported, claiming they are much too high. Ultimately, the state's Superintendent of Insurance determines how much the program actually saved and how much to charge the health plans.

Insurance Superintendent Alessandro Iuppa is now determining how much Dirigo saved consumers in 2006 and will assess fees to the health plans, according to Riley. In the past, the superintendent has significantly reduced the assessment and therefore the amount of the subsidy available to consumers.

The state expected the majority of enrollees to come from small groups, Ishkanian says. But small employers are not able to offset their required payment of 60% of employee premiums with the Dirigo subsidy, which he says they originally thought they would be entitled to. Without small-group incentives, "What we got was two-thirds individuals and one-third small group," he explains. "In the small-group market, 75% of [employees] are required to participate. So you get good risk versus bad risk. [But] individuals are more prone to buy coverage [only] if they need it," he explains.

The agency also assumed that more Medicaid eligibles would sign up for DirigoChoice, Ishkanian says. Higher Medicaid-eligible enrollment would allow the state to spread the Dirigo subsidy across more residents because the state receives $2 for every $1 it spends on Medicaid.

Ishkanian says that the subsidy and membership could be increased through "sin taxes," or taxes on the purchase of cigarettes or alcohol. He contends that Baldacci's "own blue-ribbon commission" recommended a sin tax to fund Dirigo.

Some changes could be coming to how Dirigo offers insurance. This past July, the state passed legislation that would allow DirigoChoice to be self-funded. However, Maine's legislature did not pass appropriations for self-funding the program. If the state does, Ishkanian says, Anthem would be very interested in reviewing its request for proposal.

Meanwhile, Harvard Pilgrim has signed a two-year contract with the state, says Riley. "We had intended to extend the contract with Anthem for another year," she says. When the agency realized it could not come to an agreement with Anthem, it moved to find a new suitor quickly. "We made no formal decision until last Thursday [i.e., Aug. 30]. That's when we reached out" to Harvard Pilgrim, she explains. "Anthem is the predominant player in the individual market." Harvard Pilgrim is the only not-for-profit health plan in the state and now has about 11,000 members in Maine, she says. "Harvard Pilgrim was interested gaining market share. They share our mission and have some interest in the uninsured," she adds.

Ishkanian says Anthem wishes Harvard Pilgrim well, and "we hope the program continues to grow to meet the needs of the uninsured in Maine."

Another WellPoint Unit Wins Ind. Pact

Despite WellPoint's experience in Maine, Anthem of Maine's sister plan in Indiana recently won a Healthy Indiana Plan contract to begin providing state-subsidized insurance to low-income Indiana residents as of Jan. 1, 2008. However, the plan in Indiana is subsidized by a 44 cent per pack increase in the cigarette tax. "That is enough funding to cover over 130,000 Hoosiers," says Indiana's Family and Social Services Administration (FSSA). To be eligible for the Healthy Indiana Plan, residents earning less than 200% of the federal poverty level must be uninsured and without access to employer-sponsored health insurance.

"The notice we received from the state entitled us to begin negotiating offering benefits under the plan," says Anthem of Indiana spokesperson Tony Feltz. He says "this is quite different from the experiment in Maine. We see this as an excellent opportunity.to expand coverage in the state."

The agency says the plans include a "POWER Account valued at $1,100 per adult to pay for medical costs." Contributions to the account, FSSA says, are made by both the state and the enrollee — based on income. But no participant will pay more than 5% of his or her gross family income on the plan. The plan also includes up to $500 in preventive services per year, with no charge to plan members. Such services include physician services, prescriptions and diagnostic services. After meeting the deductible, enrollees are entitled to a basic commercial benefits package, the agency explains.

Feltz calls the program a "unique consumer-driven, market-based approach to the uninsured. We believe that sort of approach is one that will have a positive impact in Indiana, and we're excited to participate."

Anthem is now the only insurer with a contract to provide services under the Healthy Indiana Plan, but the state says it plans to make a second award to either Golden Rule Insurance Co. (a UnitedHealth Group unit), MDwise, Inc. or a partnership of the two.

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