Rising Health Care Costs
(from Maine Townsman, March 2001)
by Douglas Rooks, Freelance Journalist

Health care may not be on the front pages yet, but it is on the minds of voters, legislators and Maine's Congressional delegation. The issue seems to lack the apparent clarity of, say, a federal tax cut plan or a state vote on the minimum wage. Yet key observers agree that major action on health care is likely in Washington and quite possible in Augusta, although at the State House a tight budget may limit what lawmakers can do.

There's little question that voters are concerned. Asked about their priorities for the current session, legislators from across the political spectrum cited health care, along with education, as the leading concern of their constituents. Republicans tend to be most concerned about the costs of insurance and prescription drugs, while Democrats worry more about access to care, but there's strong agreement that state government needs to maintain, and perhaps intensify, its efforts on health care.

The key issues for the year to come are already on the table. In Congress, prescription drug benefits for Medicare recipients and possible managed care reforms for the 35-year-old federal program, which covers nearly all Americans over age 62, are at the top of the legislative agenda. At the State House, debate is intensifying over existing and new prescription drug programs, private health insurance, particularly for individuals and small groups, and possible expansion of the Medicaid program to insure more children and adults. While no one expects a proposal as sweeping as the failed Clinton health care initiative of 1994, the nation and state may well be moving toward another debate on whether, and how, universal access to health care can be provided.

Sen. Susan Collins says she supports President Bush's "Helping Hand" initiative to provide immediate help to states, such as Maine, that now have low-cost prescription drug programs. The idea is to act swiftly to counter the ever-escalating price of prescriptions while Congress deliberates over a long-term expansion of Medicare. In a telephone interview from Washington, Collins said, "If we can't move quickly, and I'm afraid we might not, this would provide significant help to people struggling with the cost of their prescriptions."

But Collins concedes she's probably in the minority in the Senate, where she's served since being elected in 1996. Democrats fear that "Helping Hand" might relieve the pressure to act on a broader scale, while many Republicans come from southern and western states that are least likely to have low-income drug programs, and hence wouldn't benefit. Currently, only 18 states have such programs.

While everyone expects Congress to act on prescription drugs this year or next, the shape of the program is still up for grabs. President Bush has proposed a relatively modest benefit that would be targeted to low-income retirees and would consist primarily of direct subsidies toward the cost of pharmacy purchases. Bush wants to limit the cost of new benefits in part because he wants to designate a major part of projected surpluses for tax cuts. Most Democrats prefer a universal benefit for all Medicare recipients that would function as an integral part of the program.

Collins sees prescription drugs as likely to be included, ultimately, within Medicare: "When Medicare began, back in the 1960s, hospitalization was the big issue. If we were starting the program today, clearly prescription drugs would be included."

Debate in Augusta may be even more intense in coming months. Last year, the Legislature passed and Gov. King finally signed the Maine Rx program, sponsored by former Sen. Chellie Pingree. It's an ambitious effort to use the state's Medicaid program as a model for negotiating deep discounts in drug prices for those not currently covered by a prescription plan, chiefly the self-employed, the elderly and those in small group insurance plans. As Dora Ann Mills, director of the Bureau of Health, points out, while an estimated 140,000 Mainers lack health insurance, 325,000 are not enrolled in a prescription drug plan - more than a quarter of the population.

The Maine Rx law is currently tied up in federal court. A District Court judge agreed with the Pharmaceutical Research and Manufacturers Association, or PhRMA, that the law may create an unconstitutional restraint of trade and issued a preliminary injunction; the 1st Circuit Court of Appeals in Boston recently heard arguments on the case. But while it has thus far received little press coverage, the state may be able to achieve many of the same benefits through a Medicaid waiver recently granted by the Health Care Finance Administration in Washington, which oversees both Medicare and Medicaid.

What HCFA did, Dora Ann Mills said, was enable the state to extend pricing benefits beyond current Medicaid recipients - though perhaps not to as large a group as Maine Rx would cover. "PhRMA decided to sue the state of Maine," Mills said. "So far, they haven't decided to sue HCFA as well." When the state program goes into effect, it should have significant benefits for many who now lack prescription drug coverage. Medicaid prices, which are the same as those negotiated by the Veterans Administration for its hospitals, are about one-third below most retail prices, she said: "Medicaid has most-favored-nation prices. They're the best."

The Legislature is considering a host of other prescription drug proposals, from allowing the reimportation of drugs from Canada - at Canadian prices - to requiring disclosure of manufacturer costs. Further expanding the Low Cost Drugs for the Elderly and Disabled Program, which benefited from tobacco settlement money last year, is another popular idea, though funding may be hard to come by.

There's little doubt about the appeal of covering more prescription drug costs through Medicare or negotiated discounts, however. Republican State Senator Richard Bennett, who will be Senate president next year and just announced a bid for the 2nd District Congressional seat being vacated by John Baldacci, discussed his campaign announcement with the Lewiston Sun Journal and said, "Prescription drugs are replacing hospitalization. So if that's the case, why isn't it treated like hospitalization? I want a sensible solution."

In the clamor for prescription drug benefits, Sen. Collins says we can't forget about rising prices. The VA, for instance, opposes expansion of negotiated prices through Medicaid "precisely because they feel their prices will go up." Manufacturers are now covering discounts by charging others - mostly individuals without a prescription plan - more. While Congress debates what to do, Collins said prices "are becoming even more unaffordable."

She's asked the staff of the Permanent Subcommittee on Investigations, which she chairs, to look into the effect of the Food and Drug Administration's 1997 decision to allow direct consumer advertising for prescription drugs. Most countries, she notes, do not allow such advertising, and said, "We need to find whether there's a link between those ads and higher prices." While she doesn't know the answer, she said, she'd like to find out, particularly because "the industry is now spending over $1 billion on direct advertising." The industry's record profits, averaging 20 percent of gross sales, also give her pause.

Collins is not optimistic that managed care reforms for Medicare, pushed by Republicans in previous sessions and favored by the president, have much of a chance. "The managed care reforms haven't led to the savings that were predicted." She points out that, in northern Maine, managed care hasn't been feasible in any form since most HMOs require more customers than rural areas have available. And with the withdrawal of non-profit HMOs such as Tufts and Harvard-Pilgrim from the Maine market, she'd be leery of converting Medicare to managed care incentives. "It will certainly be discussed, but I'm not sure it will happen," she said.

Maine faces a serious dilemma concerning availability of health insurance, most observers agree, that in some ways resembles the exodus of insurers during the workers compensation insurance crisis of the late 1980s. The state no longer, for instance, has access to a large non-profit insurer. While the former Maine Blue Cross retains a mutual incorporation, its parent company, Anthem of Indiana, is a for-profit company, competing nationally with such giants as Cigna.

With minor exceptions, Anthem is now the only writer of individual policies in Maine, and has asked for, and received, steep rate increases from the state Bureau of Insurance. The shortage of insurers has also affected the small group market, where rates are increasing, and may vary widely from year to year, based on a small company's "bad" claims experience. The crunch carries added significance because many small employers have been forced to reduce or drop coverage altogether. Sen. Collins quotes figures showing that 85 percent of all uninsured Americans work at one or more jobs.

The Legislature will soon be debating dramatically different approaches to the problem. The King administration, acting on the lead of Insurance Superintendent Al Iuppa, is proposing a significant loosening of community rating restrictions, enacted during the McKernan administration, in an effort to revive the market for individual policies. Insurers say they cannot make a profit without greater variance between rates for younger, healthier individuals and older, sicker customers. A 25-30 percent variance is allowed under the community rating law. The intent of that law was to created a stable pool of individuals whose rates would also remain stable, since the risks would be spread over a large number of people.

Iuppa says the law is no longer working; the number of individual policies written in Maine has dropped sharply, and many young people are passing up health insurance altogether. The bureau points to a number of other states, including Kentucky, that have created larger pools by lowering rates for younger customers. But even within the administration, the proposal spurred controversy, with some arguing that abandoning community rating would make it more difficult for those in their 40s and 50s to maintain health insurance just when they need it to cover chronic diseases and conditions.

Sen. Collins, who was commissioner of Professional and Financial Regulation for Gov. McKernan and supported adoption of community rating and similar rules for guaranteed issue and renewal, says she has "mixed feelings" about proposals such as the administration's. While acknowledging she hasn't kept up with developments in the Maine market, she said, it's a really "tough decision" to decide how much to let market forces determine rates.

Maine House Speaker Mike Saxl has a different approach in health care legislation he's introduced and referred to the Health and Human Services Committee. He proposes creating a large insurance pool for all individual and employees not now covered by group plans. The state would subsidize costs by bankrolling reinsurance - in essence, insurance for insurers who have to cover unusually large claims - while setting certain standards for insurers who decide to participate. The plans would be a standard "defined benefit" model, so consumers would be able to price shop while being guaranteed the same coverage, and companies would have to agree to limit their administrative costs and profits to 15 percent of claims.

While Saxl said the Democratic caucus has not yet taken a position on the administration plan to allow an as-yet-undetermined variation in individual rates, "or any other health insurance bill yet," the plan is sure to face strong opposition from the same health advocates who backed community rating in the first place. Saxl believes his plan has the potential to bring down rates and expand the small group market, but also said, "We're still working on the details."

Considering that the Blue Ribbon Health Care Commission chaired by former University Chancellor Robert Woodbury estimated that 20 percent of Maine's annual $4.7 billion health care bill - about $1 billion - is "wasted," there would seem to be plenty of room for improvement, even if such savings have often proved elusive before.

Perhaps the most ambitious health care proposal around the State House is Mike Saxl's plan to expand Medicaid for children, parents, and single adults who now have no coverage. The intent of his plan is not controversial - virtually everyone agrees that leaving so many people without coverage ends up increasing costs for everyone else - though his timing is.

The central part of the plan is contained in LD 1303, which was heard March 14. It would increase to 200 percent and in some case 300 percent of federal poverty guidelines the eligibility limit for Medicaid health insurance, similar to what's now offered through Cub Care. That's the state version of the federal Children Health Insurance Program enacted at the urging of former President Clinton. Medicaid is considered the cheapest way for Maine to expand insurance coverage, since at least two-thirds of the costs come from the federal treasury. "We can insure another 3,200 kids at a price that's comparatively cheap," Saxl said. "It's obviously the most cost-effective way to go."

Dora Ann Mills agrees that Cub Care has been a big success. Before its inception, 16 percent of Maine children had no health insurance. Now, all but six percent do. "The reduction in the number of uninsured is almost entirely because of Cub Care. We're tops in the nation," she said.

Saxl would like to push the total closer to 100 percent, and believes he has strong public support. What he may not have is money. Saxl is proposing a 50-cent increase in the tobacco tax to raise $47 million a year, which he says would cover the cost of all his initiatives, including the private insurance portion. But the King administration has also asked for a 26-cent tobacco increase, which it would direct to the General Fund to cover shortfalls there.

"He really doesn't have a source of funding for his bill," Mills said of Saxl's initiative. Saxl responds that any tobacco tax increase should fund health care, and the General Fund shortfall should be made up elsewhere - although, so far, legislators haven't said how this should be done.

The tobacco tax is an example where voters' reputed tax aversion has been overcome. Just 37 cents a pack until 1999, it was doubled that year to 74 cents by agreement of King and the Legislature, funding a range of new initiatives, including smoking cessation programs but also a wide range of health care expansions. Raising it to $1 a pack, as King proposes, would put Maine at the upper end of states; raising it to $1.24, as Saxl proposes, would put Maine at the top, although other states are weighing tax increases this year as well. Whatever the outcome of this debate, it's obvious the tax can't fund both the General Fund shortfall and new programs on the scale of what Saxl proposes.

Mills, who was a pediatrician and strong advocate of preventive care before being picked to lead the Bureau of Health, says that in the debate over cost and access, people shouldn't forget that many of the most costly health care problems are preventable. She points to a 16 percent reduction in teen smoking following the 1999 tobacco tax increase as one positive result of an intensive focus on prevention. The state will soon award $8 million to 31 communities for local smoking prevention programs - an approach some experts believe is more effective than the television commercials that were the first fruit of tobacco settlement money in Maine, and which continue to air frequently.

"I see a focus on the cost and availability of health care as strategies, and not the goal. The goal is improved quality and length of life, and we can best achieve that through prevention," she said.

While the administration's health care proposals may seem modest, given the Governor's characterization of the "looming crisis" described by the Woodbury commission, Mills insists that the long-term consequences of unhealthy lifestyles - including poor diet and sedentary habits - need a lot more attention, along with reforms to the health care system.

While the failure of the Clinton health care plan quieted talk of national health insurance, the concept of universal access to care is alive and well. Some observers, including some within the administration, see the expansion of the Medicaid program - taking up the slack caused by decreasing participation in private insurance programs - becoming an embryonic form of universal coverage, with government programs becoming steadily more prominent. Mills says the public isn't ready for government-sponsored health care.

Instead, she sees a three-tiered system of private and public insurance eventually reaching most, if not all, Mainers. Those covered by Medicare and Medicaid will continue to grow in number, in part because of the aging population. The private insurance system will remain, despite current price pressures, but primarily for middle- and upper-income workers whose companies are larger and more reliably profitable. For those in the middle - individuals and small firms - she sees a variety of "buy-in" options to government-sponsored plans.

"That's what we have for Cub Care now. Up to a certain income level, government pays for it all. After that, there's a premium based on your income." She sees the process as continuing until all those who want health insurance have at least a reasonable option for obtaining it.

Critics of the mixed public-private system that prevails today point to what they see as discriminatory pricing of prescription drugs, high overhead for private health insurers, and other inefficiencies in the provision of care as reasons why government must do more than make incremental expansions of the safety net. Whatever the outcome of this year's debates in Augusta and Washington, we seem destined to be discussing those questions for a long time to come.

SIDEBAR: Municipal Health Insurance Costs

The cost and availability of insurance is perhaps the top health care concern of municipalities. Most health insurance carriers have had double-digit increases in premiums over the last two years. With most communities providing 100% employer-paid coverage for employees and many providing at least 70% employer-paid coverage for families, it is no wonder that health insurance cost is a serious municipal budget concern.

In the 2000 Salary Survey, published by MMA, out of 155 municipalities that completed the survey, 116 still pay the entire cost of health insurance for their employees, while 39 split the cost. In those communities where the cost is shared, most employee contribution were in the 10-15 percent range, though the employee share in a few communities ranged as high as 50 percent and, in one case, 75 percent. Interestingly, it was the larger municipalities which are most likely to require employees to contribute to their own insurance costs, while most smaller communities pay full freight. Large municipalities, however, tend to have more generous family coverage, while small towns either exclude dependents or require a larger employee share to cover family members.

Few have had quite as difficult a time as Presque Isle, which pays 100 percent for current employees and has seen its insurance rates rise 79 percent in the last three years. Since the city already has a tax rate of $24.72, one of the highest in the state, the city council acted to require new employees to pay much of the cost of their insurance. For new police officers, health insurance consumes 12 percent of their gross weekly wage; for truck drivers, 14 percent. It's not surprising that employees are turning down health insurance in greater numbers.

Saco is another city scrambling to cover health insurance increases. Its rates increased 18 percent this year, but - so far - it is still paying all costs. But it now costs Saco about $9,000 per employee to provide health insurance, and its current budget line item is $940,000, amount to $1.10, or 5.2 percent, of the current tax rate.

Even the Maine Municipal Employees Health Trust, which covers 9,000 local government employees and retirees, has experienced annual increases of 11 percent for 1999, 12 percent for 2000, and now 24.5 percent for 2001. It has been administered by MMA since its inception in 1983.